Yesterday’s news told us that the U.S. economy is still growing. But GDP growth rates are mostly a fraud. They measure economic activity – but do so clumsily; you don’t really know what is going on. When the feds give back “tax rebates,” for example, the money goes into the economy as people spend it. GDP rates go up. But how could there actually be more net spending? Since there are no savings in the U.S. economy, every penny is spent, no matter what. If it had not been given back to its rightful owners, the feds would have spent every penny of that money themselves.
There are only so many hours in the day…and only so many resources to work with. The real question is what is done with them. If they are used to produce things, to build factories, and to add to the nation’s capital, people become wealthier. If they are squandered – using up capital instead of adding to it – people become poorer. GDP figures don’t tell you want is really going on. But when an economy becomes too dependent on credit and consumer spending, GDP figures actually become perverse; they measure the rate at which the nation impoverishes itself.
for The Daily Reckoning Australia