WHAT DOES GDP HAVE to do with anything ?
Goldlover
Posts: 14 ✭✭
I know pretty much all of us on here think that the US Gov't spending is financially irresponsible, but the other side thinks we are making a mountain out of a molehill. I read some of their sites and they often call us "doomsdayers". They say that right after WW2 the Us debt was at 121% of GDP and today its around 95% of GDP. ( They neglect to mention that we were the only real manufacturing power in the world at the time because much of Europe was destroyed in WW 2. They neglect to say that we were owed big $$$ from rebuilding Eurpore and From Germany as war Reparations. My point, things are very different this time ).
But still all their talk about GDP got me to thinking. What does GDP have anything to do with the debt, when even the most optimistic plans dont have us balancing the budget --- pretty much EVER. I mean I understand their argument that as GDP grows, so does tax revenue, but if you are going to run deficits in excess of GDP growth even with the increased revenue, then what difference does it make. I mean it does mean you are going bankrupt slower, but bankrupt just the same.
To me, the deficit should be given compared to yearly tax reciepts, since that is all that the fed gov't has to pay this off with. The gov't doesnt have access to the entire GDP just the yearly tax reciepts. Using that figure, the national debt now stands at well over 600%. ( 15.8 trillion debt, 2.6 trillion taxes per year ). So in other words, if the fed govt cut its spending to 0 it would take 6 years of taxes to pay off the debt. Of course that would also cause a decrease in tax reciepts and of course they cant cut it to 0. But really -- the fed govt owes 6 years worth of income. Thats like me, making $45,000 a year owing $270,000. There aint no way. And it wouldnt make sense for me to try to justify owing $270,000 by saying, well the company I work for had revenue of $1,000,000 last year so I only owe 27% of my company's revenue. To me, that measure is meaningless, just like the US GDP.
But still all their talk about GDP got me to thinking. What does GDP have anything to do with the debt, when even the most optimistic plans dont have us balancing the budget --- pretty much EVER. I mean I understand their argument that as GDP grows, so does tax revenue, but if you are going to run deficits in excess of GDP growth even with the increased revenue, then what difference does it make. I mean it does mean you are going bankrupt slower, but bankrupt just the same.
To me, the deficit should be given compared to yearly tax reciepts, since that is all that the fed gov't has to pay this off with. The gov't doesnt have access to the entire GDP just the yearly tax reciepts. Using that figure, the national debt now stands at well over 600%. ( 15.8 trillion debt, 2.6 trillion taxes per year ). So in other words, if the fed govt cut its spending to 0 it would take 6 years of taxes to pay off the debt. Of course that would also cause a decrease in tax reciepts and of course they cant cut it to 0. But really -- the fed govt owes 6 years worth of income. Thats like me, making $45,000 a year owing $270,000. There aint no way. And it wouldnt make sense for me to try to justify owing $270,000 by saying, well the company I work for had revenue of $1,000,000 last year so I only owe 27% of my company's revenue. To me, that measure is meaningless, just like the US GDP.
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Comments
As for $45k income and $270k mortgage/debt, that isn't far off from what a lot of families have. Sure it would be better if it were more like $45k income, and $135k mortgage/debt, but even the first set of numbers doesn't mean the end of days. It would be really bad if it were $45k income and $999k in debts, and that day may come too, but we aren't there yet.
As for the deficit, keep in mind that the Federal government hasn't even done basic belt tightening, such as hiring freezes, 10% layoffs due to attrition, or something so modest as 2% annual salary roll backs. Whitehouse staffers are still getting as much as 8% raises. The average Federal worker now earns over $120k, about double the average in the private sector for the same class of work, and there have been zero layoffs, zero real cutbacks in most Federal departments. If this is a crisis, why can't the government take some easy first steps and start with some common sense belt tightening that most big companies and most families have already seen?
Natural forces of supply and demand are the best regulators on earth.
Austerity. The new 4 letter word. The 99% aint gonna like it when austerity comes to a town near them.
Very good response from derryb.
Knowledge is the enemy of fear
<< <i>Well, it's kind of like saying what does your annual income have to do with your amount of credit card debt. Well, if you have $100,000 in credit card debt, but make $1 million a year... it would be possible to pay that off much quicker than if you only made $50,000 a year. The larger a nation's economy is, the more capable it is to handle a larger amount of debt. Problem is, we haven't been paying off squat and our debt only grows. >>
But GDP is not the federal goverment's annual income. They would have to tax at 100% for it to be. I am saying I think a better measure is tax reciepts which would make the ratio of debt 600% actually over 600%.
I can see that the larger the GDP then the larger the tax reciepts but to compare GDP to the debt and say its only 95% of the GDP is misleading IMO because the only thing that matters is how much tax reciepts the gov't is bringing in, not the size of the entire overall economy.
<< <i>Of course GDP matters. If it comes to a national emergency, the government will have access to the entire economy. The people will back extreme measures, if they see an event that they see as a real national emergency.
As for $45k income and $270k mortgage/debt, that isn't far off from what a lot of families have. Sure it would be better if it were more like $45k income, and $135k mortgage/debt, but even the first set of numbers doesn't mean the end of days. It would be really bad if it were $45k income and $999k in debts, and that day may come too, but we aren't there yet.
As for the deficit, keep in mind that the Federal government hasn't even done basic belt tightening, such as hiring freezes, 10% layoffs due to attrition, or something so modest as 2% annual salary roll backs. Whitehouse staffers are still getting as much as 8% raises. The average Federal worker now earns over $120k, about double the average in the private sector for the same class of work, and there have been zero layoffs, zero real cutbacks in most Federal departments. If this is a crisis, why can't the government take some easy first steps and start with some common sense belt tightening that most big companies and most families have already seen? >>
You gonna not eat for a year ? Or should I say for 6 years.
Anyone who has 45,000 income and 270,000 debt is bankrupt and might as well file it and start all over. Even at 5% which is very low for a private party thats $13,500 a year in interest or 30% of their income.
<< <i>I can see that the larger the GDP then the larger the tax reciepts but to compare GDP to the debt and say its only 95% of the GDP is misleading IMO because the only thing that matters is how much tax reciepts the gov't is bringing in, not the size of the entire overall economy. >>
GDP is not misleading to those that use it correctly. Do not confuse it with GNP (Gross National Product).
Natural forces of supply and demand are the best regulators on earth.
<< <i>
<< <i>Well, it's kind of like saying what does your annual income have to do with your amount of credit card debt. Well, if you have $100,000 in credit card debt, but make $1 million a year... it would be possible to pay that off much quicker than if you only made $50,000 a year. The larger a nation's economy is, the more capable it is to handle a larger amount of debt. Problem is, we haven't been paying off squat and our debt only grows. >>
But GDP is not the federal goverment's annual income. They would have to tax at 100% for it to be. I am saying I think a better measure is tax reciepts which would make the ratio of debt 600% actually over 600%.
I can see that the larger the GDP then the larger the tax reciepts but to compare GDP to the debt and say its only 95% of the GDP is misleading IMO because the only thing that matters is how much tax reciepts the gov't is bringing in, not the size of the entire overall economy. >>
As long as the GDP [or the GNP for that matter] can provide sufficient tax receipts to offset any increase in Govt spending [or interest on the debt] they don't seem to care. When it falls to under 100% they should be worried.
Box of 20
GNP v.s. GDP...let's get it rite!
GDP uses odd tricks such as counting future sales based on contracts but then not backing them out when things fall through (ie aircraft sales). A lot of the wasted/laundered govt
dollars are included as production in GDP when they should not be. As long as the govt prints money, GDP will continue to increase because the deflator and other inherent tools don't
properly remove this QE. Yes, GDP is a tool, but a pretty poor one.
Natural forces of supply and demand are the best regulators on earth.
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