I realize that not everybody took Econ 101. And most of the people on the right who did, forgot everything in the Samuelson text. But here’s the deal; there are five (count ‘em – five) factors that you use to calculate Gross Domestic Product (for those of you over the age of 35, this is more or less what we were taught was Gross National Product). There are just five factors in determining whether we are starving or rolling in dough.
We have consumption [C], plus business investment [I], plus government spending [G], plus exports [X], reduced by imports [-M] resulting in GDP [usually written as "Y"]. That is
C+I+G+X-M=Y
OK? That is it. There is nothing else. You add four things together, subtract one other thing, and you get your answer. So if C = 5, I = 4, G = 3, X = 2 and M = 1, we can calculate that Y = 13 because 5+4+3+2-1 = 13. Hell, there isn’t even long division, fractions or imaginary numbers in this. You don’t need square roots, or algebra or trigonometry. In other words, this is easy.
So, why don’t the dumbasses in the GOP understand that cutting spending (that is reducing G) is a bad, bad, bad, bad, evil, wrong, stupid thing?
Look, the comsumer is scared sh*tless that s/he won’t have a job next week. God know I feel that way. So I am not going out spending. C isn’t going to rise. Next, you have business investment, and every business person I know (and yes, I use sanitizer after I shake their hands) is waiting for the consumer to start spending before they buy more computers, white-out and steel smelting furnaces (I confess to stretching the truth here as I know no one in the market for steel smelting furnaces). So the value for I is not going up.
Let’s skip G for a sec, and look at X, America’s exports. With the dollar rising against the euro, we can’t sell more to our French, Italian, Portuguese, German or Dutch pals. The Chinese, Japanese and Koreans don’t want our crap (they make it better and cheaper -- try buying a US made TV). So X won’t be going up anytime soon.
Maybe we can reduce M, cut the amount we send to people outside the US for stuff we buy. Nope. Not gonna happen either. We are addicted to non-American oil (and you can see what happens when we try to get to American oil – it’s washing up on the beaches of Florida as we speak). And DVDs, TVs, iPhones, etc. aren’t made in the USA. So, the value of M isn’t going to go our way either.
Let’s go back to our example. C, I, X and M are all staying the same (or getting worse). That’s 5+4+G+2-1= 10+G.
Let’s suppose that we do what our GOP, German Conservative and UK Tory pals want to do and reduce government spending. Let’s take that 3 and cut it to 1. The result is:
5+4+1+2-1= 11
Kick me if I’m wrong here, but isn’t 11 less than 13? Doesn’t cutting government spending result in a smaller GDP?
Now, let’s suppose we actually boost government spending, from 3 to 5. Now, we have:
5+4+5+2-1 = 15
Isn’t 15 more than 13, and more than 11?
Isn’t it better to have a bigger GDP than a smaller one? If you cut government spending the freaking ARITHMETIC says we get poorer. Deficits do matter, but they matter much the way a mortgage payment matters when the house is burning down – it’s something we’ll look at later.