An Analysis of GDP

Gross Domestic Product, or GDP, is used by many economists as a measure of the overall strength of the economy.  It its simplest form, GDP is calculated by taking household consumption and adding to it business investment, government spending and net exports.  Below is a specific breakdown of each part of GDP for the United States in the second quarter of 2012.

                                   

One thing that is clear looking at this graph is how much household consumption contributes to our GDP.  Housing and Utilities purchases alone ($2.0 trillion) exceed all Federal spending, which amounts to a little over $1.2 trillion.  Business investment contributes significantly to our GDP as well. The takeaway from this is that if we really want to boost our economy, finding ways to promote consumers to spend more money is the way to go.  Here is a breakdown, by sector of the economy, of our GDP. This one references the GDP of 2009.

The percentages change from year to year, but generally we can see what parts of the economy are most important.  Here's how the US fits into the larger world picture:

As we can see, the United States is a large portion of the world economy.  It is the largest portion, in fact.  This means that the United States occupies a very important role as a producer and consumer of world goods.  What affects the United States affects the whole world.  We have seen this with the current financial situation.  When the United States was drawn into a deep recession, so to was most of the world.  In this country, we need to be mindful that our fiscal policies have a very wide ranging impact.  The same can be said for other countries in emerging markets.  When a single country occupies such a large slice of the world economy, their actions have huge consequences.

Here's a breakdown by state of our country's GDP:

The same lessons can be learned from this graph.  California, as a large slice of the pie in America, affects many citizens all around the country because of their decisions.  Indeed, they also occupy a large portion of the world economy.  Silicon Valley, the entertainment industry, and agriculture are all huge parts of the world economy. Small decisions in Los Angeles or San Jose or even Salinas can have impacts on a large stage.

Our Ideas:

With all this in mind, we can figure out efficient ways to boost our domestic production.  Increasing consumer spending and business investment is of paramount importance.    By keeping interest rates down in a bad economy, more money can be freed up for consumers and businesses, so that they can spend it in the economy.

More needs to be done however.  We advocate applying principles of microlending to local communities in order to elevate people into economic success and sustainability.  We have outlined such a proposal in a previous post.  While this is not a sole solution, it could go a long way to providing funds for consumers and small businesses.

In hard times, we also need to empower these same small businesses by lowering their tax rates.  Small and medium sized businesses drive both business investment and household spending, so increases there will make a significant difference.

Additionally, much has been made of the United States' trade deficit.  In the topmost graphic, you will see a negative number for net exports.  In the graphic below, you will see the net exports as an overall percentage of our GDP.

This is not necessarily a bad thing.  Even though our trade deficit is large, it is only a small percentage of the total economy.  Even if the gap got bigger, it would not necessarily mean that our economy would be worse off.  If we go by the economic principle that trade increases wealth, a country with a trade deficit, if efficient, will make up that loss in some other area of the GDP.

We do this by specializing.  Importing items allows us to specialize in producing goods that we are especially good at making.  We don't have to be a large exporter to be a powerful economy.  If we have strong consumer spending and business investment numbers, as well as a certain amount of government spending, our economy will still be very strong for the future.  This country needs to work on exporting goods, but we need not worry to much about this trade deficit, as long as it stays within a small percentage of our GDP, because we can always specialize and produce something different, capitalizing off trade.

Social Media In Campaigns

This election, President Barack Obama and Republican Presidential candidate Mitt Romney had vastly different strategies when it came to utilizing social media.  Though the president's campaign had a head start in this part of the campaign, on election day,  Team Obama had amassed a ten to one advantage on spending in this area.  A NewsHour piece illustrates the big difference between the two campaigns:

Here is a chart breaking down the social media statistics for both major candidates.  Obama had a much greater presence on social media than Mitt Romney.

In June Spending, the Obama campaign spent a modest 8%, good enough for around 4.5 million dollars:

In Mr. Romney's spending pie chart, online ads purchases do not appear:

While it's presumptuous to say that Mitt Romney lost the election because of his failures in social media campaigning, it could very well have played a significant role in the defeat.  President Obama's team was able to clearly and efficiently reach its audience, as well as provide mobile tools for volunteers.  The emphasis on social media by Team Obama shows that they were, perhaps, a bit more innovative in their strategy and willing to take the risk in investing heavily in digital.  

That risk, if it was even regarded as a risk, certainly paid off.  Obama was able to score a victory, helped by the fact that his campaign had solid organizing aided by digital tools. By pushing the envelope and developing new campaign strategies, the Obama campaign stayed ahead of the curve and ahead in the polls.   Mr. Romney took the more conservative approach, not using extraordinary resources on new technologies.  Conventional tactics, used long before this social media revolution, no longer seem as effective.

2008 was known to many as a "social media election."  This election also was affected by social media influences.  In the future, the influence of social media is likely to grow.  In order to keep up with the times, candidates for elected office need to do more on social media.

We have seen the exceptional political influence social media sites can wield through these past two presidential elections, as well as movements such as the Arab Spring.  It seems that for now, this technology is here to stay in American and world politics.  

Debt vs. Deficit

Debt and deficit.  People often confuse the two.  Republican pundits attack Democratic policies on both.

A deficit occurs when all government incomes, called receipts, are less than the amount of government expenditures, called outlays.  Revenues come from income and other forms of taxes.  Expenditures result from a variety of purchases and entitlements. Since a deficit involves only a year's receipts and outlays, it applies to just one year. If the government took in $14 trillion and spent $15 trillion, the deficit would be $1 trillion.

When the government runs a deficit for a certain year, they need to borrow money in order to pay their bills.  To do so, the Federal Reserve can print some or all of the shortfall, but this typically leads to inflation.  How much inflation occurs depends on the amount printed.  If everyone has more money, and there are the same number of products, then those products will become more expensive.

Usually, instead of printing money, the government operates in credit markets, issuing bonds, like private companies can.  A bond is a form of a loan.  when the US Treasury issues its bonds, it means it is promising to pay that money, which it needs now, in the future.  When governments issue bonds, investors buy them up, selling them on secondary markets.

Debt, on the other hand, is basically accumulated deficits.  If the government has to keep issuing bonds, borrowing money each year to pay its outlays, then the debt will continue to grow.

Debt typically grows each year.  With each successive deficit, the debt, or at least the gross debt, will continue to grow.  A misconception is that if the government takes in more than it spends, that its receipts are greater than its outlays, that there is no debt.  This just means that the government has managed to run a surplus, but all debt that was accumulated previous years is still there.

It is accepted by most economists that some debt, sometimes, is a good thing for the nation and the economy.  When in a recession, tax revenue falls because of the lack of business and personal growth.  If tax rates are slashed, the revenues will fall even more.  The government also spends more on its social  programs such as unemployment insurance/benefits, so the government should run a deficit in order to pay for all that.  Conservatives argue that deficits in bad times need to be offset by surpluses in good times.  However, this does not need to be the case, when we consider debt in relation to our nations economic productivity, the GDP.

If the debt remains at a steady percentage of our GDP, the government can sustain that level of debt, even if they run deficits forever.  Consider the following: if the government has debt of 30% of its GDP at the start of a year, and it ran a balanced budget, even though the gross debt stayed the same, the percent with respect to GDP will go down.  The GDP almost always goes up.

The more our GDP grows, the more debt we can afford to take on.  GDP is basically an equivalent of the nation's tax base.  The more growth in the country, the more profits and salaries will rise, and the more tax revenue for the government.

There are negatives to government debt.  When the government has to continually issue bonds, these bonds compete with private ones on the investor's market, pushing up interest rates.  The more money the government takes from this market, the less money there is for the private sector.

Debt does have many positives though.  Families, for example, go into debt and borrow money in order to buy a house or pay for college.  The accumulated deficit of paying for one of these lasts for many years, but people still manage to pay it off.  Debt makes the benefits of owning a house and higher education reachable for more people.  Companies operate the same way, obtaining loans in order to expand, hoping for more profit later on.  In the same way, government can go into manageable debt in order to pay for items that its citizens deem important.

Badly Needed Senate Procedure Reforms: Part 2

In the second part of our Senate reform series, we'll discuss secret holds.  In the last post, we discussed the filibuster, used as a means to delay or kill legislation   While the filibuster has been commonly used, especially recently, it is not the only way a senator can stall or stop a bill.

The Senate, it turns out, typically conducts business in the form of unanimous consent, which means that a single member can cause considerable consternation when other senators are trying to pass a measure.  This hold can be done without releasing one's name, hence the term "secret hold".  After some recent changes to the procedure, a senator can hold under anonymity for up to two days.  The problem: senators can still team up.  One will hold fro two days, then another.  The result is a killed bill.

Our proposal:

We need to adapt the rules to hold senators accountable.  Holds can still exist, but all holds should be public.  Senators should then explain to the American people why they have place a hold.  There is then a public record of why the senator is opposed.  Changing these rules should streamline the legislative process and make the system more open and transparent.

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Badly Needed Senate Procedure Reforms: Part 1

As the election is now complete, and a new legislature will convene in January, we felt it was time to discuss what we feel are much needed reforms to Congress.  We are focusing our attention this time on Congress's upper house, the Senate.

First, we'll focus on the filibuster.  What was once a procedure to extend debate has now become an obstructive tactic, aimed at delaying  or oftentimes preventing, a measure from being brought to a vote on the Senate floor.  Per the Supreme Court ruling United States v. Ballin, Senate rule changes can be achieved by a simple majority, though, of course, these rule changes could also be filibustered before any vote would take place.

Below, we can see how many times filibusters have been used by tracking instances of cloture.  Cloture is invoked to bring debate to a quick end and to force a quick vote.  Recently, cloture has been invoked, with limited success, showing that numerous filibusters have been successfully used to block bills, especially by the  Republican Party.

In order to begin debate on a bill, the senators must adopt a "motion to proceed."  Once this occurs, debate is unlimited unless 60 senators vote to end it.  Therefore, because of the rules governing filibusters and senate debate, a minority of 41 can stop a bill cold.

This tactic has been used to prevent presidential appointments, tax bills from passing, and the end of tax subsidies from taking effect.  The filibuster has even been used to block Mark Udall's proposal to end the current filibuster.  These procedures are now a hindrance to the governmental process, making the Senate slower moving and gridlocked.  The rules are actually an undue regulation on the democratic process, endorsed predominantly by Republicans.

Now that's big government.

We need to change the rules so that it does not take 60 votes to get any bill passed.  A simple majority to end debate is all that should be required.  Perhaps this will eliminate the chance of the minority to have a say, but in today's partisan gridlock, we desperately need a way to streamline the legislative process.  Eliminating outdated and obstructive filibuster rules is the first step towards making that happen.

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Comparing Economic Freedom

In our world, there is extraordinary disparity in the degree of economic freedom.  While some countries, like Australia, Ireland, and the United States have very high economic freedom, others are widely classified as repressed.  Here's a world breakdown of economic equality:

If we measure economic freedom versus economic productivity, we can see the benefits of creating a free-market economy:

These two graphics, with a bit of extra information, can provide us with a few lessons.  First of all, the greatest growth in economic freedom has been occurring in emerging markets, which bodes well for these countries trying to grow.  China and India, also, have in fact gained on the scale in economic freedom.  Latin America has seen small improvement too.

The obvious takeaway is that the more restrictions a country puts on businesses, consumers, and investors, the more they will struggle financially.  While some regulation can be good, to much restriction clearly limits growth.

Another takeaway concerns the Middle East.  Many of the Middle Eastern and African countries are solidly in red or orange.  These closed societies are not only breeding grounds for terrorism and intolerance, but they also offer little economic opportunity to their citizens.  This is especially dangerous, for oppressive societies in poverty are likely to stay oppressive, and young people trying to avoid terrorist organizations will have little options and opportunity 

The Minimum Wage: A Case Study

The Federal Minimum Wage, as well as minimum wages set by certain states, has been around for a long time.  Fighting various Supreme Court administrations, activists finally were able to set a minimum wage in 1938, and it has increased progressively throughout the years (see below).

This tends to be because of inflation.  Adjusted for inflation, federal minimum wage has actually been decreasing over the past few decades.  Of course, many states (and even cities) have different minimum wages than the federal level:

And here's how the United States stacks up against some other countries:

The US is in the middle of this pack, just below Greece and just ahead of Spain.

Despite the merits of the minimum wage, most economists actually disagree with it.  They see it as an inefficiency in our economy, and that it costs the country thousands of jobs.  Here's why:

Here is a simple Price vs. Quantity Demanded/Supplied Chart that is used to illustrate the interplay of supply and demand, which determines price.  The Wage, on the left, or the y-axis, is the price.  The bottom, or the x-axis, is the quantity supplied and also the quantity demanded.  The line sloped downward is demand, because as price gets higher, the quantity demanded gets lower, and if the price is lower, the quantity demanded is higher.  Supply is the upward sloped line and works differently.  As price gets higher, more producers are willing to supply their items at that price.  The lower the price, the fewer producers willing to sell at that price.  Where supply and demand meet, that is, where the two lines intersect, is the equilibrium price, where the maximum number or suppliers are willing to sell and the maximum number of buyers are willing to buy.

In this case, the item being sold, or supplied, is labor.  The buyers, or demanders, are businesses that hire the suppliers.  The equilibrium price, therefore, is a wage, determined by supply and demand.

The minimum wage acts as a price floor.  It is a threshold amount that buyers must pay for the labor of their workers.  A price ceiling would be the opposite: it's a maximum that suppliers can charge.  In this case, we draw the price ceiling as a line above the equilibrium wage point.  We draw it above because it acts as a barrier to the market reaching a low equilibrium point.

By creating a minimum wage that is higher than the equilibrium wage, we end up with a shortage of labor.  How?  Look at the graph above.  The quantity supplied at the minimum wage price is actually far lower than the quantity supplied at the equilibrium price.  In other words, supply and demand don't intersect, they don't come to a consensus.  The result is a surplus in labor, which translates into underemployment.

There are, however, positives to the minimum wage.  Adults that currently work minimum and near minimum wage jobs would likely lose employment to teenagers.  Workers also need a minimum amount of income in order to survive, which might be higher than the equilibrium wage.

The federal minimum wage, throughout history, has fluctuated above and below the poverty line, individually and for a family of 3.  Many minimum wage workers are the sole breadwinners in their households, so eliminating the minimum wage would undoubtedly hurt them.

Our Ideas:

Eliminating the minimum wage could help end underemployment problems, but it could also hurt many people.  One of our proposals is to end the minimum wage for teenagers to help them earn wages while still being dependent on their parents (they would not need to earn wages that are higher than the poverty line). If not for all teenage workers, we could at least relax the wage rules for teenagers who wish to gain some sort of income/work experience.  Another possible solution includes dramatically reforming the tax code, helping workers and businesses and providing incentives to provide specific kinds of jobs.  This could solve the problem at its source.  We'll delve into this topic in one of our later posts.

Changes Beyond Immigration Needed on GOP Policy

For the Republican Party to improve its standing among Latinos and other immigrants, much more is needed than simply immigration reform.  Immigrants need to feel included by the Republican Party and wanted in this country.  Like all of us, they want jobs and economic security.  They want, as many of us do, strong education for their children.

To a certain extent, this can be a lesson to both major parties.  The Republican Party, however, is the party that lost the minority vote by a very large margin this election, so we'll focus mainly on them for now.

Policies that Democrats have championed that are favorable to Latinos have been rejected by many Republicans, such as the Dream Act.  Below is one poll, out of many, that shows strong Latino support for the dream act, which was passed by a Democratic House of Representatives and fell by a GOP filibuster in the US Senate.

Strong Latino support seems to be ignored by Republicans, who are against what they perceive as amnesty for illegal immigrants.  While Republicans have certainly had ideas about immigration, it usually takes the form of a deport-first, something that rankles some more moderate GOP members of congress.  Marco Rubio, Senator from Florida, came up with a competing measure to the Democratic Dream act, sponsored by Illinois's Dick Durbin, to push the issue of immigration.  Here is a Latino preference breakdown of the two competing bills:

The Durbin proposal is clearly more popular in this poll, conducted by Latino Decisions.  The main difference between the two bills is that Durbin's offer's a path to citizenship, while Rubio's does not, instead giving non-immigrant visas to the children of illegal immigrants.  Rubio has cooled on his own bill recently, seemingly outdone by President Obama's executive order.  If the GOP wants to take the lead on immigrant issues, they will have to do far more than simply change their immigration policies.  They need to come up with plans like the Dream Act to empower Latino youths by providing them with a means to get an education.  Being a strong support of the youth movement gained Obama much needed grassroots support in 2008, and to a certain extent, again in 2012.  The Republican Party needs to not only cater to immigrants, but cater to young immigrants/immigrant's children, in order to survive this change in the electorate.

GOP's Demographic Problems

Below is a chart of the demographic breakdown for the presidential election of 2012.  As one can clearly see, the Republican Party did well with white voters, but quite poorly with minority voters, a problem brought upon themselves.  In recent years, the GOP has taken a combative stance against illegal immigration and minority rights.  While some Republicans might blame the message rather than the actual policy, it has been duly noted that the Republican party is not an ardent supporter of immigrant and minority rights.  Bills have been passed in states, such as Arizona and Alabama, that would seem to encourage racial profiling to find illegal immigrants.

The results from both the 2008 and 2012 elections do not bode well for Republicans.  The demographic is shifting now, with minorities making up a larger portion of the electorate.  Now, with two strong showings, the Democrats, at least for now, have the allegiance of this critical groups.  The electoral map, therefore, has dramatically changed from previous decades, with Democrats running well in western states as well as Florida.


Here is the electoral map for the 2012 Presidential election:

And here's one for 2012:

As one can see, Obama won Colorado, Nevada, New Mexico, and Florida in both elections, all states that have gone Republican in the past and have been classified as more right leaning.  All these states have large Latino populations that are only getting larger.  In order to ensure that they can survive on a national scale, the Republican Party must moderate their position on immigration and other issues important to minorities, especially Latinos.  It is not just that they have trouble communicating their message.  They need to be leaders on the issues that matter to these groups.

There are many risers in the GOP that could help with this, though many are outside of Washington.  By adapting their policies, the Republican Party could become more centrist and appeal to many minorities, as well as independents.  By becoming more inclusive rather than exclusive, they can promote policies that will benefit all of America rather than some of America and help them become stronger politically, a win-win for Republicans.  Advocating fiscal responsibility will resonate with many people and if the party can change a bit and become more innovative when it comes to minority groups, the GOP can become much more formidable in national elections and perhaps make this country a better place. 

Electoral Reform

In this election, individuals and corporations have been able to spends tones of money while being "unaffiliated" with a candidate.  This poses significant problems for the US.  We need elections that are not bought; not sold to the highest bidder.  We need legitimate electoral reform where there are caps on spending and getting rid of the electoral college.

A map scaled to reflect the dollar importance in the 2012 election

National Public Radio featured the map above, as well as some others, in a feature where they showed how different states have vastly different electoral, as well as monetary importance for candidates.  There article can be found here: A Campaign Map, Morphed By Money.  With Super PACs, the problem is now compounded  with even more money flowing into the election this year.

CNN Money used the above graphic in their feature, which called the 2012 election the priciest to date, with a $4.2 billion dollar price-tag, with some time left to spend.  The numbers are likely to only get bigger if super PACs continue to hold sway in American politics.

The Solution:

Because of the Supreme Court's Citizen's United decision, as well as the continuation of the Electoral College, it will likely require some sort of constitutional reform in order to get rid of Super PACs and the electoral strategies that currently exist.  A constitutional amendment that bans such groups, as well as establishing the general framework for fair and free elections without large amounts of outside cash is necessary to ensure that our version of democracy can exist long into the future. Getting rid of the Electoral College would also ensure that instead of spending time and money in only a few states, national candidates would have to have a wide ranging base all over the country to win the popular vote.