The Fallacy of GDP Numbers

There is something that is really annoying and misleading about how the state of the economy is typically presented. The factor touted by the media and politicians is the GDP, which stands for gross domestic product. It seems that any talk about the economy in the mainstream revolves around these figures. But not only are these figures misleading, they are meaningless even if they are accurate.

What the gross domestic product really is and should be presented as is exactly what it says - the total output of the private sector. But the government counts its own spending as "growth". Of course, the government's spending is the opposite of growth, as that spending is entirely based on money that was initially taken out of the private economy, it inherently erodes whatever growth there really is. If we subtract the government's spending from the GDP numbers, we see the real statistics (or at least more accurate ones). This usually reveals the cold truth about the economy, which of course is not as good as mainstream economists and politicians make it out to be.

The GDP is constantly used as a way to hide the real state of the economy and the truth about government spending from the public. Consider that there are many Republicans out there claiming that they have reduced government spending. Then they point to the GDP numbers and show that spending is lower as a percentage of the GDP then it was in the 80's. Note: As a percentage of the GDP. That makes it misleading. This just means that the economy has managed to grow since the 80's. Add the fact that the GDP numbers are wrong when they include spending as "growth", and it becomes doubly misleading.

The cold stats about government spending should be obvious: the 2001 budget was 1.2 trillion (a large quantity as it is) and the 2007 budget is 2.7 trillion. Thus, the raw numbers tell us the truth: The government's spending has more then doubled in 6 years, an increase in 1.5 trillion dollars. No partisan manuevering and GDP manipulation can change the obvious fact that the government has greatly increased spending, that the amount of money the government actually spends has increased by around 250%. As a result, the size and power of the government has increased along with it.

It should be very clear to those who are politically and economically informed that the Republican Party's claim to the principles of limited government and fiscal responsibility are a complete sham. All along, from Lincoln to Bush, they have been protectionists, big spenders and general expanders of government. Let's not fool ourselves: The Republicans have never stood for limited government. They disguise themselves in such rhetoric only to defy these ideals left and right.

It is thus extra alarming and confusing when the Democrats act as if there have been "huge cuts" made. What cuts? Where? Please point these cuts out to me! There have been no cuts, there has been spending shifts. At best, the Republicans have slowed the future rate of growth of some social programs by a fraction of a percentage point, only to exponentially increase spending on other social programs and military spending. You call that a cut? I call it a joke.

When it comes down to it, GDP numbers, especially the way they are presented, are completely meaningless. That's right, these statistics are completely meaningless. What's even more meaningless is attempts to predict future GDP numbers; econometric projections. It is a fundamental of economics that you cannot really accurately predict, because you cannot read minds. There is no way of knowing what value judgements people will come to, what they will buy, sell, abstain from buying, abstain from selling, invest in, employ, pay, etc. Most attempts to predict the economic future are therefore innacurate and laughable. And the GDP is innacurate and laughable.