President Harry Truman, affectionately known as Plain Speaking Harry, frustrated with economists explaining potential results of economic strategies for America, startled his aides in a meeting when he asked them to find him a one arm economist.

He explained that he was tired of hearing the explanations of “on the one hand, this might happen”, “however, on the other hand, this could happen”.  So it goes with economics, which is known as the “dismal science”.   

How do we determine the economy’s performance?  Just as the human body’s temperature indicates our health condition, the nation’s Gross Domestic Product (GDP) indicates the condition of our economy.  You can track this at www.research.stlouisfed.org/fred2/series/GDP.  Placing your cursor on the graph’s line will show the actual dollar amount.

GDP is defined as “the sum total of all the goods and services produced in the nation” and is calculated with the algebraic expression: GDP = C + I + G + (X – M).  These 4 basic components are defined as (C) for consumption by consumers, (I) for investment by businesses, (G) for government spending, a.k.a. fiscal budget, (X – M) for net exports (exports minus imports).  Typically, our GDP components might look as follows:  (C) = 70%, (I) = 14%, (G) = 21%, and (X – M) = – 5% for 100% of a $16 – $17 trillion GDP.  Note the -5% export deficit says we imported more than we exported.  America has become a nation of consumption.

Sound financial decisions can be made by considering the systemic nature of the GDP components.  In a weak and declining economy such as ours, consumer consumption declines because of unemployment and/or heavy debt, and constraints on discretionary spending.

When consumption declines, business capacity isn’t expanded because to expand, businesses expect items produced to be purchased by consumers immediately, or in the very near future.  Thus, business expansion tends to lag along with consumption lag.

When consumers (C) and businesses (I) are lagging, we look to government spending (G) to provide the difference in the GDP.  For years, (G) has been increasing the national debt by deficit spending and borrowing. The Picayune Item published an article on the debt June 28, 2009, as it “surged past $10 trillion” in 2008.  From 2009 – 2012, another $5.4 trillion was added to the debt.  The website www.usdebtclock.org shows the debt at $17.6 trillion as I write this Column.  Long story short, (G) isn’t working, and our debt is growing.

The remaining component to increase our GDP, is net exports, (X – M). We gain nothing here since over time, we have given away much of our productivity (out sourced) to other countries, so we are importing more goods and services than exporting.  Today, www.usdebtclock.org shows a deficit of (- $700) billion for fiscal 2014, which reduces our GDP number. 

An earlier Columnist questioned the success of the county’s $450,000, plus expenses, economic development contract with an outside contractor.  This strategy is    sound in an economic environment of growth, but too risky in the declining economic environment we’ve had since 2008.  The GDP explanation shows why success with this effort might well be non-existent, or limited, at best. Take heed of 2 Chronicles 7:14.

By: Aaron Russell Sr.