Today's economics lesson: GDP numbers do not tell the whole story

To clarify a bit, the traditional definition of an economy comes from convenience, but the way it is explained in aggregate terms is when the output (GDP) rises slower than the capacity to produce(growth in the labor force and its productivity). The second one is the more realistic because it takes into account the underperformance of an economy, which leads to unemployment.

For example, if GDP rises 1% but the workforce grows 2% (assuming no change in productivity) the real result is that the additional 1% of those entering the workforce do not have jobs because there is not enough output(which translates to income for households) to employ them.

Generally, the US economy has had long run growth of around 3.5-4% so that is the marker for staying constant with the growth in capacity. We are far below that, while our productivity is not falling and our population rises. Thus, unemployment has been rising for every month of the year.

It's just logical, you have to examine GDP numbers in the context their capacity to see how accurate they are. For instance, I noticed East Timor is the second fastest growing economy in the world in terms of GDP, but then it also has huge population growth and is moving up from rock bottom so its productivity has to rise. The end result is that the standard of living is pretty much the same

finally my school gets in the new

Finally UTSA gets some national news as The Smoking Gun releases some emails from our favorite randy(and not in the Objectivist sense) professor. It contains such gems as "I should just tell everyone about the 10 pieces of lingerie I bought at Goodwill last weekend. Very intriguing, especially the worn, unwashed thong with the delightful aroma."

Enjoy it here

Here I am at the coast

There I am in front of the replica of the Santa Maria. It smelled like fish and saltwater, which made it uncomfortable to stand there for the picture.

finally back in the saddle

Well, after school, stress, and lots of macroeconomics I am pleased to announce the resumption of the Invisible Boot. I promise new posts, new content, and all the economic goodness your head can handle.

The Train is Pulling into Inflation Station

Inflation rose .6 percent last month, which anyone who has not been living in a cave knows. This is big news in a country whose recent history has been inflation in the twos per year. One good effect of this inflation rise comes in the likelihood of a Fed rate rise rising. Import prices last month rose 17%, which means that Wal Mart, Target, Costco are all gonna be raising the prices to keep their Chinese goods coming in. Hurray globalism.

Today's Lesson-Corporate Taxes are Paid by Consumers

While there is little good to be said of Congress lately, they made one intelligent move by having the windfall profits on oil tax filibustered. While I am as pissed as the next guy about paying four dollars a gallon in gas, basic knowledge of how economic systems work will dictate that taxing profits fails to do anythign about the price of oil, in fact it will raise it.

To understand why a tax on the profits beyond the normal corporate tax will be passedo nto consumers, one must understand that in any economy there are two sides. One side, the demand side, is made up of the businesses and households and governments which spending money or taxes to get goods and services. The other side, the supply side, is the producers(businesses) who create the goods and services the consumers want based on this old law called supply and demand. When there are more buyers than sellers, price rises, and when there are more sellers than buyers price falls. When income shrinks, demand falls, yada,yada,yada. To cut the story short, in the total (aggregate) supply of goods in this country there are two factors which have exogenous variables-output and price. When a tax occurs on a corporation, the price of producing a good goes up because the tax is added into the price in order to maintain profit margins. If the tax were not added into the price, the company would be unable to make money as the would soon have costs exceeding revenue from all of the costs of labor, taxes, overhead, etc. By increasing the taxation on oil companies, the cost of each barrel will rise to maintain profit margins, increasing the price of each barrell. At the same time, fewer people will be able to drive because of the increased prices, which lowers demand. This causes the amount of tax revenue from gas taxes to decrease, which leads to infrastructure problems, and so on and so forth.

In conclusion, businesses seek to make profits, otherwise they would be charities. By increasing the cost to produce on a company, the price of each product rises and demand falls. With oil the price of every product rises due to the use in transportation and being a factor in so many different goods. Even if one did not own a car, the cost of the bike tires would go up, as would the helmet, the backpacks, and the water bottle all rise since all are made from petroleum-based plastics and use petroleum biproducts. Enjoy

Taking a break from studying

I am taking a break from studying upper level macroeconomics to report on the news of the day. First it appears that John McCain, aka the old guy running against Barack Obama, is not doing so hot . If the election were held today, he would lose 304-234 to Barack Obama, conceding formerly R states in Ohio, Colorado, Missouri, New Mexico, Iowa, and barely hanging on in Florida and Virginia.

Will this abysmal showing hold true, or is it a reflection of McCain's invisibility for months with a contested Democrat primary? We shall see

Economically the price of gas is destroying the budgets of Americans and putting our entire economic system at risk if these prices continue without real wage growth. Today I filled up and paid $91, and noticed that diesel prices are close to five dollars a gallon. Diesel prices are the more worrisome of the two since the equipment used ot harvest our food and transport it is all diesel. If farmers cannot make a profit due to diesel prices, we will be exposed to shortages for the first time in thirty years. Of course the government excludes fuel and food prices from inflation, so they claim inflation is under control. Cut out discretionary spending as much as possible is all I can say.