The GDP number has achieved a level of importance, that keep central bank governors up nights wondering why getting it to increase is so difficult.

I learnt in my 101 economics class that for an economy to thrive you needed three things to give growth to the economy. That was supply,demand, and liquidity.So if the worlds economy has all three of those in large quantity, why has GDP growth slowed to less than 1% in most places.

If you are able to answer this in your own simple words I would appreciate it, as economics jargon goes over my head.
Chris

The GDP figure is the best measure we have of the amount of economic activity that's occurring. It should be increasing at a fairly steady rate, enabling everyone to be materially better off without making others materially worse off.

But throughout most of the last decade, there's been a shortage of demand. People are unwilling to spend so much money because they're uncertain about their own future circumstances. Businesses are unwilling to spend so much money because they're uncertain about whether they can make a profit from doing so. And governments are unwilling to spend so much money because they, the public, and even quite a lot of economists have such a poor grasp of macroeconomics that they believe a balanced budget to equate to economic responsibility. So GDP growing far more slowly than it should be.

Aiden, when you say "there's been a shortage of demand", all I can see in our society is rampant consumerism. To what level does demand have to reach before its excessive? We are like some grotesque animal hellbent on consuming ourselves, and wont be satisfied until we consume ourselves out of existence with a never ending demand for growth for a never ending growing population.

GDP sounds important. Gross Domestic Product. Around 1999, I heard GDP referred to as Gross Deceptive Product.

Treasurers make announcements when GDP figures come out lower than expected, sounding scary transparently concerning.
During 1990s, Paul Keating said, “you need 3% GDP to keep up with population growth”.
Governments can increase support by building industry, using immigration, using GDP myths excuses, so new workers can increase home building manufacturing turnover.

If a house burns down, a builder builds a new house, that adds to the GDP figure yet the national wealth has not increased because the new house was merely replacing the burnt down house.

If iron ore is mined and exported, the nation has no increased wealth adding to GDP other than foreign currency credits and or wage income credits, yet is it GDP value added?

Manufactures of crack cocaine and ICE get added to the GDP?
How can an increase GDP calculation from one quarter to the next quarter be collected? Announced the following quarter first month.
Importing consumer goods, wholesaling, storing goods on shelves for sale, selling goods seasonally. Does GDP quarterly figures ever go negative?
Corporations run on 90 day credits. Bananas are seasonal.
When damaged goods are thrown out and or eaten, does GDP figures reduce.

How are GDP figures collected? My answer is all figures and graphs are invented for public propaganda consumption. I constantly try to convince readers, everything is a lie.

Confidence surveys collected from company CEOs, invented lies.
Can I empirically prove my statements? No. Nor does anecdotal media.

Recently QandA had guest Simon Reeves holding a graph, pointing to how the Earth's temperature was increasing. A Senate politician says, “that's not empirical evidence”.

Sunday morning television religious ministers saying, “Be aware of the devil, the devil is everywhere, the devil is deceitful”.

Zoroaster founder of Zoroastrianism mythology, Christian and Jewish religion stole “War in the Heavens” parable story myth. The Devil lost the war in the heavens, The Devil and his angels were cast down on Earth, Moses built an ark for the god Yahweh to live in. The Jerusalem temple held the ark with god Yahweh inside the ark. The snake on Genesis tree of good and evil, said to be the devil.

Ethiopian church states they have the Moses's god in the ark.

People are so gullible, yet, by a parable mythical story, people can't think to realise who god is. Because of school learning education, leaders know people will believe what they're told. Doesn't matter weather figures are real, there is no real reliable method to collect statistics. People providing information can lie just for the fun of it. You never let the truth spoil a good story or a good manipulating transparency scary statistical figure when needed.

Share markets have economic figures coming out every day, allowing markets to look volatile. Markets even have a volatile index graph, calculating assumptions of investment speculation wealth creation. Without volatility people can't create increased gambling profits, stated on investment company and Superannuation accounts balance sheets. Companies look to make profitable trades, yet I assume very few companies report huge loses, until that “end of time” market crash.

666 mentioned in the bible is the devil's number, symbols have no upright location. Number 8 is eternity rotated 90 degrees. 101, in 1999 I was told was said to look like a symbol of the devil. (1s) on each side of the zero are horns while the zero is the devil's head. Yes, 101 symbol of the devil sounds ridiculous, easily ignored by people wanting to believe the honestly of anecdotal governments. That's why many learning titles have 101. That's why I use handle steve101 and steve9 on several other forums.

Graphs and figures are all lies, even the unemployment figures are not sort from Centrelink, who, Centrelink would merely have to press a few buttons on a computer keyboard to calculate the true unemployment figures, yet, people believe media statements as though truth is always expressed.

What god ideology runs establishment?

Cathedral twin towers represent the horns of the devil, and or women's breasts. You may say “anyone can post anything on the Internet”.
http://en.wikipedia.org/wiki/Moses_(Michelangelo)

Michelangelo has posted his comment long before the Internet existed. I would say, using pope Julius II instructions.

Why many country flags have pentagrams? Flag pentagrams symbolise the devil, the devil symbolises evil. And, flag pentagrams symbolise the five wounds of Jesus. I say Jesus is a threatening symbol by Jesus own life parable story. Symbols can have more than one meaning. Whatever else pentagrams symbolise, there is no suggestions of truth and honesty.

Self-perpetual Free Market Forces economics are too good to be true. Free market forces conveniently used to blame for economic downturns when boom periods end. The devil is in the detail.

The Next Bust Excuses:
Recently, world bond markets “zero interest rates” have been a finance news item. I suggest finance news have been expressing zero interest rate bonds, bond markets for several years. I suggest, listeners are being conditioned to believe multiple trillions of many currencies denominations, of very low interest bonds, exist.

Australian 2 trillion dollars of superannuation, much of superannuation investments are in bond market's imaginary government bonds. When interest rates rise, as often predicted. Bonds will lose market trade-able value by whatever interest rate percentage increase multiplied by the number of years remaining on invested bonds. Investors speculated bond market profits as interest rates fell, will turn into loses when bond rates rise. Bond market crash history: March 1994 6% to September 1994 10%; 1970 lows to mid 1980s highs.

101 economics readings are designed to hold readers ignorant of real information, using fake graphs as thought economic theory is real.

Google “animal spirits” to be more confused by last paragraph statements.
http://www.economicshelp.org/blog/glossary/animal-spirits/

A theoretical example:
I'd love to have my own company that could issue low to zero interest rate long term bonds. I'd sell the bonds on the bond market, and wait until interest rates increased. Buy back my issued bonds at one cent on the dollar. Now that I knew when my bonds mature date arrives, my company will pay out the initial bond value dollar for dollar to my own company. I made 99 cent profit on each bond dollar issued. Dump the cash in a self-managed retirement superannuation account. I'll buy a big house through avoiding legal rules using “in the know” knowledge. Live in the house paying my company one dollar each week rent to my zero tax paying company.

End of my theoretical example.

Finance advisors are saying “don't panic” I assume, while they're selling out their investments, holding cash.

Getting back to GDP and other financial graphs. I anecdotally state, Information is often used in finance news to create an allusion of reality. Quoting graphs as though graphs mean something of value, redirects readers concerns, and need to know anything. Readers are limited to rely on graph suppliers.
Meanwhile real concerns, the bond market, how rising interest rates effects bond investments, are being ignored. By people concerning their spare time thoughts with sports.

If financial advisors are encouraging bonds as safe investments. I suggest, financial advisors are merely following centralised markets advice, controlled by the hidden, rarely ever mentioned establishment.

steve101.

Aidan
So, are saying that every time money moves it is added to the GDP number? For instance, in the finance industry, which move trillions around at the click of a key, are they included?

You also say there is no demand in the economy. It is true that the groups of people you refer to don’t have demand and are sitting on their assets. However you don’t have to go far from their ivory tower to find many who have demand. The problem is that the mass of liquidity that exists today (US$ 30,000 p/p) is in the wrong hands.

You say that many economists have a poor grasp of macroeconomics, so here is your opportunity to tell us your thoughts, and what you would change.
Chris

Steve
Your comment regarding drug sales being included in GDP are actually included in the UK GDP figure. In fact starting last year they included figures from not only drug sales, but also prostitution. So the figure is now given the true meaning of GROSS domestic product. Also as the trades are illegal how do they gather the information?

I agree with your comments regarding government bonds, and economics 101 (which I failed).
However have to say the rest of your posts I found difficult to follow.

Chris

Chris,

No, purely financial transactions are not included in GDP.
GDP only includes the money that ends up as wages or profits (or taxes such as GST). See http://en.wikipedia.org/wiki/Gross_domestic_product

There is demand in the economy, but not enough of it, hence many people don't have work.

Yes, many economists have a poor grasp of macroeconomics. The six most important things they're most likely to fail to understand are:

SECTORAL BALANCES and why government attempts to cut the deficit are futile when the private sector's weak, and can be counterproductive.
FINANCIAL SOVEREIGNTY, the implications of unlimited credit, and why governments shouldn't aim to eventually eliminate their debt.
LAND RENT, why land should be taxed more, what obstacles there are to implement this and how they could be overcome.
ECONOMIC EFFICIENCY, how taxes are just one factor of many for business competitiveness, why it's not safe to assume that incentive's the limiting factor for productivity, and why shifting the tax burden onto those least able to pay doesn't enhance productivity (see my response in the Respect the Dismal Science thread).
EFFECTS OF FIXED AND FLOATING CURRENCIES, how fixed currency rates are the real cause of the hyperinflation commonly misattributed to printing money, how floating currencies cause most problems to sort themselves out, what risks remain and how to avoid them.
EMPLOYMENT, PRODUCTIVITY AND INFLATION and how keeping the unemployment rate high is not necessary for controlling inflation.

_________________________________________________________________________________

Paul1405,

Demand and consumerism are not synonymous. Indeed even consumer demand is very different from consumerism (not that the latter is rampant across the entire country anyway). But there's also demand from business investment and from government. And it's the total demand that counts.

LEFTY,
Economists are puzzled as you have said about why the financial
tools, interest rates and austerity no longer work.
Energy costs eat directly into GDP.
Hence the low GDP world wide.
You gave a suggestion of three parameters;
That was supply,demand, and liquidity.

This where economists go wrong, the fourth needed parameter is energy.
In recent times economists are starting to realise that they had
missed it. It was fair enough for a hundred years or so as energy was
cheap but in recent years it has become expensive.
Only 20 years ago oil was between US$10 and US$20 a barrel.
Now it is US$45 barrel and the shale oil companies are going broke,
90 are bankrupt so far this year in the US.
So the affect of higher energy costs have changed the economic scene
to a significant degree. An economist I know, ex bank executive
admitted that he had never really taken energy into account his whole career.
It had always been a fixed charge and not very significant.

He explains to me that there is a new parameter that economists are
using called "Real GDP" which counts the most productive costs and
expenditures. My friend tells me he takes more notice in his study
of energy since he heard my talk.
I think there may be a formal definition of Real GDP but I have not seen it.
I will go back and read your post and some of the replies and make another comment

Lefty,
Aidan points out the lower demand and Paul1405 comments how
silly are a lot of the GDP inputs.
If you crash and write off your car, then buy a new one that is an
increase in GDP.
However you certainly won't feel like it is any sort of gain in your situation.
That is why Real GDP was produced.

The lower demand is because higher energy costs is increasing all other
costs and people are feeling the pinch. It is a bit like the boiling frog syndrome.
It is much worse in the US which is what Trump is catering to.

Bazz
I take your point about energy and its importance to the costs of purchases, but for me the reason for the slow rise in the GDP figures is more to do with the lack of access to sufficient liquidity, of an increasingly larger percentage of the world’s population. You would also realize that a 125% rise of anything over 20 years is not that large. You are right shale oil going broke, but that is more to do with poor assumptions on the part of management.

I also agree with your example of a car crash; however as a consumer good its demise is almost inevitable, but the timing is variable.
As for real GDP being a better focus, I am of the opinion that the populations well being would be a better place to start. Otherwise we are little more than mark a 3 CBU’s (carbon based unit) likely to be replaced soon by a mark 4 robot
Chris

Aidan
I can’t find the info for Australia , but one item in the US GDP that does not fit your definition GDP , is that they include the amount that home owners would have paid in rent had they not purchased it first.

Also I am not sure whether they include the sale of land or property when it sold second hand etc.

Another issue is how many times a base product would be counted. An example would be trees, when cut down, turned into paper, then into books, papers, or hard copy.

To boil down your answer to my question I got the following.
Deficit spending is not a problem.
Land should be taxed.
Shift the tax burden to the wealthy
Float all currencies
High unemployment can’t control inflation.
Please correct if I miss analysed.

I think demand comes in two forms. That is needs, as opposed to advertising driven wants.
They are both part of the economy, however it is likely that the wants percentage of demand will reduce with the decline of the mark 3 CBU's (see post to Bazz) participation in the economy.
Chris

Bazz,
GDP is a measure of economic activity.
GDP is NOT a measure of wealth, though it tends to have quite a good correlation.

"Real GDP" just means GDP adjusted for inflation.
Economists may have a new measure which counts the most productive costs and
expenditures, but they wouldn't call it "Real GDP".

Competent economists know why interest rate reductions no longer work: interest rates are already too low for them to make much difference. They liken it to pushing on a string.

They also know that austerity works well for what it's designed to do: stabilising collapsing currencies. It's also effective for rebuilding countries that are short of resources, and for keeping interest rates and inflation low in the boom. It can even raise the value of a currency when applied lightly. But only the economically illiterate would regard it as a good policy when the private sector is weak.

Energy is a declining proportion of our economy's value, and the sun is supplying us with plenty of it. It's a shortage of money being spent, not a shortage of energy, that's the problem.

_____________________________________________________________________________

Chris,

Are you sure the USA actually includes that in GDP (rather than just measuring it relative to GDP)?

B2B sales themselves are not included in GDP, though the profit on them is.

"Deficit spending is not a problem."
Correct in the current economic circumstances. It can be a problem in the boom, but not because of debt levels.

"Land should be taxed."
Yes, on unimproved value. Just think how much wealthier we'd all be if Costello had introduced an LVT instead of a GST!

"Shift the tax burden to the wealthy"
Not strictly necessary, but they're most able to pay it.

"Float all currencies"
Obviously it's a country's own business whether its currency floats or is fixed, but no country would be worse off with a floating currency, and it would avoid the most serious economic problems.

"High unemployment can’t control inflation."
It's more that high unemployment isn't necessary to control inflation.

OK Lefty, 125% increase is the figure of today but the price was
$147 in 2008 then down to $25 in 2009 then $110 in $2010 finishing at
$100 to $35 in 2015.
The shale companies started folding up then.
The price is low now because demand is low.
The main problem is Goldilocks is dead !
There is no just right price.
The highest price the economy can afford is lower than the break even
price for the shale companies, the Canadian oil sands and deep ocean drillers.
Even Saudi Arabia is in a bind because their economy needs a price
around $90 to $100 even though much of their oil is $10 at the well head.
The whole world economy is in a bind over energy, people are freezing
in the UK, they say the poorer people are dying because they cannot
afford the heating.
Certainly the reports are complaining about the cost.
There is no easy answer and it will get worse because the ERoEI of
the oil companies search and production has fallen very significantly.
The halt in investment will have a large affect by 2020.

Aidan

I think constant increase of liquidity only helps one segment of the population, and that is those who have accesses to that extra liquidity. Many of the rest have only access to payday loans.

Yes, and a high level if it is not being used productively.

The level of wealth among a small, but growing segment of the population is coursing the country the fracture. So it may not be necessary in the economic sense, but I believe it is if we are talking about social cohesion it could help. Maybe a twelve step course,( like alcoholics anonymous) for anyone who has assets over 10 million dollars.

You may be right about that, but the sharks in the financial world need to have laws that prevent their destructive behavior.

High unemployment can and does control high inflation. If people have less money spend, then suppliers of goods and services, lower their prices to encourage people spend what they have in their shop as opposed to the one up the street.

My finale point is with all this liquidity that at the present is sitting on the sidelines like a dragster revving its engine. When the Christmas tree turns green we are going to see the mother of all inflation spikes when those trillions hit the real economy. You may not be aware that the liquidity in the finance industry in now 10 times the real economy that has to do with stuff. So I am not sure how creating more liquidity is going to help.
Chris

Bazz
It all depends where you start and finish your graph. If your start point is 1972 and your finish is 2008 , then you would have a pretty spectacular piece of evidence. On the other hand if you went from 2008 to 2015, then you are clearly incorrect regarding the price of energy. Your point is correct that the price of energy is growing faster than other price inputs. Part of the reason is that the production of electricity is now profit driven , instead of a profit neutral service provided by the government.

So what can be done? First the electricity companies should be regulated that their profits cant exceeded the underlying inflation rate. Next start to use some of the excess liquidity on insulating the homes of the most vulnerable with double glazing and pink bates. Both tasks can be carried out by the unemployed with a small amount of training.

What will happen, nothing as the level of concern for your neighbor is at its lowest level in a very long time.

As you say things are only going to get worse, which is why I left the UK more than forty years ago. I saw the writing on the wall then regarding the likely future of an ordinary factory worker.
Chris

Chris,

Creditworthiness is certainly a problem, but liquidity isn't the limiting factor – profitability is.

The use of land should generally not affect the rate at which it's taxed. An exception is when it's set aside for conservation purposes; in that case it should probably be exempt from the tax.

There is certainly a link between unemployment and inflation. It's much more inflationary when there's more competition between firms for workers, and people are less likely to demand a pay rise when unemployment's high. But the relationship is far more complicated than it first appears. If a thousand people in Alice Springs lost their jobs tomorrow, it wouldn't make any difference to the nation's inflation rate. It wouldn't even make much difference to the local inflation rate, as the price of goods depends more on what's happening in the big cities.

And don't forget, low prices can be attractive even for high earners, and competition is far better than unemployment at reducing prices. We heard last year that McDonalds had deregulated its prices and they were expected to rise in lower income areas where people had fewer alternatives.

Your final point is wrong. All that extra liquidity sums to zero. It's a relatively trivial factor. Which brings me to two more (closely related) important things that economists are likely to fail to understand:
BANK LENDING DOES NOT DEPEND ON RESERVES. It depends mainly on finding people and companies that they can lend to profitably. It also depends on the Basel capital requirements.
THE MONETARY BASE DEPENDS ON THE TOTAL MONEY SUPPLY, not the other way round.

Aiden
Why not have a multi level tax structure for land tax. There are many examples of different tax levels that are introduced by parliament to effect tax payer’s behavior. However I do agree with your point of conservation land.

So the supply and demand effect kicks in whether it is base materials or staff that are in short supply or not. However I believe the low inflation today has a lot more to do with the collapse of discretionary funds available to the ever shrinking middle income earners. As the problem today around the world is that inflation is considered too low. It seems to me that if you put more money in the hands of the people at the bottom, they will just spend it, as opposed to the wealthy who will either spend on over priced luxuries, or more likely invest in the stock and bond markets. This was carried out some years ago to stave off the GFC in Australia I seem to recall, it was also suggested by helicopter Ben of the Fed a some time ago.

I can’t agree with you on your point regarding lower prices and high earners. They, in general buy on quality or scarcity not price. Also they tend to spend on goods that make up a very small part of the overall inflation numbers. Lets be honest they a very unlikely to nip down for a mac’er and fries no matter how low the price.

Sorry but I don’t understand what you mean regarding “all extra liquidity sums to zero.”

And the next bit has also gone over my head. My understanding is that banks lend out money based on what has been deposited by depositors. I understand that the ratio is dependent on the Basel capital requirements, which sets out percentages based on the asset backing the loan, which are placed in tier 1, 2 or, 3 etc. Are you telling me that there are no limits to what a bank can lend out?
Chris