A note to reader, “PT” about the mathematical reality of GDP

Recently, I received a comment from reader, “PT” who wrote in response to “Chainsaw Elon” and how to lose weight”:

I personally think there’s an information circus going on. They clearly understand that the root cause of a recession is ‘deficit control,’ as it impacts supply. In my opinion, there will be more spending . Meanwhile, MT (Musk/Trump) are just saying what people want to hear.

My comment in return was:

PT, I agree with you. The misunderstanding is on the part of the public. MT, along with their closest advisors take advantage of this misunderstanding for their own personal gain.

Example: In the world of commodities trading, there always is a losing position for every winning position. Therefore, a random bet should have a 50% chance of winning — EXCEPT –except that between the winners and losers there are the brokers who pull out a tiny percentage of each bet.

With enough bets, this tiny percentage evolves to the near certainty, that almost everyone will lose, except for the intermediaries: The brokers.

I was once a broker. After too long a time, I knew. It’s why I left the business. Long term, customers had to lose. We actually told them that, but the lure of riches was too strong. They bet, anyway.

My morals would have made me a terrible casino owner, for that is the basis of casino profits. Even on a 50/50 bet, you will lose long term when the casino takes out even .001% of each bet.

The Gross Domeitic Product = Federal Spending + Nonfederal Spending – Net Imports is no secret. Every first-year economist knows it.

Further, a recession or depression is a series of reduced GDP. They know that, too.

So why do they opt for reduced Federal Spending, knowing this mathematically must result in a recession or depression, which inevitably must be cured by increased Federal Spending?

There are only two answers: Ignorance and deception, the latter being associated with personal gain. (No one wants to be the one to reveal that the Emperor has no clothes.)

I’m going to put this response into a post for more viewing.

The above GDP formula expresses one of the most fundamental facts in all of economics, a fact of which nearly all non-economists are ignorant, and most economists act ignorant.

This supposed ignorance is especially true of those with a Libertarian bent, who opt for “reduced central government” ignoring the mathematical fact that reduced central government –> reduced GDP — > recession or depression.

Every U.S. depression has come on the heels of federal surpluses.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

Rodger Malcolm Mitchell

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A Government’s Sole Purpose is to Improve and Protect the People’s Lives.

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