The fraudulent number that is Gross Domestic Product (GDP) is a substantially shrunken number relative to the true size of the U.S. economy. See the “surge” in GDP reported yesterday for evidence.
The U.S. economy is always growing precisely due to the people in the United States, and their prosperity is most certainly much greater than what GDP indicates. To see why, just contemplate what factored large in the 4.3% increase.
Exports rose 8.8% while imports of goods fell at a 4.7% rate. While an economy as thoroughly dynamic as the U.S.’s shouldn’t be measured in the first place precisely because human action can’t reliably be measured, consider once again that falling imports paradoxically increase GDP. Contemplate the meaning of what you just read.
Really, what other than investment could be a bigger signal of booming economic growth than the inflow of foreign plenty? The latter is a market signal that global producers are so optimistic about the present and future of the country exported to that they direct their production in ever greater amounts to that country. But GDP is shrunken by rising imports, while boosted by falling inflows of foreign goods.
Considering investment, the biggest and realistically ONLY driver of economic growth, it too saps GDP. While the export of market goods boosts this most fraudulent of numbers, the export of shares in American companies doesn’t count in the measurement of the so-called “trade balance.” Think about what this means, and what it has long meant for U.S. GDP growth. And in thinking about it, consider the fact that the Dow Jones Industrial Average was as low as 742 in 1982, but as of this writing sits at 48,416.
What readers hopefully see is that surging U.S. equities over the last 43 years have incongruously shrunken U.S. economic growth as measured in the fraudulent number that is GDP by enormous amounts. Soaring U.S. equity indices have been a magnet for foreign investment inflows, but the subsequent export of shares to match the inflow of investment resulted in a massive “trade deficit” for the U.S., which was nothing of the sort.
Trade balances, by definition. Economies are individuals, and the imports of individuals (whether from across the street or the other side of the world) as a rule mirror their exports. It’s a reminder that far from a growth negative, decades worth of GDP-sapping “trade deficits” have in truth been an effect of imports into the U.S. exceeding exports solely due to the export of U.S. shares to the world’s savers. Yes, you read that right. The enormous inflow of foreign savings in pursuit of ownership of the world’s greatest companies (American companies) has been a GDP negative.
Looked at in the present, President Trump and those in his Amen Corner will point to the GDP number with all-knowing glee, but the latter is substantially an effect of tariffs limiting the inflow of goods, thus mitigating a “trade deficit” that has long signaled U.S. economic growth much greater than GDP indicated. To simplify it as much as possible, what’s good for economic growth is bad for GDP, and vice versa.
Some will add that consumer spending also played a big role in the GDP report, but consumption is an effect of growth that already happened. Which means GDP is a monument to double counting in addition to a fraudulent measure of economic growth. Wise minds will dismiss this most worthless of numbers that only an economist could love.
Originally posted to Real Clear Markets.
