Posted on 04/28/2012 8:13:11 AM PDT by Kaslin
I am.
If a farmer sells grain to a baker for $100 who sells bread to a store for $200 which the sells it to consumers for $300, there have been a total of $600 of transactions for only $300 of production.
That's correct -- and it is the classic example.
If the grocery owned the farm and bakery the first two transactions would never be counted, but the total production in loaves of bread and final sales would be the same final $300.
Yes and that is a plausible scenario. Nonetheless, the grocery company would still pay for utilities, fertilizer, energy, seed, milling equipment, etc.. Those expenditures are not counted in the current GDP equation.
My point is that 70% of the U.S. economy does not consist in and is not dependent on consumer spending. That shibboleth has led to the misconception that the U.S. has a consumption economy.
It most certainly doesn't. It is a production and consumption economy. In fact production expenditures are usually slightly higher than consumption expenditures (a concept the Keynesians claim is impossible.)
If GDP merely represents the wealth created (final value) in the U.S. then it cannot at the same time be said to accurately reflect the composition of spending in the country. This exaggerated emphasis on consumer spending justifies all sorts of political mischief and makes it much more difficult to understand what sectors of the economy are in trouble.
As we are seeing, consumer spending now exceeds pre-recession levels but obviously all is not well. Another concept the Keynesians don't understand. They developed the GDP equation and the system of national accounts by the way.
The chart can be analyzed very simple. America is on a downward slide and in a few years we will be in Greek Territory.
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