Saturday, August 20, 2011

A Basic Math Lesson

"The GDP equation has four variables (long-time readers, please be kind. I'm talking to Washington here and they are stupid): C (consumer spending) + I (gross private investment) + X (net exports) + G (government spending). Right now, the consumer is OK but not great, investment is fair, but not great and the US is a net importer, so that subtracts from growth. That leaves government spending."

My comment: An economy is value (money) in motion. If the private industry is not spending (it's deleveraging or paying down debt), consumer spending is off (joblessness tends to do that) and we're a net importer (see the trade deficit), what do you suppose will happen to the economy if government spending is put on an austerity basis with draconian cuts in spending?

Cutting government spending slows the movement of value. Government spending (even wasteful spending) is not putting money in a rocket ship and blasting it into outer space. Government spending contributes to moving value (money) within the economy.

If you're sorta liberal, if you're a rational conservative, if your opinions are formed by facts, then read the article. If you're a Tea Potty supporter, don't bother. We already know that facts don't matter to you and that anything longer than a bumper sticker is too long for your ADD to navigate.


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