Quote:
Originally Posted by Huehuecoyotl
Well I'm challenging the idea that trade deficits lower the GDP. Well I guess I'm challenging the meta issue of whether it's inherently bad that trade deficits lower GDP. It's not. It depends.
HueHueCoyotl, can we agree that USA's purchasers of goods and service products do not have infinite wealth and they are or should be subject to some self-discipline or budget restrictions enforced by their circumstances? Individual purchasers deliberately or casually determined what proportion of their spending went for their purchases throughout the year, but there were some restraints upon how much they annually spent?
A nation's annual gross domestic product, (i.e. GDP) is the aggregate value of goods and service products domestically produced by the nation during the year.
The nation's consumers', governments, and investments' expenditures for final goods and service product are calculated; (transfers of wealth are excluded from those calculations).
The values of the nation's exports are added to that subtotal because the final purchasers were foreigners accepting delivery beyond our borders.
The values of the nation's imports are subtracted from that subtotal because the products were not domestically produced.
So the conventional expenditure method for calculating the nation's GDP is the nation's final spending for products, plus or minus the nation's net balance of international trade.
If the nation experienced an annual trade deficit, that's a negative balance of the nation's international trade. Due to a trade deficit, the national spending was diverted to net purchase imported products.
If we had spent 2 billion less for imports and 2 billion more for domestic products, our GDP would have been more than 2 billion dollars greater, because the balance of trade understates global trades' effects upon their nation's domestic production.
If we had spent 2 billion less for imports and reduced our national debt, I suppose that would likely have been an improvement of our economy and our annual GDP would have been somewhat more because balance of trade understates global trades' effects upon their nation's domestic production.
If we spent 2 billion less for imports and reduced our private debts, I suppose private financial futures would have been improved and our annual GDP would have been somewhat more because balance of trade understates global trades' effects upon their nation's domestic production.
WhosNext, are you really an economist that's refraining from commenting? I don't find it any great effort to remain respectful. I would suppose you would enjoy a “busman's or buswoman's holiday” by entering this discussion?
Respectfully, Supposn