4 ms·

Imports are neutral in their impact on GDP (it is domestic product after all). Imports are included in investment/consumption/govt spending, then subtracted bac

Imports are neutral in their impact on GDP (it is domestic product after all). Imports are included in investment/consumption/govt spending, then subtracted back out: net zero. So imports rising definitely was not the cause of decreased GDP.

RC_ITR 4y ago
I'm glad you're confident, but you're wrong. Net exports is a component of GDP and it's exports minus imports. IDK where you got the idea you did. > (it is domestic product after all) Yeah, so buying more from overseas than you sell overseas is a net drag on the economy. EDIT: Like here's the release, check it out for yourself. The tables start on page 11. https://www.bea.gov/sites/default/files/2022-09/gdp2q22_3rd.pdf https://www.bea.gov/sites/default/files/2022-09/gdp2q22_3rd....
- WillPostForFood 4y ago
  GDP isn't a measure of "net drag". It is a measure of "domestic production". Imports might be relevant to some other measure of economic health, but they are irrelevant to the total value of domestic production. You want to ignore or exclude them when calculating GDP. But they are hard to exclude, because they get commingled with spending/consumption/investment. So what do you do? Leave them there, but then subtract total imports. They are counted positively, and negatively, so they have no net impact. Think it through and it should make sense.
  - deleted 4y ago
    [deleted]
  - RC_ITR 4y ago
    Ok so now I get your convoluted point, but then great let's exclude net exports, the other categories like PCE etc. haven't declined? EDIT: I want to give you the benefit of the doubt here because I like where you're headed (ignoring the timing effect that would make GDP useless under your framework), I really do, but let me chew on this. Because it is interesting, though it does completely ignore FDI (which is how imports are paid for)
    - WillPostForFood 4y ago
      Sorry if it sounds convoluted, but just trying to convey the actual rationale for the GDP equation (which is ignored or forgotten in most media reports). You understand GDP (It's not adding up all the things that were made, it's measuring the value an economy produced.). Imports clearly don't count as value an economy produced, and should not be in GDP. But if I import something, that increases GDP (spending is positive to GDP). That starts to mess up the GDP numbers, because that spending is not value an economy produced. You have two choices, try to break down every purchase into domestic or import (impossibly complicated), or just leave it all in, and subtract out total imports at the end to nullify all the import spending (or foreign investment). If imports went up in Q2, that means spending on imports went up. Those two cancel out for no net change to GDP. -- My best shot at not being convoluted: Why do we subtract imports in the GDP equation? It is not because imports reduce domestic production, it is because those imports inadvertently get added in the GDP equation as spending/investment. So to remove the effect of imports entirely, we need to subtract total imports. -- Last edit. :) From the fed: GDP measures domestic production of final goods and services. The expenditure approach calculates GDP using total spending on domestic goods; but the equation, as stated, can lead to a misunderstanding of how imports affect GDP. More specifically, the expenditure equation seems to imply that imports reduce economic output. For example, in nearly every quarter since 1976, net exports (X – M) have been negative (see the graph and Table 1), which seems to imply that trade reduces domestic output and growth. This can influence people's perspective on trade. This essay explains that the imports variable (M) corrects for the value of imports that have already been counted as personal consumption (C), gross private investment (I), or government purchases (G). And remember, the purchase of domestic goods and services should increase GDP, but the purchase of imported goods and services should have no direct impact on GDP. https://research.stlouisfed.org/publications/page1-econ/2018/09/04/how-do-imports-affect-gdp https://research.stlouisfed.org/publications/page1-econ/2018...
      - RC_ITR 4y ago
        Yeah ok so here you go. Philosophically, GDP is an useful economic metric because it proxies economic activity and in your framework, economic activity is up, we are just paying for it via trade imbalance, which great, I love that foreigners will trade us goods/services for debt/assets. Hard to call that a recession (which again is why the 2 quarters thing is dumb). So circling back around to "my original point was correct and you were overly pedantic and actually just criticizing GDP as a measure" since imports are why GDP is down relative to the amount of economic activity that is happening (which is what should define a recession). Also the Dunning-Kruger quip was unnecessarily rude and uncalled for given the circumstance. I hope it made you feel good. EDIT: You agree that, in aggregate, the amount of consumption/investment/government spend are up, right? GDP has only declined because we didn't make all of it, which, sure, maybe a long-term problem, but irrelevant to a recession.
- yellowapple 4y ago
  > Yeah, so buying more from overseas than you sell overseas is a net drag on the economy. Queen Elizabeth I called; she wants her 16th Century mercantilism back.
  - RC_ITR 4y ago
    Bro I’m here fighting for my life trying to convince people that a trade deficit financed by asset sales is a good thing. I meant a net drag on GDP. Please chill.
    - yellowapple 4y ago
      I don't think I'm the one who needs to chill, bro.
      - RC_ITR 4y ago
        It was a joke? I'm aware I'm not 'fighting for my life'
        yellowapple 4y ago
        And I'm likewise aware that a centuries-old English monarch didn't call me to discuss the economic theories of her time (though it'd be pretty cool to see how accurately or inaccurately we've reconstructed Elizabethan-era English pronunciations).
        RC_ITR 4y ago
        Yeah so I responded to your joke with a joke then things got all serious because you didn't take it as a joke. And here we are, two nerds online.
        yellowapple 4y ago
        > because you didn't take it as a joke You sure? :) > And here we are, two nerds online. Well yeah, that's kind of a given.

RC_ITR 4y ago

I'm glad you're confident, but you're wrong. Net exports is a component of GDP and it's exports minus imports. IDK where you got the idea you did. > (it is domestic product after all) Yeah, so buying more from overseas than you sell overseas is a net drag on the economy. EDIT: Like here's the release, check it out for yourself. The tables start on page 11. https://www.bea.gov/sites/default/files/2022-09/gdp2q22_3rd.pdf https://www.bea.gov/sites/default/files/2022-09/gdp2q22_3rd....

WillPostForFood 4y ago
GDP isn't a measure of "net drag". It is a measure of "domestic production". Imports might be relevant to some other measure of economic health, but they are irrelevant to the total value of domestic production. You want to ignore or exclude them when calculating GDP. But they are hard to exclude, because they get commingled with spending/consumption/investment. So what do you do? Leave them there, but then subtract total imports. They are counted positively, and negatively, so they have no net impact. Think it through and it should make sense.
- deleted 4y ago
  [deleted]
- RC_ITR 4y ago
  Ok so now I get your convoluted point, but then great let's exclude net exports, the other categories like PCE etc. haven't declined? EDIT: I want to give you the benefit of the doubt here because I like where you're headed (ignoring the timing effect that would make GDP useless under your framework), I really do, but let me chew on this. Because it is interesting, though it does completely ignore FDI (which is how imports are paid for)
  - WillPostForFood 4y ago
    Sorry if it sounds convoluted, but just trying to convey the actual rationale for the GDP equation (which is ignored or forgotten in most media reports). You understand GDP (It's not adding up all the things that were made, it's measuring the value an economy produced.). Imports clearly don't count as value an economy produced, and should not be in GDP. But if I import something, that increases GDP (spending is positive to GDP). That starts to mess up the GDP numbers, because that spending is not value an economy produced. You have two choices, try to break down every purchase into domestic or import (impossibly complicated), or just leave it all in, and subtract out total imports at the end to nullify all the import spending (or foreign investment). If imports went up in Q2, that means spending on imports went up. Those two cancel out for no net change to GDP. -- My best shot at not being convoluted: Why do we subtract imports in the GDP equation? It is not because imports reduce domestic production, it is because those imports inadvertently get added in the GDP equation as spending/investment. So to remove the effect of imports entirely, we need to subtract total imports. -- Last edit. :) From the fed: GDP measures domestic production of final goods and services. The expenditure approach calculates GDP using total spending on domestic goods; but the equation, as stated, can lead to a misunderstanding of how imports affect GDP. More specifically, the expenditure equation seems to imply that imports reduce economic output. For example, in nearly every quarter since 1976, net exports (X – M) have been negative (see the graph and Table 1), which seems to imply that trade reduces domestic output and growth. This can influence people's perspective on trade. This essay explains that the imports variable (M) corrects for the value of imports that have already been counted as personal consumption (C), gross private investment (I), or government purchases (G). And remember, the purchase of domestic goods and services should increase GDP, but the purchase of imported goods and services should have no direct impact on GDP. https://research.stlouisfed.org/publications/page1-econ/2018/09/04/how-do-imports-affect-gdp https://research.stlouisfed.org/publications/page1-econ/2018...
    - RC_ITR 4y ago
      Yeah ok so here you go. Philosophically, GDP is an useful economic metric because it proxies economic activity and in your framework, economic activity is up, we are just paying for it via trade imbalance, which great, I love that foreigners will trade us goods/services for debt/assets. Hard to call that a recession (which again is why the 2 quarters thing is dumb). So circling back around to "my original point was correct and you were overly pedantic and actually just criticizing GDP as a measure" since imports are why GDP is down relative to the amount of economic activity that is happening (which is what should define a recession). Also the Dunning-Kruger quip was unnecessarily rude and uncalled for given the circumstance. I hope it made you feel good. EDIT: You agree that, in aggregate, the amount of consumption/investment/government spend are up, right? GDP has only declined because we didn't make all of it, which, sure, maybe a long-term problem, but irrelevant to a recession.
yellowapple 4y ago
> Yeah, so buying more from overseas than you sell overseas is a net drag on the economy. Queen Elizabeth I called; she wants her 16th Century mercantilism back.
- RC_ITR 4y ago
  Bro I’m here fighting for my life trying to convince people that a trade deficit financed by asset sales is a good thing. I meant a net drag on GDP. Please chill.
  - yellowapple 4y ago
    I don't think I'm the one who needs to chill, bro.
    - RC_ITR 4y ago
      It was a joke? I'm aware I'm not 'fighting for my life'
      - yellowapple 4y ago
        And I'm likewise aware that a centuries-old English monarch didn't call me to discuss the economic theories of her time (though it'd be pretty cool to see how accurately or inaccurately we've reconstructed Elizabethan-era English pronunciations).
        RC_ITR 4y ago
        Yeah so I responded to your joke with a joke then things got all serious because you didn't take it as a joke. And here we are, two nerds online.
        yellowapple 4y ago
        > because you didn't take it as a joke You sure? :) > And here we are, two nerds online. Well yeah, that's kind of a given.