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Damik

Does Gdp Really Growth Or Not ?

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1/ Based on this article the UK economy is growing by about 2.8% pa (4x0.7%)

http://www.theguardian.com/business/2013/sep/26/uk-economy-recovery-steady-course-growth

Manufacturing and construction estimates were upgraded while GDP figure for second quarter unrevised at 0.7%

2/ However the GDP deficit is about 7%.

3/ So based on my simple math the economy us actually tanking -4% GDP

Can anybody with a good shape of macroeconomics confirm / reject my assumption please? And point to some good summary paper on the topic?

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1/ Based on this article the UK economy is growing by about 2.8% pa (4x0.7%)

http://www.theguardian.com/business/2013/sep/26/uk-economy-recovery-steady-course-growth

Manufacturing and construction estimates were upgraded while GDP figure for second quarter unrevised at 0.7%

2/ However the GDP deficit is about 7%.

3/ So based on my simple math the economy us actually tanking -4% GDP

Can anybody with a good shape of macroeconomics confirm / reject my assumption please? And point to some good summary paper on the topic?

I presume the -7% in '2/' refers to the output gap, the slack in the economy compared to where we should be. Meanwhile the economy was growing at an annualised rate of +2.8% in Q2.

Edited by crashmonitor

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The maths is complicated by the fact the Govt is deficit spending. This "borrowed" is added into the GDP figures, there clearly needs to be a discussion about what GDP actually is and does it really matter. In the current exponential economic paradigm with continual debt/credit expansion it does matter because when GDP reverses the ability to support the interest payments collapses which is why it has to be growth at all costs.

For me there is a much deeper fundamental problem than your question poses.

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The economy could be growing if the deficit was 7% of GDP if at the same time the private sector was deleveraging by over 7% of GDP...but its not, its actually growing slightly, so yes, in real terms the economy is shrinking net of debt. They get round this by continuously understating inflation by a couple of %.

Even the US economy, with an energy boom, growing population and smaller government has at best just been treading water, with their deficit being offset by private deleveraging and thus maintaining aggregate (private + public) debt at a roughly constant level compared to GDP.

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The maths is complicated by the fact the Govt is deficit spending. This "borrowed" is added into the GDP figures, there clearly needs to be a discussion about what GDP actually is and does it really matter. In the current exponential economic paradigm with continual debt/credit expansion it does matter because when GDP reverses the ability to support the interest payments collapses which is why it has to be growth at all costs.

For me there is a much deeper fundamental problem than your question poses.

Indeed. Potentially we can fix the recession and recover today if we borrow let's say 25% of GDP and just hire more police men, nurses, doctors & council staff

so I suggest that all borrowing is subtracted from the GDP

and the question remain: we borrow 7% which we do not have, we spend it all, but we grow only 2.8% ... where is the remaining 4.2% of the borrowed money ???

perhaps it is the £43 billions we pay for the state debt interest ???

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Indeed. Potentially we can fix the recession and recover today if we borrow let's say 25% of GDP and just hire more police men, nurses, doctors & council staff

so I suggest that all borrowing is subtracted from the GDP

and the question remain: we borrow 7% which we do not have, we spend it all, but we grow only 2.8% ... where is the remaining 4.2% of the borrowed money ???

perhaps it is the £43 billions we pay for the state debt interest ???

Inflation mostly. If you increase the money supply by X, but only get growth (productivity) of Y, then inflation =X-Y

It might be hidden, it might be in house prices or stock market funds that the inflation indices don't count, but its there. Yes, I know they have a GDP 'deflator' to 'adjust GDP for inflation', but again, it doesnt count inflation in its truest sense.

If you borrow (or, in the current situation, QE, or force the creation of new debt) 25% of GDP you will likely have a serious inflation problem.

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I do think that "gdp - borrowing" does tell us something interesting about the "real" economy. It would be nice to see a graph?

I don't really know enough about economics, but presumably the answer depends on consumption and investment. So if that whole 7% deficit was been spent on cheap Chinese tack, then we could say the economy was declining by 4%, but if it was all being (productively) invested, then the economy really would be growing.

Or something like that.

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Yep. Thats why I think all the commie fantastists are morally repugnant when they say 'but soviet russia had a higher GDP in 1989 than in 1999'...its because in 1989 about 80% of soviet GDP was military spending. Doesnt do much for people lining up for hours to get a loaf of bread, but the Krugmans of this world are happy as everyones got a job, even if the money they are paid in is worthless.

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