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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 un

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
    Bro, what you are not understanding is that equating a recession to a decrease in production is pointless. It’s why you won’t answer my C+I+G question. What is happening is that Americans are selling debt/assets in exchange for goods/services (that’s what a trade imbalance is). They are still able to consume and invest an increasing amount of goods/services and there’s no signs of that ability to finance those activities via trade imbalance decreasing any time soon. In fact, the reason GDP went down without C+I+G going down is that they did more of it than ever before! So keep calling me D-K but you have no idea what GDP even represents (production is not the economy my guy, trade imbalances have an impact). Like you get that assets/capital formation aren’t in GDP but you can still sell them, right? And that’s why > Wrong, GDP declined because domestic spending and/or investment and/or exports declined. Is incorrect. None of those things declined, we just financed them with a trade imbalance (instead of production) which is why you should google FDI EDIT: Lets just put this to rest and answer me this question. Imagine a world where tomorrow, China is willing to sell America everything it wants in exchange for shares of BigCo. (To be clear, the flow is dollars used to purchase RMB, RMB used to purchase goods/services, RMB used to purchase dollars, dollars used to purchase shares of BigCo.) America takes them up on this deal and increases consumption by 5x overnight. Given that America is importing all its goods/services, it has a GDP of zero, a 100% decline. Is that a good measure of an economy increasing its consumption of goods/services from $20tn to $100tn, or is the trade imbalance hiding something important there? Which again, my original point: sure GDP is down, but that reflects trade financing more than it does economic activity (whereas you seem to have this weird fixation of in-quarter production being the only source of value creation in an economy, which lol D-K)
throwawaylinux 4y ago
It's not convoluted at all, it makes perfect sense and you explain it well.
- RC_ITR 4y ago
  Philosophically, GDP is an useful economic metric because it proxies economic activity and in theirframework, economic activity is up, we are just paying for it via trade imbalance, which great, I love that foreigners will trade us goods for debt/assets. Hard to call that a recession (which again is why the 2 quarters thing is dumb).
  - throwawaylinux 4y ago
    You just can't give it a rest can you? You're in total denial of the reality that many people including experts and journalists use the GDP 2 quarters definition, entirely because you are blinded by politics. You didn't even understand how GDP was calculated and had to have the parent poster kindly and simply explain it to you, and instead of being grateful and learning something you've sunk to "it's dumb lol".
    - RC_ITR 4y ago
      I think i ended our conversation with “agree to disagree” then you came over here. So yeah you’re right I can’t give it a rest. But I don’t know why citing BEA releases is considered politics. Like I get it, you don’t like Biden, neither do I! But it’s just so weird that people want to pin this fake recession on him, when in reality they should pin other real shit he did like the crypto bubble from stimulus payments or the inflation that followed. My problem with you isn’t your politics. My problem is that you’re hungry for an easy answer to the detriment of accuracy.

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
  Bro, what you are not understanding is that equating a recession to a decrease in production is pointless. It’s why you won’t answer my C+I+G question. What is happening is that Americans are selling debt/assets in exchange for goods/services (that’s what a trade imbalance is). They are still able to consume and invest an increasing amount of goods/services and there’s no signs of that ability to finance those activities via trade imbalance decreasing any time soon. In fact, the reason GDP went down without C+I+G going down is that they did more of it than ever before! So keep calling me D-K but you have no idea what GDP even represents (production is not the economy my guy, trade imbalances have an impact). Like you get that assets/capital formation aren’t in GDP but you can still sell them, right? And that’s why > Wrong, GDP declined because domestic spending and/or investment and/or exports declined. Is incorrect. None of those things declined, we just financed them with a trade imbalance (instead of production) which is why you should google FDI EDIT: Lets just put this to rest and answer me this question. Imagine a world where tomorrow, China is willing to sell America everything it wants in exchange for shares of BigCo. (To be clear, the flow is dollars used to purchase RMB, RMB used to purchase goods/services, RMB used to purchase dollars, dollars used to purchase shares of BigCo.) America takes them up on this deal and increases consumption by 5x overnight. Given that America is importing all its goods/services, it has a GDP of zero, a 100% decline. Is that a good measure of an economy increasing its consumption of goods/services from $20tn to $100tn, or is the trade imbalance hiding something important there? Which again, my original point: sure GDP is down, but that reflects trade financing more than it does economic activity (whereas you seem to have this weird fixation of in-quarter production being the only source of value creation in an economy, which lol D-K)

throwawaylinux 4y ago

It's not convoluted at all, it makes perfect sense and you explain it well.

RC_ITR 4y ago
Philosophically, GDP is an useful economic metric because it proxies economic activity and in theirframework, economic activity is up, we are just paying for it via trade imbalance, which great, I love that foreigners will trade us goods for debt/assets. Hard to call that a recession (which again is why the 2 quarters thing is dumb).
- throwawaylinux 4y ago
  You just can't give it a rest can you? You're in total denial of the reality that many people including experts and journalists use the GDP 2 quarters definition, entirely because you are blinded by politics. You didn't even understand how GDP was calculated and had to have the parent poster kindly and simply explain it to you, and instead of being grateful and learning something you've sunk to "it's dumb lol".
  - RC_ITR 4y ago
    I think i ended our conversation with “agree to disagree” then you came over here. So yeah you’re right I can’t give it a rest. But I don’t know why citing BEA releases is considered politics. Like I get it, you don’t like Biden, neither do I! But it’s just so weird that people want to pin this fake recession on him, when in reality they should pin other real shit he did like the crypto bubble from stimulus payments or the inflation that followed. My problem with you isn’t your politics. My problem is that you’re hungry for an easy answer to the detriment of accuracy.