The economy took a jump from July to September as Gross
Domestic Product (GDP) calculations rose 3.5%. This is great news for those
hoping to finish off the last of the recession and move onto more prosperous
times. This improvement is the largest in a single quarter since 2003 and parallels
higher levels of consumer enthusiasm. Positive news also comes with a warning
to redirect focus to balancing budgets, encouraging long-term economic growth,
and reducing income disparity.
To add to this positive news the University of
Michigan’s consumer confidence index also jumped to 86.9 in October when
compared to 84.6 in September. With GDP
expanding and consumer confidence rising few can argue that the world’s super
power isn’t regaining economic ground.
Measuring economic growth often rests on imperfect
numbers such as GDP that can create improper assumptions among decision-makers.
GDP is seen as the total market value of the goods and services produced by a
nation over a certain period (Kolb, 2008). That number includes all final goods
and services generated by economic resources within a nation.
GDP product doesn’t consider the production of
American citizens but any business or entity that works within a nation. It is an
important distinction, as the global world can allow companies to do business
within the U.S., but be owned by foreigners that still contributing to local
growth.
Despite its wide reaching use GDP is not a perfect
measurement. There is a fundamental difference between wealth creation and
increased production. According to Strow & Strow (2013) GDP can encourage
lawmakers to push for increased government spending but ignore wealth creation
as a primary function of economic expansion.
As an imperfect measurement the improvement of GDP
and increasing consumer confidence are positive markers for the potential of
future growth. Growth years are also times when the strategies of lawmakers and
business leaders should also change to make such growth long lasting.
Unfortunately, too many wait until another crisis occurs before refreshing
their thinking.
When the economy improves officials sometimes focus
on maximizing additional spending to balance old budgets and encourage pet
projects. With the ending of unprecedented government asset purchases, historic
low inflation, and a few deficit improvements it is important to focus on reasonable
budget reduction plans, improving economic trade conditions, and the reduction
of income disparity. The underpinnings that lead to growth should not be
ignored for short-term budget advantages.
Kolb, R. (2008). Gross Domestic Product (GDP).
Encyclopedia of business ethics and society.
Strow, B. & Strow, C. (2013). Gross actual
product: why GDP fosters increased government spending and should be replaced. The Journal of Private Enterprise, 29
(1).
