GDP to population ratio, and ability to pay down the debt

In past threads, some of you have been saying that the National Debt is nothing to worry about, that it's not so terrible when you compare it to the country's GDP. Well here's something to think about: The country's (U.S.) GDP to population ratio. It has not been moving in a good direction over the last 25 years. It's one thing to take 40% of someone's income in taxes who's earning $80,000 a year. It's a very different thing to take 40% of their income when that person is earning $30,000 or $20,000. This "GDP" isn't just yours to take for the picking, to effortlessly pay off the government's debt. For many people already scraping by, it could mean destitution. Many of these people have substantial debts of their own.

Now if in our look at the economy we exclude the sale of real estate from the GDP calculation, it paints an even worse picture. Yes, a lot of our GDP isn't even "productive" GDP, it's just the sale of an asset from one owner to another. You can't just tax this and view it as free money, not without some substantial extraneous economic effects. Now this little side subject is too complicated to get into here, but consider how much expansion of the money supply the Fed has gone to trying to prop up asset prices in the economy. I mean, if this wasn't an important issue why would the Fed, the issuer of our money supply, be essentially spending hundreds of billions to try to make this move in a certain direction? You tax that part of the GDP and it will make it move in the opposite direction, negating intended outcome of all those hundreds of billions that have been dumped out by the Fed. (And this is yet another example of the inextricable connection that exists between government spending/debt and inflation from the Fed's monetary policy)

Sorry if I lost you there but some of you will know what I'm talking about. I'm basically saying if you take that money, it's not a free lunch. Then it will cost even more to try to do other things in the economy. It's not an isolated effect. You take money out of one area of the economy, it will take money out of other areas. That's about as simple as I can put it for you.

So the country's overall GDP might be higher than it was 25 years ago, but there are also a lot more people. The population expanded by a greater percentage than the GDP. That effectively means the nation's GDP isn't as accessible as it once was to taxation. You can't just take take take without taking it away from families who may not have a lot of money and are relying on that. A "wealthier" country (and I mean per capita) might be able to afford that but not a poorer country. So we really need to be more careful than ever about accumulating more national debt. There might not be enough rich people to pay for it all.

 

You should consider getting accurate data before making conclusions.

Real GDP
1991 8,948.4
2016 16662.1
% increase: 86.2%
Source data: BEA.gov

Population
1991 252.98 million
2016 323.13 million
% increase: 27.7%
Source: http://www.multpl.com/united-states-population/table

 

If you trust the official numbers for the inflation rate.
If you adjust those numbers for the cost of housing, the numbers would no longer look so rosy.

You can't compare GDP in absolute terms when the purchasing power between years has been eroded so much.

It's fake GDP, people are just trading expensive housing in overcrowded cities.
Example: People pay more in rent, that gets counted as an increase in GDP.

You obviously weren't listening to me when I explained the connection between higher taxes and lower property prices, or how the Fed is going to jack up inflation in the process of trying to keep property prices from falling. So (assuming the Fed doesn't have a radical reversal of policy) in the end, what have you gained? You might as well have just printed off that money directly for the government to spend. The end result isn't really any different.

 

I trust them a lot more than some unsupported assertion by some unknown forum poster.

 

Is $300,000 still $300,000 when it can no longer buy the same house?

It's the same houses being traded around, but now they have an inflated price. So that gets counted as the GDP going up.

You might look up some articles like "What would the inflation rate be if it was adjusted for the cost of housing?"

You're assuming taking away, say, 40% of someone's income earning $30,000 today would be the same thing as taking away 40% of someone's income earning $30,000 twenty-five years ago. I submit it would not.

Someone earning $30,000 today has a lot less "wiggle room" and discretionary spending than they did 25 years ago, regardless of how much you want to say the inflation rate has changed.

 

Thanks for sharing your opinions, but I'm not impressed by your unsubstantiated assertions.

Like I said. I trust GDP data from the BEA (which produces it) a lot more than some unsupported assertion by some unknown forum poster. Others can decide for themselves.

 

Another issue, policy makers might be relying on future population increases to pay down the National Debt, but those population increases may not necessarily be accompanied by an increase in GDP.

(Especially when we remember that population growth is not spread evenly over all segments of the population, more of the growth comes from the segments that have lower incomes than the more skilled segments of society with higher incomes)

 

We don't tax the GDP in the United States to fund federal expenditures. We tax personal and corporate income to fund federal expenditures. Personal/Corporate income is always less than the GDP but there is a relationship between the two.

There are actually two different revenue/expenditure categories.

We have the FICA/Payroll/Self-employment tax that's dedicated to Social Security/Medicare expenditures. This category has always been funded, in fact excessively funded in the past, and has not contributed to the national debt.

We have general taxation, predominately in the form of the personal income tax, that funds general expenditures. All of the national debt relates to general expenditures where Congress has failed to provide tax codes that would provide the revenue necessary to fund the expenditures.

Like the GDP the personal income of Americans has also increased but not at the same rate as the population growth but that doesn't create a problem. Because of the every widening income equality in America a highly disproportionate share of that income is going to the wealthy making it easier to provide the revenue necessary to fund the expenditures.

Based upon the Laffer Curve and Supply Side Economics taxing the wealthy more harms the economy the least because the wealthy have the lowest percentage of income used for consumption. Taxing income used for consumption, that fuels economic growth, is what harms the economy and the lowest income households have the highest percentage of income used for consumption. The federal government can't really do much as far as Supply Side Economics because the states create most of the tax burden for low income households and that taxation restricts economic growth.

Taxing high income households to repay the national debt is not difficult and it doesn't harm the economy. The top 1% receive roughly 20% of all personal income and even taxing them at 50% doesn't harm the economy one iota because that income is invested that doesn't create economic growth and not used for consumption that does drive demand for goods and services creating jobs and economic growth.

The problem is really that people don't understand Supply Side Economics because the Republicans misrepresented it. It's about tax cuts for consumers, not investors, because economic growth is based upon goods and services sold (increasing the GDP) and not investment capital.

We know from the Reagan years when Reagan raised the lowest 0% tax bracket to 11% and cut the top tax bracket from 70% to 38.5% that GDP growth under Reagan actually declined when compared to the previous decade. Raising taxes on low income households while cutting taxes on high income households is exactly the opposite Supply Side Economics.

 

That's the key, the govt has revised the CPI calculation significantly several times since the 1970's. The "revised" calculation process always results in a lower CPI than the old process. The most recent change was in Jan 2015.

The current CPI calculation is not a fixed equation, it is modified based upon the governments assumptions on changes in peoples behavior, and the items that are used in the "basket of goods" are each weighted based upon the governments assumptions.

In other words, its subjective and prone to abuse.

And why do the "revised" calculation methods always result in lower CPI? Because many govt payments such as social security and military retirement and pay, and civil service pay, are tied to the CPI. A lower cpi means the rate of increase of those costs decreases. Over time it amounts to a huge discrepancy between real costs and govt claimed costs.

Yes, its fake GDP, fake CPI, fake statistics. The government lies, its that simple.

 

I agree.
If you take inflation/dollar devaluation out of the picture then the GDP has only grown 5.7% from 1991 to 2016, an average annual growth of about 0.37%, while population has grown at an average rate of 1.6%.

 

The majority (%70?) of the debt is owed to US citizens in the form of bonds, pensions, etc. IMO these should be reclassified as something else, and possibly transferred to private management (more thought needed there). The debt we actually owe to foreign sources should be paid asap, and of course, we should END THE FED

 

In the 50's you could buy a newly built house for about $13,000.
How many nice newly built houses can be bought for about $51,000 today?
In fact the house my Dad bought in the early 50's for $13,500 was on the market recently for more than $500,000 and all that has changed is the property is slightly smaller as the road in front was widened and a sidewalk added, but the house is exactly the same and no other improvements on the property.

 

Excellent question.
Based on the house I mentioned in my post #13, an inflation rate of 5.5% has occurred over the previous 67 years.

 

Based on what rate of inflation? Something you made up, or pulled out of some nutjob RW website?

 

Yup. Relative to average income, houses cost 10x what they cost back then, despite improvements in building technology and cheaper materials.

 

How rude!

Try the bls.gov site, their figures, not mine.

 

Yet you dodged answering the question. Thanks for confirming.

BLS doesn't calculate GDP. The BEA does. And I seriously doubt you got such completely erroneous information from the BLS. But please, link to the BLS page that shows real GDP grew only 5.7% from 1991 to 2016. Thank you.

 

Inflation effect on the GDP.
$16,662B in 2016 is equal to about what $9,466B would have been in 1991.

 

Let's accept that for argument's sake.

Actual GDP was $6,174.0B in 1991 and $18,624.5B in 2016.
https://bea.gov/national/xls/gdplev.xls

How do you figure that real, inflation adjusted GDP grew only 5.7% as you claimed.

And where's your link to the BLS you claimed had that data? Where did you get that 5.7% figure?

I'm sorry if you felt offended at my suggestion that you made it up or found it on some nutjob website, but the fact that you continue dodging showing the board where you got this crazy figure from only supports my suspicions.

 

Based on the CPI, $13,000 in the 1950s is about $125,000 today.
https://data.bls.gov/cgi-bin/cpicalc.pl

Your anecdotal claims about your dad's house does not equate to actual data.

But here are some homes you can buy today for less than $125,000.

https://www.zillow.com/blog/homes-on-the-market-for-125k-170223/

My guess is these are probably as good as or better than what you'd get for $13k in the 1950s.

 

I was working from you numbers in post #2, and like I said the bls.gov website provides a calculator to provide the inflation rate which I applied to the 2016 GDP figure from your post #2 to see what it would be in 1991 dollars.
So I used YOUR numbers and only applied the bls inflation figure to them.
A quick google search will provide you direct access to the bls.gov calculator if you wish to calculate the numbers based on your new GDP values.
My spreadsheet numbers are different from both sets you have provided, but mine were obtained fro the St. Louis Fed.
I've not dodged anything, as I've clearly told you where my numbers came from, YOU in your post #2, which you are now changing, and the bls.gov calculator which google quickly provides a link to.

 

Not true at all. Yet more RW propaganda misinformation.

Average family income:
1963 $6,998
2016 $97,357
https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-families.html F6

Average new house price
1963 $17,300
2016 $300,200
https://www.census.gov/const/uspriceann.pdf

In 2016, the average house was 3x more than the average family income.
In 1963, the average house was also about 3x more than the average family income -- a little less than 3x.

You assertion as worded is completely wrong. Relative to average income, new house prices are about the same as they were back in 1953.

However, while your information is wrong regardless how you look at the data, for the typical person, homes actually are significantly higher relative to income.

Can anyone figure out how this could be so?

 

Fair enough. However, you should be cautious about making assertions of fact when you don't understand what you are talking about.

The figures in post #2 are "real" GDP numbers, as indicated, which means they have already been adjusted for inflation. They are not the actual GDP numbers, which I posted in #20.

You took numbers that were already adjusted for inflation and adjusted them for inflation a second time, which is why your got such inaccurate results.

 

The GDP from 1991 to 2016 in 2009 dollars and the percent change from the previous year was:
1991 8,948.4 Base Year
1992 9,266.6 0.036
1993 9,521.0 0.027
1994 9,905.4 0.040
1995 10,174.8 0.027
1996 10,561.0 0.038
1997 11,034.9 0.045
1998 11,525.9 0.044
1999 12,065.9 0.047
2000 12,559.7 0.041
2001 12,682.2 0.010
2002 12,908.8 0.018
2003 13,271.1 0.028
2004 13,773.5 0.038
2005 14,234.2 0.033
2006 14,613.8 0.027
2007 14,873.7 0.018
2008 14,830.4 -0.003
2009 14,418.7 -0.028
2010 14,783.8 0.025
2011 15,020.6 0.016
2012 15,354.6 0.022
2013 15,612.2 0.017
2014 16,013.3 0.026
2015 16,471.5 0.029
2016 16,716.2 0.015

That would indicate an 85.4% increase of the GDP over the 25 year period, which would be an average increase of about 2.5% per year.

The devaluation of the dollar over the same period was:
1991 Base year
1992 -0.029
1993 -0.029
1994 -0.025
1995 -0.028
1996 -0.029
1997 -0.022
1998 -0.015
1999 -0.022
2000 -0.033
2001 -0.027
2002 -0.016
2003 -0.022
2004 -0.026
2005 -0.033
2006 -0.031
2007 -0.028
2008 -0.037
2009 -0.004
2010 -0.016
2011 -0.031
2012 -0.020
2013 -0.014
2014 -0.016
2015 -0.001
2016 -0.012

That would indicate the dollar devaluing an average of 2.3% over the 25 year period.

GDP grew an average of 2.5% each year, while the dollar devalued an average of 2.3% each year, resulting in a true average GDP growth of 0.2%
each year. 1.002^25 = 5.1%

Therefore "Average family income" has grown 13.9 times greater.

AND

The "Average new house price" has grown to 17.4 times greater.
$7.84 in 2016 was the equivalent of $1.00 in 1963.

The dollar, along with all the worlds fiat currencies are, and will continue to diminish in value, while the cost of living will as a result rise.

If you disagree with what I say, that's your prerogative, but I find taking a relativist view works best for me when reacting to absolutism.