GDP versus net GDP

[Dr.Who]

I am on vacation this week in sunny Ft. Meyers and next week in Palm Beach.

It is an important point to say that all government spending is first money that was removed from the economy but private spending is money that was voluntarily transferred from one person to another in the process of adding value.

So the gov takes money from people, often involuntarily and without any value being added at that time and sometimes uses it in ways that adds value - like building a bridge. Gov is not supposed to be in the business of competing with other businesses who could build that bridge. That is both a conflict of interest (gov is supposed to police the market not be both police and player) and a case where the gov has an unfair competitive advantage.

In the private sector money is voluntarily and with mutual benefit transferred from one person to another and then hopefully the person used that money in ways that adds value. Here the competition is good. Lets be honest, sometimes value is not added. In that situation the business may go bankrupt and that improves the market as a whole.

Both gov and private sector uses can add value. But the process is not the same.

I think that adding value the raw materials does create wealth. So does adding value to a service.

 

[Dr.Who]

Parking lots and driveways are private property, built for the use of the owners of said property and their clients.

Highways are public, are build for the use of the public. There is a big difference.

How do you think private enterprise could possibly build highways today? How would they make a profit? How would they cross private land belonging to someone else?

It just isn't practical.

When Best Buy wanted to build a new store in Des Plaines, Il. they bought the four houses that were on the corner and built the store. Some homeowners sold right away and some others held out for a higher price - but none had their home condemned and taken from them for a fraction of what they were worth. My Aunt sold her home for much more than she would have to a person who wanted it only for a home. Now it is a parking lot next to a Best Buy. Best buy is apparently very profitable right there and it seems to be very practical.

In a second case the gov wants to extend route 53 a few miles further north than it presently runs ( it dead ends at Lake Cook Rd.) The gov wants to take all the homes that are in the intended path except it can't because that path runs through Long Grove which is home to many very rich people. The gov doesn't have the balls to oppose them and take their homes but if they were poor that highway would have been completed years ago.

yes, those are two slanted examples.

Would it be practical for a private company to buy the property to build a road? Sometimes it might not be - in that case the obviously the road was not very important. Sometimes it would be practical for a private company to buy the land to build a road - then obviously the need for the road was great enough that it justified the cost. The private market always results in a perfect balance between cost and need. If the private market were evolution then the fittest species always survives.

A bureaucrat, very often, does not even have the ability to know if the need is great enough to justify the expense. When they fail it is a huge waste of money that was removed from the economy by force from people who knew exactly what they wanted to do with it. When they succeed and it is a case in which a private company could have done the task the gov has competed for work with the people it is supposed to be policing.

P.s. I live in a neighborhood that has all private roads built by the developer and then transferred to the Homeowners Association later. We pay for the plowing and maintenance ourselves through our dues.

 

[PLC1]

When Best Buy wanted to build a new store in Des Plaines, Il. they bought the four houses that were on the corner and built the store. Some homeowners sold right away and some others held out for a higher price - but none had their home condemned and taken from them for a fraction of what they were worth. My Aunt sold her home for much more than she would have to a person who wanted it only for a home. Now it is a parking lot next to a Best Buy. Best buy is apparently very profitable right there and it seems to be very practical.

In a second case the gov wants to extend route 53 a few miles further north than it presently runs ( it dead ends at Lake Cook Rd.) The gov wants to take all the homes that are in the intended path except it can't because that path runs through Long Grove which is home to many very rich people. The gov doesn't have the balls to oppose them and take their homes but if they were poor that highway would have been completed years ago.

yes, those are two slanted examples.

Would it be practical for a private company to buy the property to build a road? Sometimes it might not be - in that case the obviously the road was not very important. Sometimes it would be practical for a private company to buy the land to build a road - then obviously the need for the road was great enough that it justified the cost. The private market always results in a perfect balance between cost and need. If the private market were evolution then the fittest species always survives.

A bureaucrat, very often, does not even have the ability to know if the need is great enough to justify the expense. When they fail it is a huge waste of money that was removed from the economy by force from people who knew exactly what they wanted to do with it. When they succeed and it is a case in which a private company could have done the task the gov has competed for work with the people it is supposed to be policing.

P.s. I live in a neighborhood that has all private roads built by the developer and then transferred to the Homeowners Association later. We pay for the plowing and maintenance ourselves through our dues.

Your homeowner's association is different from a government entity, how again? If it were the county maintaining roads, the county would collect taxes and maintain the roads. Since it is a neighborhood, the association collects dues and maintains the roads. It is the same thing on a smaller scale. Perhaps the smaller scale makes it more efficient, and perhaps not, but it is really no different in kind, just in scale.

As for roads that benefit the general public, rather than just a small group of homeowners, a private entity building and maintaining roads would have to make a profit somewhere, or at least meet their expenses. To do so, what would they do? Collect tolls? If it were one limited access highway, maybe that would work. Were it a network of county or state roads, it would require a huge number of toll booths.

It is far more practical to collect a gas tax and use the money to build and maintain roads.

As for your rich people who won't allow the government to buy their property, that's just another example of the undue influence of money in government. You're no doubt right that, were it a middle class subdivision, the highway would already be built and the property taken via imminent domain.

So, how would a private entity manage to get the property owned by the wealthy homeowners you mentioned?

 

[Dr.Who]

Your homeowner's association is different from a government entity, how again? If it were the county maintaining roads, the county would collect taxes and maintain the roads. Since it is a neighborhood, the association collects dues and maintains the roads. It is the same thing on a smaller scale. Perhaps the smaller scale makes it more efficient, and perhaps not, but it is really no different in kind, just in scale.

As for roads that benefit the general public, rather than just a small group of homeowners, a private entity building and maintaining roads would have to make a profit somewhere, or at least meet their expenses. To do so, what would they do? Collect tolls? If it were one limited access highway, maybe that would work. Were it a network of county or state roads, it would require a huge number of toll booths.

It is far more practical to collect a gas tax and use the money to build and maintain roads.

As for your rich people who won't allow the government to buy their property, that's just another example of the undue influence of money in government. You're no doubt right that, were it a middle class subdivision, the highway would already be built and the property taken via imminent domain.

So, how would a private entity manage to get the property owned by the wealthy homeowners you mentioned?

As you say, it is the same thing only on a smaller scale.
So there is a way to build a system of roads on a larger scale without resorting to a government taxing body.

And if some people did not want to sell their homes so the road could go through then the price offered to them would go up until they did sell or the road would go around or not be built. Given the choice that roads that are not sufficiently wanted so that those paying for them cannot collect enough money to buy out homeowners or the choice of emminent domain I would chose the former as the latter is a violation of fundamental rights.

It just might be that the ONLY reason gov is more efficient is that it has the ability to steal what it wants.

Consider as an analogy the "roads of the airwaves". Every mobile phone company has a set of roads that they built themselves. Yet people are able to travel on the whole network of roads whether their company owns the roads or not. We could have a system of concrete roads in which hundreds of companies build, maintain, and pay for roads with funds collected from its customers and then with cooperative agreements allows customers from other companies to drive on their roads. My HOA built my roads and yours could build your roads then we can agree that you are allowed to drive on my roads and I on yours. (all of this is a conceptual argument since if I remember right the building of roads is in the constitution. and if not then in the state constitution or the local ordinances)

 

[PLC1]

As you say, it is the same thing only on a smaller scale.
So there is a way to build a system of roads on a larger scale without resorting to a government taxing body.

And if some people did not want to sell their homes so the road could go through then the price offered to them would go up until they did sell or the road would go around or not be built. Given the choice that roads that are not sufficiently wanted so that those paying for them cannot collect enough money to buy out homeowners or the choice of emminent domain I would chose the former as the latter is a violation of fundamental rights.

It just might be that the ONLY reason gov is more efficient is that it has the ability to steal what it wants.

Consider as an analogy the "roads of the airwaves". Every mobile phone company has a set of roads that they built themselves. Yet people are able to travel on the whole network of roads whether their company owns the roads or not. We could have a system of concrete roads in which hundreds of companies build, maintain, and pay for roads with funds collected from its customers and then with cooperative agreements allows customers from other companies to drive on their roads. My HOA built my roads and yours could build your roads then we can agree that you are allowed to drive on my roads and I on yours. (all of this is a conceptual argument since if I remember right the building of roads is in the constitution. and if not then in the state constitution or the local ordinances)

Well, maybe. That sounds like a pretty inefficient system to me, and fraught with unintended consequences. Imagine traveling such a system of roads: For a while, you are on a well designed freeway, then you come to an entity that is less well funded. The road goes to a two lane, but has to carry the same traffic. Suddenly, there is a right hand turn, then a left, then another left, then a right again. You just went around Old Mr. Jones' property, which he refused to sell to the road coalition. Now, you are on a dirt road (even poorer coalition), then back on a freeway again.

No, I really think that the system of collecting gas taxes is better. Now, you could easily make a case for a law requiring that gas taxes go only to the building and maintenance of roads, and nothing else. I think most of us could get behind a law like that.

 

[ProudLefty]

...
And if some people did not want to sell their homes so the road could go through then the price offered to them would go up until they did sell or the road would go around or not be built. ...

Last guy to sell wins the lottery? lol

One precept that has stood me in good stead is that I assume our forebears were not idiots. There are reasons for eminent domain takings. I may not know the whole history of the decisions that led to that process, but my bet is that people discovered a lot of chicanery was going on with land sales for government projects.

It wouldn't surprise me to learn that planners for government projects were front running, and were buying property they knew would be needed, and the reselling that property to the taxpayers a few months later for ransom prices.

By the way, there is a section of road I travel where there is an example of your solution. A powerful farmer made the state go around his property, so that on an an otherwise straight road of 25 miles there is a 3 mile stretch with a 90 degree right turn, a 90 degree left turn, a 20 degree chicane, and a 90 degree right turn. At least the state has cut the big trees, and keeps the brush growth light to cushion drivers who regularly fly off one of those curves. That decision, made probably 120 years ago, has claimed many a life through the years.

 

[Dr.Who]

Last guy to sell wins the lottery? lol

One precept that has stood me in good stead is that I assume our forebears were not idiots. There are reasons for eminent domain takings. I may not know the whole history of the decisions that led to that process, but my bet is that people discovered a lot of chicanery was going on with land sales for government projects.

It wouldn't surprise me to learn that planners for government projects were front running, and were buying property they knew would be needed, and the reselling that property to the taxpayers a few months later for ransom prices.

By the way, there is a section of road I travel where there is an example of your solution. A powerful farmer made the state go around his property, so that on an an otherwise straight road of 25 miles there is a 3 mile stretch with a 90 degree right turn, a 90 degree left turn, a 20 degree chicane, and a 90 degree right turn. At least the state has cut the big trees, and keeps the brush growth light to cushion drivers who regularly fly off one of those curves. That decision, made probably 120 years ago, has claimed many a life through the years.

That is not an example of "my solution."

I would suggest that ones political power should not be a factor and you are saying that in this case it was.

I am also saying that the gov seizing the property of private citizens against their will for roads should also not be a factor. People should sell at the price they want or not be forced to sell.

The rules of economics would tell us that people would almost always sell at some price and that the equalibrium of the circumstances would set that price at the price where the need for the road was balanced against the worth of the land.

Might there be a few instances in which a person would value the land so much that he would never sell? Sure, but those would be few and far between and then his descendants would sell.

 

[PLC1]

That is not an example of "my solution."

I would suggest that ones political power should not be a factor and you are saying that in this case it was.

I am also saying that the gov seizing the property of private citizens against their will for roads should also not be a factor. People should sell at the price they want or not be forced to sell.

The rules of economics would tell us that people would almost always sell at some price and that the equalibrium of the circumstances would set that price at the price where the need for the road was balanced against the worth of the land.

Might there be a few instances in which a person would value the land so much that he would never sell? Sure, but those would be few and far between and then his descendants would sell.

Might be?

If the state needed a piece of land for a highway, the land owners would immediately begin seeing dollar signs behind their eyelids every time they went to bed, and we'd wind up with many examples of the sort of road that ProudLefty described above.

There is a similar bend in the road near here, and for the same reason.

 

[ThisTooShallPass]

I learned a bit more about two numbers today.

GDP - Gross Domestic Product - the total output of all private industry in the country.

Net GDP - Net Gross Domestic Product per Person (the GDP less the amount of government spending at all levels divided by the current population.)

We would hope that the GDP would be larger each year since it measure how much we are producing and therefor how successful our economy is. We would also hope that the Net GDP would grow each year too since it is the private industry that creates wealth while government only moves money around.

There is a very interesting table at this site:

http://www.americanthinker.com/2011/06/obamas_america_prosperity_lost.html

The table shows, using government data, that as government spending goes up Net GDP goes down. Common sense that the more one subtracts from GDP the smaller it would get.

The table also shows that as Net GDP goes down (and government spending goes up) unemployment goes up too. That is common sense too.

But for me the shocker was that using the government data the percent of the economy controlled by government is expected to be 60.5% in 2030. Which of course leaves the Net GDP at only 12,450, down from a high of 26,445.

What do you suppose will happen if Net GDP is cut by more than half?

I don't think it's the case that government spending is causing a decrease in economic productivity. I think it's the case that government spending, specifically deficit spending, is increasing to cover up the decline in economic productivity. Recall that per the GDP formula the benefit of "G" funded by tax revenues is matched by an equivalent decrease in "C" and "I", so that "G" contributes positively to the economy only when it is funded through debt accrual or money-printing.

I think the government has run the economy like a chain-letter scam and is now seeking to cover up the evidence of its incompetence with a gross spending binge.

 

[ProudLefty]

The basic concept that the government does not generate wealth with its spending is pretty easily shown to be false. Government generates a lot of national wealth, and in the process improves both our lives and our ability to be competitive.

• The Interstate Highway System was an immense increase in our national wealth, and has provided 50+ years of top-notch transportation.
• The schools in America have been turning out good citizens for 150+ years.
• The research and development for the military has provided some pretty good benefits for us citizens, including this Internet.
• The REA provided the means for rural America to get electricity; that is a huge gain of national wealth.
• There have been countless hydro projects that are generating electricity in sufficient quantities to allow universal air conditioning in the South, thus allowing the South to grow significantly.

The list is a long list. Whoever is telling you that the government just shifts wealth is feeding you a crock of used bull food.

 

[Dr.Who]

The basic concept that the government does not generate wealth with its spending is pretty easily shown to be false. Government generates a lot of national wealth, and in the process improves both our lives and our ability to be competitive.

• The Interstate Highway System was an immense increase in our national wealth, and has provided 50+ years of top-notch transportation.
• The schools in America have been turning out good citizens for 150+ years.
• The research and development for the military has provided some pretty good benefits for us citizens, including this Internet.
• The REA provided the means for rural America to get electricity; that is a huge gain of national wealth.
• There have been countless hydro projects that are generating electricity in sufficient quantities to allow universal air conditioning in the South, thus allowing the South to grow significantly.

The list is a long list. Whoever is telling you that the government just shifts wealth is feeding you a crock of used bull food.

Yes it does create wealth. But first it steals wealth from the private sector. Every dollar spent to create wealth on a road was first taken from someone who was going to create wealth with it.

If the things on that list were created by private companies each deal would have to be mutually agreed upon by each participant as mutually beneficial to each. Each dollar that was used to create electricity was not removed from some other kind of wealth creation first.

 

[Dr.Who]

I am not sure I explained myself well so here is what others said:

"Keynesian theory sounds good, and it would be nice if it made sense, but it has a rather glaring logical fallacy. It overlooks the fact that, in the real world, government can’t inject money into the economy without first taking money out of the economy. Put more bluntly, Keynesianism only looks at one-half of the equation. It conveniently ignores the fact that any money that the government puts in the economy’s right pocket is money that is first removed from the economy’s left pocket. As such, there is no increase in what Keynesians refer to as aggregate demand. The bottom line is that Keynesianism doesn’t boost national income, it merely redistributes it.

The real-world evidence also confirms that Keynesianism is a failure. Indeed, it was a failure even before Keynes published The General Theory in the mid-1930s. In his four years, Herbert Hoover was a poster-boy for big government. He increased taxes dramatically, including a boost in the top tax rate from 25 percent to 63 percent. He imposed harsh protectionist policies. He significantly increased intervention in private markets. Most important, at least from a Keynesian perspective, he boosted government spending by 47 percent in just four years. And he certainly had no problem financing that spending with debt. He entered office in 1929 when there was a surplus and he left office in 1933 with a deficit equaling 4.5 percent of GDP. Needless to say, Hoover’s big-government Keynesian experiment was not very successful since growth went down and unemployment went up.

Unfortunately, other than being a bit more reasonable on trade, Roosevelt followed the same approach. The top tax rate was boosted to 79 percent and government intervention became more pervasive. Government spending, of course, skyrocketed — rising by 106 percent between 1933 and 1940. This big-government approach didn’t work for Roosevelt any better than it did for Hoover. Unemployment remained very high throughout the 1930s and overall output did not get back to the 1929 level until World War II.

Other Keynesian episodes generated similarly dismal results, though fortunately never as bad as the Great Depression. Gerald Ford did a Keynesian stimulus focused on tax rebates in the mid-1970s. The economy did not improve. But why would it? After all, borrowing money from one group and redistributing it to another group does nothing to increase economic output. Tax cuts only boost the economy if they reduce the tax penalty on work, saving, and investment — i.e., lower tax rates, not gimmicks.

More recently, George W. Bush gave out so-called rebate checks in 2001 and 2008, yet there was no positive effect in either case. And Bush certainly was a big spender, yet that didn’t work either. Not that this should be a big surprise. Surveys of the academic literature reveal that even left-wing international bureaucracies are producing research showing that bigger government hurts economic performance by misallocating national resources.

Japan’s experience also shows the foolishness of Keynesianism. Throughout the 1990s, Japanese politicians tried to use so-called stimulus packages to jump-start a stagnant economy. But the only thing that went up was Japan’s national debt, which more than doubled during the decade and now is far above even Italy when measured as a share of GDP. The economy, not surprisingly, remained stagnant.

If Keynesian spending doesn’t make sense from a theoretical perspective, and also fails every time it is tried in the real world, why do politicians keep trying the same approach? Your guess is as good as mine, but the answer probably has something to do with the fact that politicians love to spend other people’s money, and Keynesianism is a convenient rationale."

http://sites.google.com/site/redhotright/articles/myth--government-spending--stimulates--the-economy

 

[Dr.Who]

But does gov just redistribute?

For every dollar that goes to Washington less than a dollar is returned to the states. One site said that the cost of government is 25% therefore for every dollar that goes to Wash only 75 cents is returned. (but I could not find a site to link to. anyone want to provide the link please)

In contrast for every dollar an employer spends he receives $1.38 return. This is wealth creation. Add to that for every dollar a consumer spends he receives back something he felt was worth more than a dollar. That's wealth creation too.

Now, is Washington the only gov entity taking dollars? No there are state and local governments too.

Can the private sector create more wealth than the gov sector is taking?

 

[PLC1]

Yes it does create wealth. But first it steals wealth from the private sector. Every dollar spent to create wealth on a road was first taken from someone who was going to create wealth with it.

If the things on that list were created by private companies each deal would have to be mutually agreed upon by each participant as mutually beneficial to each. Each dollar that was used to create electricity was not removed from some other kind of wealth creation first.

The government would be "stealing" wealth if we once again had taxation without representation. That was what precipitated the revolution, after all.

Any money that is invested, whether it is in a highway, railroad, or widget factory had to have come from somewhere. If those paying that money did so unwillingly, then you have a point that it was "stolen".

 

[GenSeneca]

Government generates a lot of national wealth, and in the process improves both our lives and our ability to be competitive.

Then why have a private sector?