Annual trade deficits are always net detrimental to their nation's GDP.

I'm Supposn · Jun 12, 2018

Mithros said:
...When jobs go up, the trade deficit goes up.
When jobs go down, the trade deficit goes down. ...

Mithros, is that the theory or the axiom? Respectfully, Supposn

JohnfrmClevelan · Jun 13, 2018

I'm Supposn said:
JohnfrmClevelan, a nation's annual international trade deficit indicates the nation used or consumed more products than it produced. That's analogous to suggesting a person heat their home by burning negotiable securities or using Rembrants as shotgun targets. They may be sufficiently wealthy to do so, but it's certainly not sensible.

I'm not getting your analogies. Lots of countries run trade deficits, and you don't need to be rich to do so.

You don't pay for today's consumption with tomorrow's production, if that's what you are suggesting. If trade is too uneven for the market to accept, then currencies will find their own value relative to one another. Your currency weakens, your exports become more attractive, and the balance of trade adjusts accordingly.

I'm Supposn said:
I'm among the proponents for the improved trade policy described within Wikipedia's “Import Certificates” article. Unlike tariffs, regardless of how small of increased prices to the nation's purchasers of imports, this policy would almost or entirely eliminate the nation's annual trade deficit of goods. To the extent that those market determined price increases become greater, the policy serves as an indirect but effective price subsidy of the nation's exported goods. All of this occurs due to markets', rather than the Import Certificates' government's overt activities.

Refer to Wikipedia's “Import Certificates” article.

Respectfully, Supposn

Yeah, they amount to a tariff on the front end, which will just discourage trade.

Mithros · Jun 13, 2018

I'm Supposn said:
Mithros, is that the theory or the axiom? Respectfully, Supposn

Neither. It's real data. There's an obvious positive correlation between Jobs, GDP, and the Trade Deficit.

I'm Supposn · Jun 13, 2018

JohnfrmClevelan said:
I'm not getting your analogies. Lots of countries run trade deficits, and you don't need to be rich to do so.

You don't pay for today's consumption with tomorrow's production, if that's what you are suggesting. If trade is too uneven for the market to accept, then currencies will find their own value relative to one another. Your currency weakens, your exports become more attractive, and the balance of trade adjusts accordingly.

Yeah, they amount to a tariff on the front end, which will just discourage trade.

JohnfrmClevelan, the analogy was meant to mean USA is sufficiently wealthy to continue for many decades to consume more than we produce, we're continuing a practice that causes every year, during both better and poorer economic conditions, to have lesser GDP and jobs than otherwise.
Annual trade deficits indicate that we used and consumed more products than we produced. Lesser domestic production drags upon our numbers of jobs. The problem with lesser GDP is that it reveals itself as lesser jobs and more poverty than otherwise. A nation needn't be rich in order to produce less than otherwise; they just have to be foolish.

The year 1973 was the last time USA did not have both negative annual aggregate and goods trade balances. Since then, our annual aggregate and our balances of goods trades have both been negative. Refer to trade .

USA's balance of trade flipped negative and have remained negative for over 45 years. The balance of trade has not, for almost a half-century, as you wrote, “adjusted accordingly”.

Trade deficits are ALWAYS net detrimental to their nation's domestic production an drag upon their nation's numbers of jobs. USA's wage-earning families cannot wait decades until the U.S. Federal Reserve Board may enable, (if it capable of enabling, or should enable) the exchange rate of U.S. dollar to be weakened and thus induce an increase of our trade balance.

What did you mean when you wrote, “Yeah, they amount to a tariff on the front end, which will just discourage trade”?

Respectfully, Supposn

I'm Supposn · Jun 13, 2018

Mithros said:
Neither. It's real data. There's an obvious positive correlation between Jobs, GDP, and the Trade Deficit. ...

Mithros, you're correct as far as you posted that there's a correlation between the nation's GDP and net balance of their international trade. The graphs indicate or “prove” when the USA's domestic production is reduced, Our GDP is reduced.

BOTH domestic and imported products sold in our domestic market's are reduced when the nation's GDP is reduced. Trade deficits are reduced when imported goods cannot be as readily sold within the nation. Trade deficits are ALWAYS net detrimental to their nation's GDP and drag upon their numbers of jobs.

Respectfully, Supposn

Mithros · Jun 13, 2018

I'm Supposn said:
Mithros, you're correct as far as you posted that there's a correlation between the nation's GDP and net balance of their international trade. The graphs indicate or “prove” when the USA's domestic production is reduced, Our GDP is reduced.

BOTH domestic and imported products sold in our domestic market's are reduced when the nation's GDP is reduced. Trade deficits are reduced when imported goods cannot be as readily sold within the nation. Trade deficits are ALWAYS net detrimental to their nation's GDP and drag upon their numbers of jobs.

Respectfully, Supposn

GDP = C + I + G - T

So obviously decreasing T (trade deficit) means a bigger GDP right?

No. Don't conflate the means of measuring something with the thing itself. Though the terms used to estimate GDP are listed independently they are not independent variables. Were they independent you'd see a negative correlation between GDP and Trade deficit. But instead you see exactly the opposite. That means that the value of T is actually a function of C,I,G et al.

So while you can say that theoretically the GDP would certainly be higher if the trade deficit were lower, lowering the trade deficit would actually result in a lower GDP.

JohnfrmClevelan · Jun 13, 2018

I'm Supposn said:
JohnfrmClevelan, the analogy was meant to mean USA is sufficiently wealthy to continue for many decades to consume more than we produce, we're continuing a practice that causes every year, during both better and poorer economic conditions, to have lesser GDP and jobs than otherwise.

Do you seriously believe that our GDP would grow if we cut off all foreign trade?

I get where you are coming from. But as I explained before, it's simply incorrect. You think that autarky would be a simple replacement of imported goods with domestic goods, and American labor would benefit, right? Well, no. Goods would become more expensive. We would produce less as an economy, overall, than we consume today. And, no, that doesn't save us any money for the future.

As long as exporters are willing to give us goods in exchange for dollars, our exports pay for our imports. Nobody is cashing in their dollar savings to buy American goods; and if they ever did so, it would be a boon for American businesses. Until then, it is a boon for American consumers.

I'm Supposn said:
Annual trade deficits indicate that we used and consumed more products than we produced. Lesser domestic production drags upon our numbers of jobs. The problem with lesser GDP is that it reveals itself as lesser jobs and more poverty than otherwise. A nation needn't be rich in order to produce less than otherwise; they just have to be foolish.

Unless you cover that trade deficit with deficit spending and increased credit. Then, demand continues to increase.

I'm Supposn said:
The year 1973 was the last time USA did not have both negative annual aggregate and goods trade balances. Since then, our annual aggregate and our balances of goods trades have both been negative. Refer to trade .

USA's balance of trade flipped negative and have remained negative for over 45 years. The balance of trade has not, for almost a half-century, as you wrote, “adjusted accordingly”.

Trade deficits are ALWAYS net detrimental to their nation's domestic production an drag upon their nation's numbers of jobs. USA's wage-earning families cannot wait decades until the U.S. Federal Reserve Board may enable, (if it capable of enabling, or should enable) the exchange rate of U.S. dollar to be weakened and thus induce an increase of our trade balance.

What did you mean when you wrote, “Yeah, they amount to a tariff on the front end, which will just discourage trade”?

Respectfully, Supposn

It's a cost, right up front. Coupons have to be bid on - that's a cost.

I'm Supposn · Jun 13, 2018

JohnfrmClevelan said:
Do you seriously believe that our GDP would grow if we cut off all foreign trade? ...

JohnfrmClevelan, I'm not an isolationist and the Import Certificate policy is not an isolationist policy.
I do not doubt that if the USA should ever adopt it, some nations will at the start, retaliate by drastically reducing their purchases of USA goods. If those nation's had enjoyed significant trade surpluses trading with the USA, they will profit less, but they will still continue to profit from their USA trades. Their other alternative is to refrain from dealing with the USA and refrain from profiting.

Eventually, (and I do not mean eventually as within 45 or more years, or within a decade), the Import Certificates will become a normal factor of international trade. Just as other nations have tariffs and other regulations to suit their needs, I would expect other trade deficit nations will see the wisdom of their also adopting the same unilateral policy. (Import Certificate policy is only of use to a nation that otherwise would experience chronic annual trade deficits of goods).

Regardless of how foreign nations react to the Import Certificate policy, USA's domestic production and numbers of jobs will increase more than otherwise.

Respectfully, Supposn

I'm Supposn · Jun 13, 2018

JohnfrmClevelan said:
Do you seriously believe that our GDP would grow if we cut off all foreign trade?

I get where you are coming from. But as I explained before, it's simply incorrect. You think that autarky would be a simple replacement of imported goods with domestic goods, and American labor would benefit, right? Well, no. Goods would become more expensive. We would produce less as an economy, overall, than we consume today. And, no, that doesn't save us any money for the future.

As long as exporters are willing to give us goods in exchange for dollars, our exports pay for our imports. Nobody is cashing in their dollar savings to buy American goods; and if they ever did so, it would be a boon for American businesses. Until then, it is a boon for American consumers. ...

JohnfrmClevelan, China's enterprises for example would in aggregate profit less, but they will continue to profit from their trade with the USA. If they want to sell us more than they purchase, they'll could purchase or trade for as much certificates as the want, for the certificate's global market price. (Due to computers and the internet, brokerage fees for purchasing any commodity, (and USA Import Certificates will certainly be a valuable commodity), are very competitively priced and easy to sell or buy.

Enterprises (that are not too big to be permitted to fail) cannot sustain themselves if they act too illogically. But government's may foolishly “cutoff their own noses to spite their own faces”. If the Chinese government hinders their enterprises from dealing with the USA, there will be other enterprises elsewhere that would gladly accept China's discarded share of USA's marketplaces. Bear in mind that the Import Certificate Policy is very market sensitive. If USA exports are reduced, it reduces the amount of certificates that enter the global markets, increases import prices to USA purchasers, and acts as an indirect but effective price subsidy to foreign purchasers of USA goods.

Respectfully, Supposn

I'm Supposn · Jun 13, 2018

Mithros said:
GDP = C + I + G - T

So obviously decreasing T (trade deficit) means a bigger GDP right?

No. Don't conflate the means of measuring something with the thing itself. Though the terms used to estimate GDP are listed independently they are not independent variables. Were they independent you'd see a negative correlation between GDP and Trade deficit. But instead you see exactly the opposite. That means that the value of T is actually a function of C,I,G et al.

So while you can say that theoretically the GDP would certainly be higher if the trade deficit were lower, lowering the trade deficit would actually result in a lower GDP.

Mithros, your logic is flawless. How could I have ever doubted you? Obviously if we reduce production and increase our imports, we will consequentially increase our GDP and create more jobs; cancer causes cigarettes; the rabbi of Chelem himself was quoted by Sholem Aleichem to have said, “the sea is salty because it's full of herrings”; help fight juvenile delinquency, support your local street gang; soda causes next day hangovers; forest fires cause lightening storms.

I regret that I cannot recall the forgettable words U.S. President Thomas E. Dewey's mumbled within his inaugural speech, but I suppose they were appropriate to our discussion of your logical conclusions.

I had to search for “conflate”. I never before encountered the word, and I'll be surprised if I ever encounter it again. Thank you.
Respectfully, Supposn

I'm Supposn · Jun 13, 2018

JohnfrmClevelan, we all benefit from cheaper imported goods, but they do not fully compensate for trade deficits reduction of their nation's GDP and drag upon our their numbers of jobs. The national net economic costs due to our trade deficits of goods are almost entirely at the expense of wage-earners' families. They represent the great preponderance of of USA's middle income earners.
Persons dependent upon enterprises that are more dependent upon middle and lower income segments of our population are also detrimentally impacted.

Respectfully, Supposn

JohnfrmClevelan · Jun 14, 2018

I'm Supposn said:
JohnfrmClevelan, I'm not an isolationist and the Import Certificate policy is not an isolationist policy.

My point is that it is mathematically (very) possible to have a trade deficit and still have a larger GDP than you would without foreign trade. So a trade deficit doesn't mean an automatic loss of demand, lost jobs, etc.

What it means is an automatic loss of demand from income. That is very different than total demand. A trade deficit is just saving by foreign parties, and that demand can certainly be replaced. You can't just look at the loss of demand to a trade deficit without also considering the increased demand that deficit spending and credit expansion gives you.

I'm Supposn · Jun 14, 2018

JohnfrmClevelan said:
My point is that it is mathematically (very) possible to have a trade deficit and still have a larger GDP than you would without foreign trade. So a trade deficit doesn't mean an automatic loss of demand, lost jobs, etc.

What it means is an automatic loss of demand from income. That is very different than total demand. A trade deficit is just saving by foreign parties, and that demand can certainly be replaced. You can't just look at the loss of demand to a trade deficit without also considering the increased demand that deficit spending and credit expansion gives you.

JohnfrmClevelan, "effective demand" is a purchaser that has the money or resources, is capable of accepting delivery, and is requesting to purchase or trade for an offered item, in compliance to the seller's stipulated conditions (which includes the seller's stipulated price).

What do you mean by the phrase “demand from income”?

Respectfully, Supposn

I'm Supposn · Jun 14, 2018

JohnfrmClevelan said:
My point is that it is mathematically (very) possible to have a trade deficit and still have a larger GDP than you would without foreign trade. So a trade deficit doesn't mean an automatic loss of demand, lost jobs, etc.

What it means is an automatic loss of demand from income. That is very different than total demand. A trade deficit is just saving by foreign parties, and that demand can certainly be replaced. You can't just look at the loss of demand to a trade deficit without also considering the increased demand that deficit spending and credit expansion gives you.

JohnfrmClevelan, refer to https://www.britannica.com/topic/gross-domestic-product

There is no "demand" within that expenditure formula for calculating the nation's GDP. Each of the terms is an actual or an estimated amount for transactions that have actually occurred.

GDP = C + I + G + NX

C = consumer spending for final products.
I = investment spending for final products
G = government spending for final products.
NX = net intrnational balance of trade.
Products can be both goods or service products, but they are not simply transfers of wealth.
A positive NX is a trade surplus, and a negative NX is a trade deficit.

Respectfully, Supposn

Mithros · Jun 14, 2018

I'm Supposn said:
Mithros, your logic is flawless. How could I have ever doubted you? Obviously if we reduce production and increase our imports, we will consequentially increase our GDP and create more jobs; cancer causes cigarettes; the rabbi of Chelem himself was quoted by Sholem Aleichem to have said, “the sea is salty because it's full of herrings”; help fight juvenile delinquency, support your local street gang; soda causes next day hangovers; forest fires cause lightening storms.

I regret that I cannot recall the forgettable words U.S. President Thomas E. Dewey's mumbled within his inaugural speech, but I suppose they were appropriate to our discussion of your logical conclusions.

I had to search for “conflate”. I never before encountered the word, and I'll be surprised if I ever encounter it again. Thank you.
Respectfully, Supposn

I understand your argument. It's a commonly held misconception. You are arguing that a trade deficit is always detrimental to a nations GDP because buying excess goods and services from another country seems like a self evident drain on your economy. But as intuitive as that seems, real measured data doesn't support that conclusion. In fact small increases in GDP seem to correspond to large increases in the trade deficit while small reductions in GDP correspond to large reductions in trade deficit.

An economy is a complex combination of interdependent feedback systems. The formula for computing GDP is a simplified means of measuring an economy. But this measurement is only descriptive, not prescriptive. i.e. the formula measures GDP at a snapshot in time, but does not provide the complex interdependencies that govern the system as it changes.

The trade deficit doesn't drive GDP, rather it seems to act more like a feedback term, mitigating rapid swings in GDP. Think of it like drag on a car. If you're going 80 mph you'd be right to say that you'd be able to go faster if you were in a more aerodynamic car. That's intuitive. But its also true that the biggest impact on drag is speed. So while you can do small things to change a cars cda and reduce drag, experiencing less drag almost always just means that you're going slower.

JohnfrmClevelan · Jun 14, 2018

I'm Supposn said:
JohnfrmClevelan, refer to https://www.britannica.com/topic/gross-domestic-product

There is no "demand" within that expenditure formula for calculating the nation's GDP. Each of the terms is an actual or an estimated amount for transactions that have actually occurred.

GDP = C + I + G + NX

C = consumer spending for final products.
I = investment spending for final products
G = government spending for final products.
NX = net intrnational balance of trade.
Products can be both goods or service products, but they are not simply transfers of wealth.
A positive NX is a trade surplus, and a negative NX is a trade deficit.

Respectfully, Supposn

https://en.wikipedia.org/wiki/Circular_flow_of_income

GDP = demand. In a $17 trillion economy, the production is $17 trillion, and the national income is $17 trillion. That is our base income, which is potential demand. From that, you have demand leakages and injections. Trade deficits and savings are demand leakages. Deficit spending and increased credit are injections. If injections > leakages, demand grows. So for the next year, you not only have $17 trillion of income, you also have an increase in income due to increased credit, increased investment (which pays labor), and deficit spending. For example, those additions might give you a national income of $19 trillion in the next year; minus savings of $1 trillion, minus a trade deficit of $0.5 trillion, which gives you a GDP of $17.5 trillion in that year, for a bit of growth.

So C can (and does) rise with increased credit. I can (and does) rise with increased credit. G obviously changes from year to year, but is almost always an addition to demand. And NX is almost always negative. But they are largely independent of each other. NX is not determinative of C or I or G.

I'm Supposn · Jun 18, 2018

JohnfrmClevelan said:
https://en.wikipedia.org/wiki/Circular_flow_of_income

GDP = demand. In a $17 trillion economy, the production is $17 trillion, and the national income is $17 trillion. That is our base income, which is potential demand. From that, you have demand leakages and injections. Trade deficits and savings are demand leakages. Deficit spending and increased credit are injections. If injections > leakages, demand grows. So for the next year, you not only have $17 trillion of income, you also have an increase in income due to increased credit, increased investment (which pays labor), and deficit spending. For example, those additions might give you a national income of $19 trillion in the next year; minus savings of $1 trillion, minus a trade deficit of $0.5 trillion, which gives you a GDP of $17.5 trillion in that year, for a bit of growth.

So C can (and does) rise with increased credit. I can (and does) rise with increased credit. G obviously changes from year to year, but is almost always an addition to demand. And NX is almost always negative. But they are largely independent of each other. NX is not determinative of C or I or G.

JohnfrmClevelan, there's no doubt that the nation's total domestic commercial activity, which is (C + I + G) are variable.

Regardless of whatever is the nation's total domestic commercial activity in any particular year, (in “fat years” or lean year”), the nation's GDP is also effected by their international trade. Every single year, USA 's annual trade deficits have net reduced our GDP and numbers of jobs.
If we otherwise would have not experienced annual trade deficits, we would have had greater GDPs and numbers of jobs;
If we otherwise would have experienced trade surpluses, we would have had still greater GDPs and numbers of jobs.

Respectfully, Supposn

I'm Supposn · Jun 18, 2018

JohnfrmClevelan said:
https://en.wikipedia.org/wiki/Circular_flow_of_income

GDP = demand. In a $17 trillion economy, the production is $17 trillion, and the national income is $17 trillion. That is our base income, which is potential demand. From that, you have demand leakages and injections. Trade deficits and savings are demand leakages. Deficit spending and increased credit are injections. If injections > leakages, demand grows. So for the next year, you not only have $17 trillion of income, you also have an increase in income due to increased credit, increased investment (which pays labor), and deficit spending. For example, those additions might give you a national income of $19 trillion in the next year; minus savings of $1 trillion, minus a trade deficit of $0.5 trillion, which gives you a GDP of $17.5 trillion in that year, for a bit of growth.

So C can (and does) rise with increased credit. I can (and does) rise with increased credit. G obviously changes from year to year, but is almost always an addition to demand. And NX is almost always negative. But they are largely independent of each other. NX is not determinative of C or I or G.

JohnfrmClevelan, GDP is NOT demand and credit is not increased investment.

The components factors of the GDP expenditure formula were ACTUALY spent for goods and service products; they were not simply transfers of wealth that did not actually increase the nation's production of goods and service products.

Credit itself is not a component of the GDP formula. But the spending invested for the benefit of enterprises, or enabled consumer spending, have been included within the Investment and the Consumer component of the expenditure formula.

Every single year, USA 's annual trade deficits have net reduced our GDP and numbers of jobs.
If we otherwise would have not experienced annual trade deficits, we would have had greater GDPs and numbers of jobs;
If we otherwise would have experienced trade surpluses, we would have had still greater GDPs and numbers of jobs.

Respectfully, Supposn

JohnfrmClevelan · Jun 18, 2018

I'm Supposn said:
JohnfrmClevelan, there's no doubt that the nation's total domestic commercial activity, which is (C + I + G) are variable.

Regardless of whatever is the nation's total domestic commercial activity in any particular year, (in “fat years” or lean year”), the nation's GDP is also effected by their international trade. Every single year, USA 's annual trade deficits have net reduced our GDP and numbers of jobs.
If we otherwise would have not experienced annual trade deficits, we would have had greater GDPs and numbers of jobs;
If we otherwise would have experienced trade surpluses, we would have had still greater GDPs and numbers of jobs.

Respectfully, Supposn

Scenario 1: autarky: C (domestic) = $16 trillion, G = 0, NX = 0; GDP = $16 trillion

Scenario 2: trade deficit: C (domestic) = $14 trillion, G = $1 trillion, imports = $4 trillion, exports = $3 trillion; GDP = $17 trillion

Which scenario is better for American labor? GDP = $16 trillion, or GDP = $17 trillion?

*****************************

GDP = production = income = expenditure (aggregate demand). Those are the three ways to measure GDP.

The expenditure equation is Y = C + I + G + (X − M), the one you have been using yourself.

And increased credit is increased consumption and investment (plus any multiplier effects of the spending). One man's debt is another man's income.

JohnfrmClevelan · Jun 18, 2018

I'm Supposn said:
JohnfrmClevelan, GDP is NOT demand and credit is not increased investment.

The components factors of the GDP expenditure formula were ACTUALY spent for goods and service products; they were not simply transfers of wealth that did not actually increase the nation's production of goods and service products.

Credit itself is not a component of the GDP formula. But the spending invested for the benefit of enterprises, or enabled consumer spending, have been included within the Investment and the Consumer component of the expenditure formula.

Every single year, USA 's annual trade deficits have net reduced our GDP and numbers of jobs.
If we otherwise would have not experienced annual trade deficits, we would have had greater GDPs and numbers of jobs;
If we otherwise would have experienced trade surpluses, we would have had still greater GDPs and numbers of jobs.

Respectfully, Supposn

Almost all of the money that fills our bank accounts is credit, the product of morgage loans and business loans.

If, all else being equal, I rang up $50K in spending on my credit cards in one year, GDP goes up by (at least) $50K (there are also multiplier effects). That is credit, no different than if a business took out a bank loan in order to invest in increased production, and paid me for my labor before they ever sold any of that increased production.

Credit is buried in the C and I components. C and I measure what is spent and invested, not where the money came from.

I'm Supposn · Jun 20, 2018

JohnfrmClevelan said:
Almost all of the money that fills our bank accounts is credit, the product of morgage loans and business loans.

If, all else being equal, I rang up $50K in spending on my credit cards in one year, GDP goes up by (at least) $50K (there are also multiplier effects). That is credit, no different than if a business took out a bank loan in order to invest in increased production, and paid me for my labor before they ever sold any of that increased production.

Credit is buried in the C and I components. C and I measure what is spent and invested, not where the money came from.

JohnfrmClevelan, GDP is NOT demand and credit is not increased investment.

Your purchasers of goods and services contributed to the GDP. You expect the GDP should reflect what you borrowed, and then reflect it when you spend it, and I suppose you would also expect it to reflect if and when you repay the loan? That's not how GDP is calculated.

You've imagined another different statistical item in your own mind, but statisticians and economists are using the GDP amount.
They're using the GDP amount that represents the ACTUAL goods and services that were sold, traded, during the reported period of time. That's why it's referred to as the expenditure formula for calculating GDP.
Granted they're operating on the assumption that if something's sold, it had to be replaced in stock; that's not always the case, but that's what the GDP amount does reflect.

The credit you're writing about is reflected when it was used to spend for goods and service products. Mere transfers of wealth with no sales or trades of goods or service products are not reflected in the GDP. Your spending was reflected just once when you purchased goods or service products; that's IT!

How did the source of the money get into this dialog? What the point you're making when you wrote, “C and I measure what is spent and invested, not where the money came from”?

Respectfully, Supposn

JohnfrmClevelan · Jun 21, 2018

I'm Supposn said:
JohnfrmClevelan, GDP is NOT demand and credit is not increased investment.

Your purchasers of goods and services contributed to the GDP. You expect the GDP should reflect what you borrowed, and then reflect it when you spend it, and I suppose you would also expect it to reflect if and when you repay the loan? That's not how GDP is calculated.

I never said that credit was counted three times. I said that credit results in an increase in consumption and investment. Nobody borrows money just to pay it back with interest.

I'm Supposn said:
The credit you're writing about is reflected when it was used to spend for goods and service products. Mere transfers of wealth with no sales or trades of goods or service products are not reflected in the GDP. Your spending was reflected just once when you purchased goods or service products; that's IT!

How did the source of the money get into this dialog? What the point you're making when you wrote, “C and I measure what is spent and invested, not where the money came from”?

OK, here is where the problem is, I think. Credit is not a transfer of existing assets, it is the creation of new M1 dollars by banks.

If you earn $50K (take home) from your job, you are able to spend $50K. But if you get a loan for $5K, you are able to spend $55K. And, somebody has earned $5K more than would have been possible had you not taken out that loan. Taken as a whole, these increases in credit are also increases in our collective income (and it's better than 1:1, because money is spent more than once). That, along with deficit spending, is how C and I (and the economy) grow. Again taken as a whole, we don't pay off our loans, we (normally) increase them. When we don't do that, or don't do it enough, we end up in a recession.

That was what I meant when I said that “C and I measure what is spent and invested, not where the money came from." The grocer doesn't care if you are buying groceries from your income, or on credit, it's all income to the grocer.

I'm Supposn · Jun 21, 2018

JohnfrmClevelan said:
I never said that credit was counted three times. I said that credit results in an increase in consumption and investment. Nobody borrows money just to pay it back with interest.

OK, here is where the problem is, I think. Credit is not a transfer of existing assets, it is the creation of new M1 dollars by banks.

If you earn $50K (take home) from your job, you are able to spend $50K. But if you get a loan for $5K, you are able to spend $55K. And, somebody has earned $5K more than would have been possible had you not taken out that loan. Taken as a whole, these increases in credit are also increases in our collective income (and it's better than 1:1, because money is spent more than once). That, along with deficit spending, is how C and I (and the economy) grow. Again taken as a whole, we don't pay off our loans, we (normally) increase them. When we don't do that, or don't do it enough, we end up in a recession.

That was what I meant when I said that “C and I measure what is spent and invested, not where the money came from." The grocer doesn't care if you are buying groceries from your income, or on credit, it's all income to the grocer.

JohnfrmClevelan, yes, we agree, “C and I measure what is spent”. It WAS ALREADY SPENT on behalf of consumers or enterprises. You don't add credit to it and increase the amount of GDP. The total domestic spending for goods and service products was =(C + I + G).

If the nation's net international trade is positive, (i.e. a trade surplus) that an additional contribution to domestic spending for goods and services, because the cost for purchasing those products were paid from foreign rather than domestic spending.

If the nation's net international trade is negative, (i.e. a trade deficit) that's a reduction from domestic spending for goods and services, because the products purchased were foreign, rather than domestically produced.

Sales of products due to loans and credit has been accounted for. It's not something that wasn't reflected within the calculation of GDP.

Respectfully, Supposn

JohnfrmClevelan · Jun 21, 2018

I'm Supposn said:
JohnfrmClevelan, yes, we agree, “C and I measure what is spent”. It WAS ALREADY SPENT on behalf of consumers or enterprises. You don't add credit to it and increase the amount of GDP. The total domestic spending for goods and service products was =(C + I + G).

If the nation's net international trade is positive, (i.e. a trade surplus) that an additional contribution to domestic spending for goods and services, because the cost for purchasing those products were paid from foreign rather than domestic spending.

If the nation's net international trade is negative, (i.e. a trade deficit) that's a reduction from domestic spending for goods and services, because the products purchased were foreign, rather than domestically produced.

Sales of products due to loans and credit has been accounted for. It's not something that wasn't reflected within the calculation of GDP.

Respectfully, Supposn

If not via credit, then explain to me how an economy grows from one year to the next. Especially when our economy both net saves and runs a large trade deficit.

MrWonka · Jun 21, 2018

I'm Suppose said:
Annual trade deficits are always net detrimental to their nation's GDP and drag upon their numbers of jobs. They indicate national use and consumption exceeded the nation's production.

That's like saying the Packers should trade Aaron Rodgers to the Jets for Josh McCown and Teddy Bridgewater since getting two quarterbacks for one would be a good deal.