Economic Situation Cobb, Halstead and Essay

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Similarly, the subprime crisis represents well the argument between GDP and GPI. The housing bubble resulted in strong profits for the banking, real estate sales and construction industries. Each contributed to GDP growth. Yet, GPI argues that very little real value was created. The sale of a home from one speculator to another increases the GDP, but it creates no value. If that home is flipped three or four times in a year, it inflates the GDP without creating any real wealth for the nation. Churning the economy and growing it are two different things. Therefore in GPI terms, the housing bubble would be deducted from the GDP figure.

Likewise the Iraq War would be deducted. War spending increases GDP dramatically, but death, destruction and erosion of goodwill are not "progress" as defined by GPI proponents. When the negative forces that have propped up the GDP over the past eight years are removed, economic growth has been negative. The nation has not made progress in the past eight years and indeed is worse off than it was at the turn of the millennium.

It can be argued, however, that GDP is an accurate measure of progress. The merits of GDP are that it accurately reflects our transaction-based economy. Wealth is generated by the exploitation of resources. Human resources must be included. GPI proponents include charitable work and other good deeds that do not contribute to GDP in their GPI calculations, yet they appear to discount the value of services.

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The realtor who gains a commission from a transaction between realty speculators will pay taxes on that income and either spend or save the rest. It may not seem productive but it is a legitimate creation of wealth. GPI essentially discounts the value of money as wealth. Yet our economic system is based around the principle that money does equal wealth. As long as we stick to that system, GDP is a fair assessment of the nation's wealth. GPI proponents have merit when they argue that there are other forms of wealth. That generation of that capital should be included in wealth assessment seems reasonable. Yet the discounting of other capital generation on the basis of what seems to be arbitrary value judgments (i.e. war is bad and therefore should be subtracted) would seem to weaken the case of the use of GPI. All told, economic progress has been strong. It has come at some cost, but the nation has managed to generate wealth. Human capital is more fairly valued under GDP than GPI. Given the increasing importance of human capital, it seems reasonable that GDP is a good measure of wealth going forward. This applies to the last eight years as well - economic growth has been sound even if the GPI has decreased.

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