The GDP, or Gross Domestic Product is, according to Wikepedia: "a basic measure of a country's economic performance and is the market value of all final goods and services made within the borders of a country in a year. It is a fundamental measurement of production and is very often positively correlated with the standard of living."
Basically GDP is the sum of three products:
- Consumption by the people
- Investment by businesses and people
- Spending by government
The acronym for this is CIG: Consumption, Investment, Government spending
However, this marker has come under scrutiny by some economists as it may be misleading. Take, for example the latest GDP which improved by 3.5%. Many economists and members of the Obama administration are using this as a sign that the recession has ended.
However, if you dissect the sum of the three above products, you will see that that 3.5% is misleading. According to statistics there has been no new consumption by consumers. They are not buying the goods and services produced by businesses. They are not buying houses, they are not buying vacations and TVs and electronics. In fact consumer spending is down.
Likewise, according to statistics there has been no increased investment in businesses or by businesses. By these two measures there is no economic growth. However, you look at the third product of GDP -- government -- and you do see growth. You see growth because people are buying cars because the government just paid $24,000 per car bought during the cash for clunkers program. You have some houses bought due to government spending.
In fact, economic experts have said that half the 3.5% increase in GDP was the result of cars bought during the cash for clunkers program, which is now expired. And a large portion of the remiander is from houses bought under the house refund program, which is due to expire next month. They say this is a prime example why Keynesion economics, which liberals running the house, senate and house are currently following, does not work.
Keynesian economics writes that that the economy will improve if the government stimulates it by artificially increasing demand. FDR did this the same way Obama presently is, by government spending on goods and services; by the government creating jobs.
The problem with this is that this increased government spending does not come without drawbacks, considering Obama's stimulus package increased the national debt by trillions of dollars that must be paid back at the expense of our economic future. Likewise, like the cash for clunker program, all government created jobs are only temporary. While they are in effect the GDP may rise, but once they are expired the GDP will go back down again. Thus, a rise in GDP caused by increased government is NOT a sign of an improving economy.
Here, I'll state this another way. Currently the only product of the GDP that increased was government spending. Money basically has been shifted from taxpayers to the government. And when those government jobs expire (they are all temporary) the GDP will go back down. Likewise, the government programs available are artificially inflating the number of cars and houses sold. This can make economists mistakenly think the economy is improving when in fact it is not. So car company owners increase staff only to see sales decline as soon as the government program ends. And, thus, the GDP goes back down.
The only way to get real economic growth is to create incentives like cutting taxes on consumers so they have extra after tax revenue to buy computers, TVs, cars, houses, telephones, MP3 players and other goods and services, or to cut taxes and regulations on businesses so they have an incentive to increase investments on things that will boost the economy like new machines or new tools or a new building. This is the only time tested method of getting long-term increases in GDP, and thus and real economic recovery. You have to have growth in the private sector.
So, during an economic recovery you will have an increase in consumer spending and investment by businesses, not the government. An improved GDP is good, but not so much when the reason for that increase is due to an increase in government spending which is funded by increased taxes, increased national debt and printing of more money -- things that decrease confidence in the economy and devalue the dollar.
The private sector is what holds the key to you and me making money. It's where all the well paying jobs are created. If it is doing well the economy is doing well, and unemployment is low.
Right now the unemployment is 10%, and Rueters has reported that consumer spending went down in September after four months of gains (gains due to cash for clunkers which is over). So that 3.5% growth in GDP doesn't represent much economic growth since no jobs are being created by the private sector. Some jobs are created by the government due to Obama's stimulus, but these jobs are all temporary.
I think the goal of the Obama administration (like FDR before him) is the false spikes in GDP inspire enough media optimism to keep Obama in office and his economic plan to destroy capitalism in place. As we know, his goal is not to fix the economy, it's to create a socialistic America-like Europe.