Economics: Foundations and Fallacies

Americans do still have some common sense. Granted, it's diminishing, but it's still there. The people know that the economy stinks on ice and is getting worse. Of course, the administration and their allies in the press haven't quite figured that out. All their rhetoric won't change the reality.

How do they make their claims that the recession is over? What is all this talk about a "double-dip" recession? What does it mean? How does it feel to have them try to pull the wool over your eyes because they know that the basics of economics aren't taught in school anymore?

Here's the scoop. Recessions are measured by increases and decreases in the Gross Domestic Product (GDP). This you may already know because they talk about it. They are telling the truth when they say that the GDP has gone up so, by this measure, the recession did indeed end. Unfortunately, the GDP is not the best barometer of real economic performance. The reason for this can be found in the formula. Math is at the root of the deception behind the stories.

GDP has a complex and almost incomprehensible formula. Only the greatest mathematical minds in the country can comprehend its calculation. Here is the formula:

C + I + G = GDP

I know it's difficult. The variables are Consumer Spending (C), Business Investment (I) and Government Spending (G). As a matter of explanation, business investment is spending money to purchase equipment, expand operations, or other use of available resources. It is not the stock market. To an economist, the stock market is savings not investment.

Ok, now here's the tricky part. Let's take a look at some real world applications for the formula. What would happen to GDP if, just for the sake of argument, that C goes down by 15%, I goes down by 15%, but G goes up by almost 100%? Assuming that G is a large component (which it is), GDP would go up despite the fact that the two private sector components decreased. This is pretty much what happened.

In the real world where most of us live and work, the economy still stinks and we see no benefit from the increased GDP. That means the so called recovery is bogus. It is an artificial creation of the government to fool us into thinking they did something. The only people who have benefited have been the ones receiving federal assistance (at the highest percentage of the economy in U.S. history) and the special interest groups of the Democrat party.

Given this, there isn't going to be a double-dip recession. We never really came out of one in the first place. The government and their allies in the press are making a lot of noise lately that the private sector hasn't stepped up to the plate after the government did it's job. If you actually believe the stimulus package worked, then the private sector would have seen the growth. Consumer spending and business investment would both have seen an increase. We know that they did not. Hmm. Did it work? You tell me.