4 ms·

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 ir

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
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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.
    - WillPostForFood 4y ago
      Dude, you have it 100% backwards, going all the way back to your first point. I feel like you aren't reading, aren't understanding, or something (d.k.?). in your framework, economic activity is up, we are just paying for it via trade imbalance Wrong, I don't have a framework. I am just trying to explain to you how GDP is calculated. Economic activity is down when measured used GDP. Your original post misunderstands GDP. I am not being pedantic, it is just incorrect: Ok, let's play your game. How much of the first quarter decline was due to the ports clearing and imports rising? Here, I'll give you a hint (More than 100%) Wrong, None of the decline was due to increased imports, because by the definition of GDP, imports are excluded. To quote the fed from the link above, "imports do not add to or subtract from GDP." 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. Wrong, GDP declined because domestic spending and/or investment and/or exports declined. Nothing to do with imports at all. Imports are not included in GDP, ergo, imports can't cause a decline in GDP.
      - RC_ITR 4y ago

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.
  - WillPostForFood 4y ago
    Dude, you have it 100% backwards, going all the way back to your first point. I feel like you aren't reading, aren't understanding, or something (d.k.?). in your framework, economic activity is up, we are just paying for it via trade imbalance Wrong, I don't have a framework. I am just trying to explain to you how GDP is calculated. Economic activity is down when measured used GDP. Your original post misunderstands GDP. I am not being pedantic, it is just incorrect: Ok, let's play your game. How much of the first quarter decline was due to the ports clearing and imports rising? Here, I'll give you a hint (More than 100%) Wrong, None of the decline was due to increased imports, because by the definition of GDP, imports are excluded. To quote the fed from the link above, "imports do not add to or subtract from GDP." 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. Wrong, GDP declined because domestic spending and/or investment and/or exports declined. Nothing to do with imports at all. Imports are not included in GDP, ergo, imports can't cause a decline in GDP.
    - RC_ITR 4y ago