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.
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).
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".
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.
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.
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.
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)
equating a recession to a decrease in production is pointless
I didn't equate a recession to anything. In fact, I never even used the word recession in any post, I don't have a framework, and not trying to push a political agenda. Literally, all I want to do is help you understand the GDP equation, which is often misunderstood as to how imports are excluded.
(production is not the economy my guy, trade imbalances have an impact)
Might be true, but we were talking about GDP. GDP is production. Imports are not included in GDP, so an increase in imports doesn't cause GDP to go down.
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).
OK, that is a very DK comment because all GDP does is try to represent production. So you may not like GDP, but you don't get to redefine it. It is what it is, flaws and all.
If you want to make the case that the health of an economy shouldn't be measured by GDP, awesome, go do it (somewhere else, I don't care, or even disagree). But when you do it, remember what I taught you: GDP excludes imports, so when imports go up and down they don't change GDP.
GDP is down, but that reflects trade financing
Wrong, because math. Spending is up equal to the amount of imports increasing, so there is no effect on GDP.
Lets just put this to rest and answer me this question.
You are conflating an increase in imports with a decrease in domestic spending. Trade is not zero sum.
>Might be true, but we were talking about GDP. GDP is production. Imports are not included in GDP, so an increase in imports doesn't cause GDP to go down.
Imports cause GDP to go down relative to C+I+G. Full stop. I'm sorry I didn't say "relative to economic activity which should be the true measure of a recession" but again, that's why I call you a pedant.
>Wrong, because math. Spending is up equal to the amount of imports increasing, so there is no effect on GDP.
Yes, but GDP is down relative to C+I+G because of imports. Why are you being so stubborn about that? And honestly, what's the Venn diagram of people who bring up D-K and those who suffer from it? Like ad hominen is a universal sign of intelligence, right?
>You are conflating an increase in imports with a decrease in domestic spending. Trade is not zero sum.
Answer my question about selling debt/assets please. Are those in GDP? Or can you sell things that aren't "produced" by GDP?
Imports are included in C+I+G, so when imports increase, C+I+G also increases. But the goal of calculating GDP is to exclude imports, so imports are subtracted from the total. Therefore there is no effect on GDP from increased imports.
You were wrong when you said GDP decreased because imports increased, which is how this started. That's not being pedantic, that's correcting a misunderstanding of the how GDP works.
Don't feel bad, this is very commonly misunderstood and misreported, so you have company. People see the "- Imports" at the end of the equation and think they understand imports subtract from GDP. Easy but naive mistake. It's your confidence in your misunderstanding that pushes it into DK territory. Your unwillingness to read or comment on the Fed's own explanation of this is a little shocking though.
I'm also curious what you mean by "trade is not zero sum" when definitionally, trades are zero sum.
Definitionally, trading doesn't create things on its own (though I do recognize your D-K mind is probably trying to make an irrelevant and inappropriate point about comparative advantage or personal utility).
The point that you're too stubborn to see is that one can trade goods/services (GDP) for debt/assets (Not GDP), and that is why imports can cause GDP to go down without economic activity going down, which I think is a fair read of the comment that started this whole dumb thing. You seem to have some reason to not want to understand that, even though I've tried very hard to gently inform you of that fact.
Do you not think one of the most important features of the US economy is its ability to form capital/assets? Because if so, I bet you are German.
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...