samedi 18 février 2012

GDP = C + G + I + X : in search of a new balance in 2012, especially in France !

by Jean-Jacques COURTEY, Doctor in Economic Geography, Ph. D

GDP is an American practical invention dating from 1934 which object was to be a permanent, quick, and easy macro-economic indicator of the wealth of the nation, at a time the Great Depression which started in 1929 wasn't really over. It's obviously expressed in Dollars.
In the economic equation standing in our title, GDP means Gross Domestic Product (National Wealth produced inside the borders of the country both by nationals and foreigners), C is Consumption, G stands for Governement expenses, I is Investment, and X represents the difference between Exports and Imports (either positive or negative).
It is a very basic equation but how interesting to study in this depressive time, at a period of multiple elections worldwide, like in the USA (next november) or in France sooner.
In America, C is very high (70%), G is a bit growing because of necessary social programs (from around 18% to 20 or even 21%), I isn't terrific (a bit more than 12%), and X is negative (- 3%). That's the reason why the USA are urging China, and so then now Mr. Xi, its vice-president (and probable next president at the end of this year), to reduce this unbalance.
With a GDP of 15 064,8 billion $ in 2011 (against 6 988,5 billion $ for growing China), America is and remains the 1st economic power of the world. And with an expected growth rate between 2.5% and 3% for 2012, it will surely manage as it always did till now, because of its eagle foresight ability.

On the opposite, the French eagle of Napoleon (1769 - 1821) has vanished from a long time : he died in Saint Helena (a British island colony between Africa and South America).
In France, things are less simple to analyse, because you have to make a difference between General Government expenses (31,6%), and Global ones which include social transfers (56,7% all together). It means the 49,7% allocated to Consumption are rather exaggerated in reality, and depending enormously on those social transfers, modifiying the way you count. So the figure of C can be effectively reduced to only half if you take this on account. I is maintaining against all odds at 19,7%, and "Great Paris" project for instance is helping a lot. But X (~- 1%) is negative also - with Germany certainly, but equalilly due to the rise of reexported French delocalised goods since 2004, which appears as a bad operation. As a matter of fact, delocalisations are both a nightmare for employment in France (in ghostly industry especially), and trade balance - with a growing abyssal deficit. Trying to take profit of it in a reverse way with a so-called "Social VAT" of 2% added to the normal VAT (19,6%) is cunning, as long as Consumption will be following. But as France tries so much to imitate Germany, one can wander why this extra-VAT planned for next october (if not cancelled before) is not used for Debt repayment then like our neighbour, instead of an help to private companies for an employment hypothetical growth ? Why not a "double headed eagle" (a creative mix of both) in that case, to be certain it wouldn't be vain, if really enforced ?!

Reducing G as proclaimed by most political leaders in this Debt time isn't easy at all, and it may even provoke an unwished contraction of French GDP (2 808.3 billion $ in 2011), if C, I, or X can't rise at the same time. So beyond their pro-elective catchwords, our candidates for the next presidential elections have to be cautious with what they intend to do - and obviously what the final winner will actually do, not to cost too much on a long trend to everybody in France.
Or else it might propell the country nilling-willing from the 5th to the 8th or 9th economic rank, a bit like in 1950 when Argentine was before a France on reconstruction after the 2nd World War. In that way, the very beginning of the European Community in 1951 through the European Community of Coal and Iron ('CECA" in French), helped a lot France to recover its economic power, after the American Marshall Plan - 5/6 gift and 1/6 loan - for European recovery (1948-1951).
Nevertheless presently, a contraction of GDP would mean sudden dropping, and unability to pay back debts like present poor Greece, but without reconstruction this time. It must be avoided before anything else, at a time the expected growth rate for 2012 is only 0,5%. It's an imperative matter of independence, survival and possible recovery.
So then the people' s future is laying in our next president sense of responsability and common good, and also on his well advised choices - on a macroeconomic point of view.

GDP remains a very useful economic indicator, notably to stabilize Government expenses.
In France, social transfers are historically connected in priority with General de Gaulle's social and familial policy, involving a compromise with Communist Resistants at the Liberation time and Provisory Government (1944) till his departure of power in 1946, and his return from 1958 to the sunset of 1969.

Nowadays original Gaullism is dying, and France is in a way heavily suffering from it. We are lacking people who have a clear vision of the future. This absence of foresight and generosity also, even it might appear fathernalist (or "mothernalist" to be up to date) and once joined with "grandeur", might be quite damaging for the country.

Whatever people like him or not, sovereign General de Gaulle (Lille, 1890 - Colombey-les-deux-églises, 1970) has never been replaced, and his image is haunting present suffering France.
Political fight for next presidential elections in april and may 2012 is actually rather predictable, and not very exciting.

However, electors know about the little margin of maneuver left to political leaders, and they are aware the elected winner won't be quite a sovereign decider in Europe.
But whatever happens, nothing will prevent Saint John's eagle to take off showingly, staring at aquarius'angel !

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