Economic Series Part 3: What is Gross Domestic Product?

Welcome to the third part of my economic series. This final part will explain what GDP is and why it is so often used as politicians go to economic figure of success or failure. Gross Domestic Product or GDP as I will call it by the acronym, is an economic indicator. It measures a very specific part of the economy in any given country. If you have not read parts ONE and TWO of this economic series I strongly suggest that you do. My first two parts of the series describe the arguments for and against minimum wage in part one. In part two, I  go over the basics of government budget and taxation. It’s important to recognize that economics is a very complex subject and many topics involved having an understanding of other topics. In this case, I think that GDP is definitely the most advanced of all the topics that I have covered thus far. In order to properly discuss GDP and the politics that usually surround it, I feel its necessary to explain how it come to be and what it involves.

The book that has inspired me to write on this topic and my primary source of information is called GDP: A Brief but Affectionate History by Diane Coyle. Coyle’s book gives a full rundown of everything GDP. I would strongly recommend it because this post won’t even cover 1/4 of what she does in this book. Coyle gives a simple word breakdown of GDP. Gross meaning not deducted as opposed to net (Her example was like net weight of a cereal box, it’s only the weight of the cereal without the packaging) Product meaning stuff made, and Domestic is simply at home.(Page 7) GDP is much more complex than the three simple words that make up its name. The history and founding of GDP begins at the start of World War II. However, the idea goes back throughout the ages.

One of the many controversies over GDP that still exist today was first explored by one of the greatest economic scholars to ever write. Adam Smith wrote the Wealth of Nations. In his book, he went over some relevent facts of GDP. His point to paraphrase is this: The manufacturer that produces something with their labor creates value and adds it to the economy. The person who employs many menial servants grows poor while the person who employs many manufacturers grows rich. The point here being that Smith sees the production of goods as adding value to an economy. He sees the services of a servant or a service in general adds nothing. GDP has often not included services because it’s too hard to measure the true output of a teacher. Also the word “Product” in GDP lends itself to the production of goods not services. (Page 10)

GDP’s history comes out of collection of statistical data and economists. Colin Clark calculated the expenditures and national income of the United Kingdom. Clark based his work on a publication by Alfred Marshall who wrote Principals of Economics before the Great Depression. Franklin Roosevelt encourage more research and work on the national income and expenditures during the Great Depression. This led to Simon Kuznets to work with the National Bureau of Economic Research, which earned him a nobel prize. One of things that Kuznets brought up is an important facet of GDP. Kuznets thought that he was working to measure welfare rather than just output. GDP is often used to measure the welfare of any given country. However, because like I said previously, GDP is typically measured by the output of an economic. The problem of welfare and GDP is one of modern criticisms of GDP. Coyle dedicates two chapters to the subject of GDP and welfare. (Page 12-14)

I want to focus more on the particulars of GDP and how it’s calculated. Coyle covers this topic quite well. I want to save welfare and GDP for another post because it’s too much for this post. Coyle goes over the three different ways to measure and calculate GDP. She gives a two charts. One chart shows how these calculations are done. Since I don’t have the chart, I will just describe each way. The first way is a Value Added production. Value Added production adds up the Gross Output. The gross output is the all the sales made in an economy. The gross output excludes the inventory because it’s counted by the next category of intermediate inputs. Which stuff like staffing, inventory, and other things that businesses pay money for to make their business work. Finally you get to a number that tells you how much value added each industry in an economy.

The second way to calculate GDP is through Income (by type) approach. This approach uses a set of different incomes and expenditures to make final figure of Total Domestic Incomes earned. There are rental income, profits and proprietors’ income, Taxes on production and imports, Less: Subsidies, Interest and miscellaneous payments, and depreciation. These are the categories of the Income (by type) approach. The third way to calculate GDP is through Final Demand (or Expenditures) approach. This approach uses the sum of these categories to make up the final sales of domestic product to purchasers. The categories are the consumption of final goods and services by households; Investment in plant, equipment, and software; Government expenditures on good and services; and net exports of goods and services (export-import). No matter how you calculate GDP, the measurement always is trying measure how much an economy produces and what kind of income the country who benefits from it makes. (Page 25-26)

The most popular and most used method in modern times is the Expenditures approach. Coyle also goes over the equation along with an awesome chart. The equation simply is GDP= C+I+G+(X-M). The letters stand for Consumer Spending plus Investment plus government spending plus exports less imports. (Trade deficit/surplus). Coyle also tries to show some problems with the GDP equation which is mostly that GDP is not so simple. The categories have multiple sub-categories. There is a lot of gray area. The numbers can be shaky. However, in the end GDP is the most reliable measurement of economy. Coyle mentions other indicators which can help round out the welfare aspect and government impact. The awesome chart I was referring is a two circles. On the left side there is the word “Individuals” and on the right side there is “Business”. The top of the circles, have two words. On the bottom circle it says Expenditures, and on the top circle it says Goods and Services. In the lower two circles, the top one says Income and the bottom says Labor. (page 26-27)

The story is that Individuals and Businesses interact in two different ways. The circles represent the different ways. The bigger circle with Labor and Goods and Services basically shows that Individuals supply the labor for business. The Business supplies the good and services. This is basic economics, it shows a supply/demand for labor and good and services.  The smaller circle with Expenditures and Income show that Businesses supply the Individual with income and the Individual supplies the business with Expenditures. The vice-versa is also true. Businesses make income on the Individual’s expenditures. This is a simple economics lesson that can help you understand GDP. (Page 27)

GDP is an important facet of economic measurement of any given country. As Coyle notes in later chapters which this post won’t cover, that GDP is not accurate in second and third world countries because of faulty accounting and statistics. She also covers a great deal of debate over whether welfare should be measured by GDP or not. These are more complex questions than I really want to go. I think the point of this post is to say that GDP is important to understand. GDP is not a true measure of welfare. It’s the statistical measure of economic input and output. As an example, GDP measures the number of phones that Apple sells after the release of the Iphone 7. It doesn’t take into account the welfare of the people who buy those phones. GDP is also a political tool especially when it comes to arguing over the economy.

Moving away from Coyle’s book in some ways, I want to briefly discuss why politicians like to use GDP. I think that much of the political controversy surrounding the use of GDP comes from the myths of GDP. Many people don’t realize the history of GDP. The misunderstanding of what GDP represents. Many politicans including present candidates for President seem to think that GDP shows how well the economy doing or more often how bad it’s doing. However, the reality is that GDP can fluctuate just based on how you calculate it. One increase or decrease in any given category there could be a 1-2 percent fluctuation. Another important myth to dispel is that government spending actually helps GDP. The debate that surrounds government spending and its effect on the economy is prevalent.

This is where I want to end this post and this series for now. My last words is that government spending doesn’t necessary make for the best economic move. The problem with government spending is that the government is NOT a business. Government makes their money from taxpayers. Its mandatory, you can’t just not pay taxes. It also makes a problem with counting the statistics for GDP. The government doesn’t have a real income with the exception taxes. This means that when the government tries to invest in anything it only represents an expenditure. If you recall the chart, the point of an economy is a cycle of labor into good and services that make income provided by expenditures. One example, that I know the best is that of the spending on the military. Military spending has often been one of the biggest items on US government budget. The national debt is nearly 20 trillion dollars. Some scholars have estimated that 16 trillion of that was spent during the cold war on military research and wars. The way that the DOD (Department of Defense) and the government have gone about spending this money is the problem. The military contracts assigned to military contractors during these years were given without little scrutiny. Many of the biggest contractors were able to contracts with no competition. The contracts included very little accountability or responsiblity especially in regards to money spent.

The point being is that GDP has actually suffered since the Cold War. This mainly due to stagnant economy. I mentioned that GDP doesn’t measure services which now is the most prominent feature of our economy. The reckless spending and bad fiscal policy by the government has given us some unfortunate consequences. GDP will always be controversial because of its complexity. I believe that its important to understand how GDP works. If you understand economics and GDP then you can understand that fallacy that politicians try to push on us. For me, this topic is fairly new but I wanted to try to introduce a little bit of the controversy and facts of economics and GDP.

Thanks you for reading! Have a great day!

 

Citation:

Coyle, Diane. GDP: A Brief but Affectionate History. Prinction University Press, 2014. 

 

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Economic Series Part 2: Government Budget: Taxation and Spending

The most dreaded time of year is when everyone must file their taxes. Taxes are certain like death. Taxes are a necessary evil. To many people it seems that our taxes do very little for our own interests. Taxes are supposed to help the people who pay them but rather they seem to help special interests or people who don’t pay them. The responsible party of handing our taxes is the government. The IRS is the collector, Congress is the spender. I believe that this Economic Series Part 2 is probably one of the more important topics. This part will be a sort of contextual background for the last part of this series on GDP. (Gross Domestic Product) I think its very important to understand how the government balances or fails to balance the budget. The topic I choose is quite broad. However, I want to focus on why taxes are collected and how they are spent. I also want to point out how the national debt is growing and what we might do to stop it.

My own view on government taxation and spending is very much libertarian. I believe the government should spend as little as possible. This way our taxes are not the burden they have become. Government spending tends to go to ineffective programs and usually becomes wasteful. I think the best way to understand the federal government budget is by understanding some of the history behind. The creation of our federal budget and tax system was mostly implemented by one man. Alexander Hamilton is the responsible person for most our budget system.  If you remember from history class there was a lot of rebellion and distrust among the citizens of our new country. Many of Hamilton’s critics thought he wanted to become a pawn of the British or king of America through a tight relationship with England. Luckily for us, Hamilton’s set up turned out to be brilliant, and was kept in place until now.

One of the first ways that Hamilton helped set up the federal budget was by creating an import and customs service. It was necessary because when Hamilton became the secretary of treasury, the US had a war debt due to the revolution. In order to pay this war debt off, Hamilton created what is now the Coast Guard. He also set up customs and import agents along the ports. These agents were to collect the duties on the imports to America. The duties or tariffs were basically a tax on imported goods. This was the main source of income for the federal government after the Revolution. Another piece of the system that Hamilton created was the banking system. Hamilton realized that the US need a national bank. In part because of the debt and in part because of the wide range of currencies that existed among the former colonies. The Bank of America (similar to the one we have now) was created. Congress wrote a charter for it and it opened up by selling shares. These shares is how the bank made its money. The controversy came when it lead a lot money speculating among men who wanted to risk an investment in the bank.

The Bank of America also set up a line of credit for the federal government. This is was necessary because in order to pay back the war debt the US would need to take out a loan. Hence this created what we call credit. Hamilton’s system was much criticized by Republicans like Thomas Jefferson and Aaron Burr. One of Hamilton’s primary supporters was actually George Washington. With increasing responsibility due to the growing population and turmoil in France, the US needed to increase its revenue. Hamilton proposed and got a whiskey tax passed. This whiskey tax would put a small tax on whiskey and liquor. This lead to the Whiskey Rebellion in western Pennsylvania. Hamilton himself lead a rather big militia to help quell this protest.

Hamilton’s role in the banking, budget and tax collection in the US is monumental. It is often forgotten that he nearly created the whole system by himself. An impressive feat. It wasn’t until the 16th amendment that make income tax a thing in the US. This was passed in 1913 long after Hamilton’s death. Woodrow Wilson brought us into the modern era of taxes with the 16th amendment and the Federal Reserve Act. The Federal Reverse Act created the Fed as its usually called. The Federal Reserve Act basically moderates the US dollar according to the economic conditions. It also prints and controls the US dollar. Unfortunately, the Federal Reserve is mostly privatized. You may have heard the phrase “Audit the Fed” from politicians like Rand and Ron Paul. The problem is essentially, the Fed is undermining the US dollar and devaluing it. The Fed has its own agenda and nobody except the Fed knows what that agenda is. (Another post, another day)

Now in 2016, after over 200 years running our government, we find ourselves in 19 trillion-dollar debt. What could have gone wrong since Hamilton? The answer is hard to pinpoint. However, my working theory is that after War World 2, during the cold war, we started to spend more and more on defense. Defense spending became out of control and the Department of Defense was not held accountable. The DoD was allowed to “cook the books” on their budget numbers. Some estimates that I’ve seen put our spending during the Cold War at 16 trillion dollars. I would encourage you to check the national debt clock that shows our debt in real-time. It breaks down the debt into categories. The national debt being so high is due to overzealous spending and lack of accountability in the government.

As for a breakdown in spending and what we spend our tax money on. I found a nice infographic that shows how we spend our federal budget. It focuses on how the debt is effected by certain factors like raising and lowering taxes. You should definitely check it out right now. It’s from the Congressional Budget Office, a government agency. I think that paying taxes is obviously important however, I believe that some of our tax dollars are wasted. One of things that needs to happen is for the federal government to cut spending. Unfortunately, we don’t hold our government accountable for the money that it spends. A good analogy is like when you take your parents credit card and go on shopping spree. Your parents may give you the credit card with a reasonable expectation of what you will be spending it on.  Instead though, you spend it without any kind regard for how much or on what. Imagine if your parents never held you accountable for spending all their money. They would probably go bankrupt in most cases because without restrictions, then what’s the point of spending less?

This is how the federal government and taxpayer relationship basically works. The federal government is you as teenager with a parent’s credit card. The taxpayers are the parents. As taxpayers we are pretty irresponsible parents. We don’t hold our government accountable for their actions in spending money. The tragedy is that the US is in big trouble because of reckless government spending. The 19 trillion-dollar deficit is almost an insurmountable sum of money. Rather than discussing who is to blame for the problem, I think its more productive to discuss how to remedy it. The blame can be distributed to many people and government agencies. The blame can be put on US foreign policy too. However, there is a relatively easy and pain-free way to help cut the deficit and still keep our standard of living intact without raising taxes sky-high.

There are two primary solutions that I feel would work to greatly reduce our debt. One of those is a simple cut in unecesary government programs and spending. One of our biggest expenses is the military budget as you can see below:2016-budget-chart-total-spending2

So just imagine if we pulled back most of military troops from abroad and cut most of the unecessary research and development budet. I would only cut about half of the military budget. At nearly 634 billion dollars, let’s cut it down to 300 billion. The 300 billion left for the military would go towards the salaries of personnel mostly and all the war material necessary. In the case of an attack on us or our allies, then obviously the money could be restored. So where would that 334 billion that I cut off go to?

Take a look at the pie chart again. 60 precent of our budget is spend on healthcare and social security. Social Security, by the way is going bankrupt. So let’s put 334 billion into both of those. Approximately 150 billion to each service. In addtion, lets cut off the foreign aid to other countries and add another 30 billion to the pot. So imagine over eight years during just one president for two terms, with approximately 165 billion dollars going to sinking welfare programs. So in 8 years, the US would put nearly 2.6 trillion dollars into those welfare programs. You could even take a step further, take about 2 billion or 3 billion out of the 364 billion and put that into higher education. You could pay off the loans of all students each year. Just think about all this, this is just cutting the military budget by half. Which by the way, is nearly 10 times as big as the next country’s military budget.

My other option, which I have written about before and have over time, really have come to like is Basic Income. You should definitely read my post on Basic Income. I will explain in short, that Basic Income is basically a replacement for welfare. You cut all social programs including medicare and medicaid. Cut minimum wage. Cut everything related to social security.  Instead you give everyone over the age of 18 a check from the government for a certain amount each month. Now just imagine if we did as I describe in my basic income post and we cut the military budget. I truly believe that the effect of both of these actions could lower taxes and help eliminate the deficit.

The taxation and government budget problems are ones of responsibility and accountability. This in part comes from the lack of education how the taxes and spending work within the government. I hope that my brief explanation can help clear up some of the confusion and misunderstanding about how taxes and government budgets work. I mentioned that this series post prefaces my next topic of Gross Domestic Product. Its important to note that GDP is calculated without the input and outputs of the government. The government spending money on military war material and other research does not count towards GDP. This is a very significant fact in that it strongly affects the GDP numbers. As you will find out in my next post that GDP only measures the input of labor and the output of production by the private sector.

I would encourage you to research more outside of my post. Its a very interesting topic. Thank you for reading! Have a great day!

 

Basic Income–A replacement to Socalism?


I was browsing around fivethirtyeight.com, one my favorite websites right now. I came across an article discussing the idea of basic income. The article itself details the journey of a man who devoted his career to studying such a measure. I would definitely recommend that you read the original article, right NOW. Now before I explain what basic income is and why it may be a viable replacement to socialism, I want to say that there is no replacement for free market capitalism. No matter how you look at it, free market capitalism is the most successful type of economy. Also if you read this blog on any sort of regular basis you will often find me ripping and shooting holes through socialists ideas and policies. The only thing I have against socialism is that it just does NOT work. You may think after I explain that I’m proposing an socialist policy, but I’m not. I am merely suggesting a completely re-thought social welfare policy that could actually eliminate some of the problems that socialism presents.

Basic Income as explain by this article on fivethirtyeight is an no-strings attached, government funded check to each citizen of certain amount per month or annually. Now in the article they don’t get into many specifics on who actually receives this basic income check. They only say that whether your rich or poor, you get a check. Sounds really crazy right? Why the hell do people like Donald Trump need a free check from our government? Won’t it deter people from working? At first, I had come up with many questions like these. But then I started to think about it in a more realistic way. Now, if the government was cut a check each month for each citizen then we would obviously have to cut some other sources of spending. Naturally, when you think of a free check from the government you think: Welfare. So what counts as welfare?

So as defined by the article, welfare includes old age, health, family, disability, housing and a few random others like food stamps, government funded services. Let’s say the US government would cut all welfare which according to this chart made with data from OECD (To read more click on it). The chart is shown below:

flowers-ubi-21

So as you can see the US spends about 700 billion dollars on welfare related expenses per month per capita. This is all taxpayer funded money. So now the questions that I need to answer are who receives this check and how much should it be? The article does offer some light on how much. A proposed Swiss Basic Income law had the amount set around 1700 dollars a month. As you can see that the Swiss spend a similar 650 billion or so on welfare also. So let’s say the US will set it at 2000 dollars per month. And based on US census data from 2014, I have estimated that there 244 million people above the age of 18. I feel like once your 18 you should entitled to basic income. If your under then you’re probably not responsible enough, it should reasonably match with the voting age.

So here is my estimation by somewhat rough numbers:

Basic Income: $2000

Population over 18: 244 million

Monthly cost of Basic Income: $488,000,000,000 billion

Monthly cost of welfare: 700 Billion

Savings by Government:$212,000,000,000 Billion dollars.

I believe that my numbers although rough can easily justify a basic income as a cost cutting and effective way to reduce welfare costs. Now I could be wrong about any number of things in my calculations. However, let’s just take with a grain of salt and say that this is how it would be. Let’s be honest that the government has too much power over us through welfare. The government programs are usually poorly managed and very costly. Also who knows the best way to help you if your in poverty? The government? Or YOU! I think that people honestly know what they need to survive. Now many skeptics including myself will still call bullshit on this whole thing. This: Won’t this just deter people from working?

Honestly, I can say that it might deter some. But those same people are the ones who don’t work now and are on welfare. So in reality that problem can’t be fixed by an basic income. However, I think the war on poverty thus far has failed. Lyndon B. Johnson started it in the mid 1960s and we have been trying to fight it ever since. Unfortunately, the government is pretty ineffective at providing the poor help. So what makes me think that this measure could work? I think that this measure could work because it provides people the freedom to do what they will do. Let me give you two different situations that would probably occur across the country.

First situation: John Doe is a mid-level manager of a fortune 500 company. He makes a decent salary of about 90,000 dollars a year. When a basic income proposal is passed, his income increases to 114,000. John decides that instead of buying a fancy new car or going on a shopping spree with his wife, that he will invest the money and save some for retirement.

Second Situation: Paul Smith is a construction worker who has been in and out of work. He makes enough to get by, about 45,000 dollars a year. When a basic income proposal is passed his income increases to 69,000 dollars a year. Paul decides that instead of saving that extra he would rather go to the bar and party. He also decides that a fancy new car is in order.

Obviously, people of all incomes will do different things with their basic income. I don’t think its necessary wrong to go out and spend all your basic income on cars and drinks at the bar. I think its fiscally irresponsible and maybe immature. However, it still stimulating the economy. I believe the greatest asset of a basic income is that it allows people the freedom to do whatever they want. It allows you the freedom to quit a job you don’t like without losing all your income. Let’s face it 24,000 dollars isn’t a lot but its better than nothing. It may increase productivity because people would spend time searching or improving themselves for the jobs they want to do. Just imagine as a parent, if you that extra 24 thousand you can afford to pay for your kids college education. Of course, many will argue “it doesn’t close the wealth gap”. You are right, but the point is not to close that gap. The closure of the wealth gap is not really possible, sorry to break it to you.

My conclusion is that basic income may be a better alternative to socialism. Basic income is almost definitely better than our current welfare system. If you think our current system is unfair, then here you go, there is nothing more fair then everybody getting a piece. Now is basic income a realistic political idea in America? That I can’t tell you. However, I can tell you that basic income is a form of a welfare that could replace the costly and expensive welfare system currently in place without restraining our economy. I am also sure that if income is weighed right by inflation and standard of living, then it could save us billions in welfare each month, trillions a year. Our national debt isn’t getting any smaller.

I know I didn’t talk about how taxes would be effected. I would assume it would come with a small flat tax or more likely be added to your income tax. I think because of freeloaders you would have to tax it, otherwise you have many taxpayers disappearing off the tax roll.

Thank you for reading! Let me know what you think!

Economic Intelligence: Politicans Lack it

Its occurred to me on multiple occasions that politicians seem to lack any sort of intelligence in regards to economics. My last post was a heated detest of Trump’s printing money comments. I scathingly scold him for being so stupid about messing with our currency and debt. Trump’s comment literally make me think that candidates running for President think that money grows on trees. In some magical way their tax plans and spending outlays will work out in some kind of utopian dream. Let’s be honest though, its not just Trump, its Bernie Sanders, Hillary Clinton, even recently dropped out Ted Cruz and John Kaisch. I think for me, the biggest weight of decision on who to vote for is through economic policy.

As I usually do, I want to pose a question then slowly answer using historical and modern references. This time instead of posing any real question I just want to review a little historical background on who made our economy because its the subject this great biography on Alexander Hamilton. Then I want to review why the policies of both democrats and republicans alike are misguided. I may also dive into the problems with our economic system. The best starting point on a such a broad topic is to actually narrow it. More specifically, I want to discuss the taxation throughout American history. Then I want to get into the federal budget and debt.

On the subject of taxation, there is famous saying from the Revolutionary War that was a common rallying cry for independence from Great Britain. You may even remember this saying from middle school history: No Taxation without Representation!  The British heavily taxed the colonies to pay for their ever-growing debt. The monarch, King George III had many foreign wars and colonies to protect. As a result, high taxes were levied on the American colonies. The problem was that colonists had no representation in the British constitutional monarchy. When the colonist tried to gain influence and resisted the taxes, the British responded with even harsher taxes. In a simplified version, this lead to the Revolution and ended with the American colonist winning the war.

After the war, the issues of taxes came up again. The main proponent of America’s future financial stability was Alexander Hamilton, first secretary of Treasury. Hamilton wrote and pushed through many of today’s financial laws in government. Hamilton was able to establish excellent credit through the payment of debts. He was able to consolidate state debt and federal debt because each state held its own debt before the constitution was created. In order to make sure that the federal power came before the state’s power, Hamilton pushed for the consolidation. Hamilton also created bonds to help pay for the war debt. The main form of income in the early 1790s was import duties. Hamilton revamped the customs, invented the coast guard and cut down on the smuggling. (Smuggling was popular during the Revolution against the British.)

As the United States grew bigger its need for government revenue increased. Obviously this meant an tax on actual citizens. While Hamilton was still alive there was no such support for an income or land tax. Part of the reason that many rich landowners were against it, the same ones that were also in government. It was not until the Civil War that an actual income tax was passed.  The government also tried varies taxes on goods like alcohols. This only resulted in rebellions. These measures were never popular. Of course as we progress to the early 20th century we can see that taxes increase by each decade. One of main sources of income by the federal government was through bonds especially during the World Wars. If you don’t know how bonds work then its basically a government backed loan. You pay 100 dollars for a bond slip. In a certain period of time your able to cash it in with an interest rate.

In modern times, by this I mean post WW2, taxes are generally considered to be fairly certain like death. Taxes have always fluctuated, such as during the 1950s into the late 1960s with the Vietnam War saw taxes go high. Then in the 1980s, Ronald Reagan cut taxes and the trend of lower taxes continue up until about the early 2000s. Of course, our tax code is very complicated due to politicians messing with it. Many former presidential  candidates wanted to scrap this tax code. I feel like I’m beating a dead horse because I have talked about tax plans numerous times. To save my word count, I will just generally say that all three current candidates tax plans are either very wrong or very misguided or both. (scroll through my blog to find their tax plans)

Alexander Hamilton did a ton of good for America’s financial system. He also held the opinion that being in debt was a good thing. I honestly think that if he knew that we have accumulated 20 trillion dollars in debt, he would roll in his grave. America has always been in and out of debt through our history. You can typically identify times of debt with wars. I have also noticed that following a war, the debt will vanish due to economic dominance. The best example is probably World War 2. The post-war period saw America as the world’s number one creditor and business leader. This is mainly due to the fact that most of Europe and Asia had been destroyed. I believe that and many economists believe that our debt is way too big. It will nearly impossible to pay it off. Not to mention that people like Donald Trump and Bernie Sanders want to wreck havoc with insane policies like printing money and spending as much as 10 trillion!

***

So your probably wondering where exactly I’m going with all this history and modern references. (to the bank, of course!) First, I think that Economic Intelligence is more than just an understanding of economics. Economic Intelligence is knowing when your policy is working or not working. Its knowing that printing money will surly ruin us, DONALD TRUMP! Economic Intelligence is being smart about money, its being similar to Alexander Hamilton. I’m not saying that Hamilton is the end all–be all, but his wisdom on economics has endured over 200 years. The fact is that I could take any of the three clowns running for president and poke holes in their economic and tax plans. The problem is that really don’t understand how economics works. Repentantly, they haven’t been paying attention because the last 75 years have shown that their methods won’t work.

For example, Hillary and Bernie plans to raise minimum wage and use a democratic socialism platform has been tried before by countries of similar or larger size. Let’s take Russia for example under the Bolsheviks, Lenin, Stalin. All these communism leaders installed a socialist economic system or state run economy. The Russians faced problems of shortages, starvation and to add insult to injury, genocide. In a similar fashion to what Sanders wants to do, Stalin also wanted to take down the rich people. Guess what happened, he certain took them out by killing them. State run economies just don’t work. You need capitalism because the market should decide. I think economically speaking, I would rather have some poor and disadvantaged over having many poor and disadvantaged.

Unfortunately, economics dictates that re-distribution through unnatural means leads to more distress and poor. In addition, the biggest and most irritating issue that of spending and debt. I would love to understand how printing money won’t lead to disaster. Also how will spending MONEY decrease our debt that was created by SPENDING money? In conclusion, I want to underline the point that economic intelligence is necessary in a good presidential candidate. History has shown us both good and bad ways to make an nation economically viable. We need to choose carefully otherwise face consequences not unlike economic unintelligent nations before us.

Thanks for reading! Sorry it was so long!

 

Trump Goes Full Retard

I was peacefully eating my brunch of spaghetti because I didn’t wake up in time for breakfast. The TV just happened to be on CNN. I don’t typically watch CNN. However, for the few minutes that I was listening I heard a sound bite and explanation of Donald Trump’s newest controversial comments. These comments were regarding the national debt. If you haven’t heard yet, here is a link. I could not believe what I was hearing. I could have expected this from some democrat especially on CNN. I never heard any politician propose such a disastrous plan to fix our national debt. And yes, this is even worse than Bernie Sanders whose grasp of economics is about as good as a first grader.

Of many troubling statements that Trump uttered, I found two pieces to be the most unwise and cringe-worthy. So now I will quote parts of his quip then explain why ‘Trump Goes Full Retard’ as my title indicates.

If interest rates go up, and we can buy bonds back at a discount, if we are liquid enough as a country, we should do that. In other words, we can buy back debt at a discount. People said I wanted to go and buy debt and default on debt, these people are crazy. This is the United States government. First of all, you never have to default because you print the money, I hate to tell you.

Well Donald Trump, I hate to tell you that buying back bonds at a discount is an unadvised action that would have major consequences. You see the US government has one of the best credit ratings in the world. (Recently was downgraded from AAA to AA during the recession though) This means that if we buy back bonds at a discounted rate it would undermine the value of those bonds therefore making the government liable for lost money on investment. The result is our credit rating sinks even lower! Its similar to private loans when you don’t pay the loan back in full, it tends to sink your credit rating and crush you with creditors phone calls.

The other problem with buying back bonds whether at an discounted rate or not, is that what money will you be buying with? Trump’s tax doesn’t actually raise any revenues because he doesn’t specify any spending cuts. I am curious to see how he will buy debt without just making more debt. It sounds like a person who addicted to credit cards. Its a good analogy because if you use the credit cards to outspend the money you actually have eventually it turns into more maxed out credit cards. The rate that your debt will increase will be huge because of interest rates. I don’t know what makes Trump think that creating debt by buying debt will help shrink anything. In fact, its bound to make it even worse. Trump is literally treating the national debt like its junk bonds or securities. Its totally different because your messing with America’s hard earned financial reputation.

My rant doesn’t end here because the second part of his statement about “you never have to default because you print money” is even more insane than the first part. I think Trump needs to go back to Economics 101 with Bernie! I believe that its common knowledge that printing money is a risky proposition. Its been tried before too by Europe, Asia and even here in the US! The results are never good. Just look at Germany during World War 2. Hitler decided that printing money was a good way to pay for his war. It resulted in mass hardships for the German people. The money was useless paper and all commodities like food and oil were either very expensive or scarce.

I hope Donald Trump realizes the printing money can lead to things like inflation and devaluation of money. As of right now the dollar isn’t the strongest because of the repeal of the gold standard. The dollar is only as good as the government that issues it. If Trump were to print money to pay off the debt this is what would happen. First off, he would never pay it off because before he could print enough money it would be pretty much worthless. Second, inflation would go way up given that our national debt is 20 trillion dollars. Third, the price of everything would go sky high because of inflation and devaluation. Just imagine a dollar being worth the equivalent of a less than penny. You would need hundreds of thousands of dollars just equal the value of a dollar now. I’m not sure of the math but I’m pretty sure that it would only take a couple billion or trillion to make it worthless.

Up until now I haven’t been too hard on Trump. Obviously his ridiculous stances on immigration and women are hard to overlook. I think we all know that Trump’s fantasies won’t come true because the US government tends to repel any major change. To some degree, I think that Trump tries to sensationalize his views in order to get media attention. I also feel like he may not truly be married to his policy positions. He is also not a politician by nature. Despite all of that, I had to throw down the hammer. These comments are pure garbage. It would be one thing if made any economic sense. I just hope that if Trump ends as President that he selects some good economic advisors. For the sake of America’s future financial status.

I hope the Trump supporters will make Trump realize his fatal error. We could be in some seriously trouble if Trump is able to pull any of this crap.

Thanks for reading! oh and Trump, YOU NEVER GO FULL RETARD!