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Growth Domestic Product (GDP)

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Nate White

on 13 September 2013

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Transcript of Growth Domestic Product (GDP)

Gross Domestic Product (GDP)
Gross Domestic Product
In technical terms, Gross Domestic Product is the combined market value of all goods and products produced inside of a sovereign nation.

This may be represented by the formula:

GDP = (Private Consumption) + (Gross Investment) + (Government Expenditure) + (Exports - Imports)

The above formula is just one of three ways to determine GDP. This approach is called 'the expenditure method' and rests upon the principle that all products of value are bought by someone and therefore the total amount of money spent is equivalent to the total product created.
National Hustle
In layman's terms, Gross Domestic Product is how hard a country hustles. This accounts for products and services produced within national borders by private individuals, corporations and the government. In this context, hustle may be defined as the ability to create, to sell aggressively, or even to fraud and swindle; the definition of the word is dependent on who you are talking to. Deceivingly, hustlers (pimps, drug dealers, etc.) are not counted in National Hustle (GDP) because they operate in the black market, which the government refuses to accept as legitimate business. Likewise, child-rearing is not included in National Hustle because mainstream economics refuses to accept mothers as legitimate producers. This is tricky because raising your own children has no market value. However, Americans are on their way to fixing this innacurracy in National Hustle as most modern American children are being raised by sleep away camps, overcrowded daycare centers, and daytime television.
'Real Life' Example
In the overly generalized America that we live in, GDP has three main players:
Sleazy Investors
Ignorant Consumers
Wasteful Government
For simplification purposes, let's pretend that McDonalds is America's only business and that they only serve McDoubles. In this scenario, the GDP is calculated by adding together the total amount of money spent by the Ignorant Consumer on McDoubles, the capital invested by the Sleazy Investor in McDonalds stock, and the amount of money spent by the Wasteful Government on state-owned doctors (socialized healthcare is a neccesity when everyone in the country eats at McDonalds). To find the final GDP, that number is then added to a trade deficit/advantage calculation. This can be represented by the total cost of exported McDoubles minus the cost of imported GM corn.
Economics is driven by Incentives. An incentive is something that motivates an indiviual or a group to take action. If Economics is considered the study of material life, incentives are how and why life works out the way it does. Individuals act differently from each other in separate societies because of different Incentive structures. Incentives can be broken down into four categories: Financial, Coercive, Moral and Natural.
Get Rich Or Die Tryin' : Poorly Dressed Rappers and The Incentive Structure of the Rap Game
Let's face it. Fifty Cent just isn't a great actor. He is, however, a once-great rapper and an excellent businessman. The incentive structure of the rap game is easy to understand. It consists of financial incentives: the desire to get rich and dress in stuck-up white people clothing. Coercive Incentives: if you don't make it in the rap game there's a good chance that you will get killed or go to prison while living in the ghetto. Moral Incen--. And finally natural incentives: the narcissism driving rappers and teen girls alike to get famous.
Incentive is an economic term used in everyday vernacular. Even without a background in economics, the average person most likely knows what the word means. But just by knowing the word, you do know something about economics! Incentives are motivation.
An Amoral Market
An Amoral Market
Capitalist markets are amoral because they work through supply and demand. The market creates anything that there is a demand for, whether it be sneakers, coffee, or heroin. While most people consider it immoral to sell heroin, the market itself is not conscious and is therefore abstract from any concept of morals or ethics.
Kierkegaardian Economy
Markets are Existentialist in nature because they have no objective values, but have the power to serve human existence through human input. This is Kierkegaard's concept of the individual giving his/her own meaning to life. In a planned economy, a central authority decides what people should have access to. In a market system, the people receiving the goods directly influence production.
The War on Drugs
The multi-billion dollar underground drug industry exists because so many people like to do drugs and create a demand for it. The DEA's War on Drugs has the wrong idea in trying to bust drug dealers. Instead, they should be curbing America's affinity for narcotics through treatment centers and drug education. Of course, its impossible to regulate the industry and keep tabs on the the number of addicts if we deny the market legitimacy.
Progressive vs Regressive Taxes
Tax Structure
There are three basic types of tax structures: Progressive, Flat-Rate and Regressive. In a progressive tax structure, the tax rate ascends with income level. Under a Regressive tax structure, the tax rate descends as income climbs. A Flat tax is an across the board percentage that has no correlation with income.
Almost all modern countries have adopted a progressive tax system. A progressive tax structure is the most sensible as it allows everyone to make a contribution to the community that correlates with what they are taking from the community. It might be fair to call the progressive tax the 'Give what you take' tax and the regressive tax the 'take more of what you already took tax.' The flat tax, which may seem logical at first, is almost as cruel as the regressive tax. If you make 10 million dollars a year, a 30% income tax, or 3 million dollars, represents just a small portion of your livelihood (you have $7 million to live on). However if you make 50,000 dollars a year and get taxed at 30% or 15,000, you are paying money to the government that you need for essential items like food, clothing and rent.
The Give What You Take Tax
Concern For Environment
Concern For the Environment
In Naked Economics, Wheelan makes the argument that environmental concern is a luxury item. While he is correct in that environmental awareness heightens in a post-industrial economy, taking care of the environment is a neccesity. Calling something a luxury item denotes that it is a frivolous and inessential. A clean environment and a sustainable environmental policy is not only essential for bourgeois life, it is a requirement for the ongoing existence of humanity. Just because the environment was disregarded for so much of industrialization does not mean that it can be put off infinitely and without repercussion.
Environmental Renaissance
Wheelan's point does merit some value in that post-industrial bourgeois culture wants to exist in a clean environment. Once other countries come around the industrialization bend, we may see an 'Environmental Renaissance,' where the masses begin to value the environment in a way not seen since the start of the industrial revolution. This mass change in consciousness would be driven by the market.
The Wealth Gap
In Naked Economics, Wheelan recognizes the growing wealth gap in the United States, but believes that we shouldn't do anything about it. According to the author, we can ignore mass inequality because people living at the poverty line today earn as much money as the wealthy did 100 years ago. By Wheelan's reasoning , we might call the wealth gap the "Stop complaining, you're less poor than ever gap," but his argument is deeply flawed and elitist.
The first issue with Wheelan's argument is that living in poverty isn't relative. With the same reasoning, one could tell a person living in the slums of Chicago that they're lucky they don't live in Africa in a dirt hurt; there is always someone who has it worse off, but that doesn't mean you aren't hurting.
Secondly, Wheelan completely ignores the consequences of classism. As the wealth gap increases, the poor are ostracized from society. This dehumanizes the impoverished and limits their ability to earn fair wages and to have a voice in the marketplace. Exclusion also leads to the formation of ghettos, in which gangs and drug abuse limit human capital.
Finally, the wealth gap destroys the middle class, the 'bread and butter' of any economy. The wealthy are dependent on the middle class as consumers and workers.
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