Great piece in Forbes magazine suggesting the way economies are currently measured is deeply flawed. A hypothesis I agree with completely given that only a short time ago, the economies of all the currently collapsing European countries were regarded as models of Keynesian success. In fact they were a house of cards. A truth that has always been evident to anyone who just looked at the ratio of producers to non producers, and the ration of consumption to production.
Wellington (NZ) has the highest wages in the country yet produces almost nothing. It is obvious to anyone possessing any small degree of logic that such a state of affairs can only ever be temporary, and the longer the delusion is sustained, the harder reality will finally hit. Idiotic attempts to prop up the economy through stimulating consumption while so much is done to cripple production are madness. Last year Kevin Rudd legislatively stole money from producers, or those who might have wanted to save it, and gave it in lump sums of $350-$950 to Labour voters to spend in gambling clubs, pubs and junk retailers. Obama’s Cash for Clunkers was another embarrassing corrupt and cronyist failure. Such acts of utter idiocy though are recorded as a economic positives. How bizarre.
Steve Forbes has written a great article suggesting improvements that give a real and accurate picture of a country’s economy.
Adam Smith taught that economic activity is composed of transactions between two or more parties. For example, I go to a restaurant: They give me food; in return I give them money, which the eatery then uses to pay for such things as salaries, utilities, raw food, etc. So, as Amity asks, how in the world can consumer spending make up 70% of the economy? [..]
“Indeed, government efforts to “temper” the “ups and downs” of business cycles will eventually be regarded as preposterous and hubristic. We’ll no longer have the spectacle of a Larry Summers, President Obama’s outgoing Director of the White House National Economic Council and Assistant to the President for Economic Policy, overtly declaring the Keynesian axiom that if consumers don’t spend on a scale satisfactory to such economic commissars as himself then the government must seize their resources and spend them for them. All in the name of modulating the economy, as if it were a thermostat. It never occurs to these characters to ask why people might be clutching their cash–and then remove the government-made barriers.”
Read more here. Copernican Revolution Coming To Economics.