lundi 27 mai 2013

GDP = C+ I+ G + X * n°2 : the unexpected interpretation of a paradox !

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

This is a following of a previous article (of February 18th, 2012) where we introduced the meaning of GDP for every country in the world, since this tool was created in the USA in 1934.
GDP was created by Simon Kuznets (1901 - 1985), an American economist from Russian origin, to be an easy equation for President Franklin D. Roosevelt (1882 - 1945) to conduct and follow his "New Deal" policy : it integrated great works under the control of the TVA (Tennessee Valley Authority).
It was then conceived as an anti-Depression economic instrument.
The advantage of this mathematical tool is still to have an easy-to-follow view of  the national economy, either its progress or its fall !
May be that's why it was proposed before the financial crisis of 2008, to abandon it for something extremely subjective : the smoke screen of "Social Well-Being" (1998-2008) ?!

Far from Nova Lingua which can only create odd and paradoxical situations, GDP has got a future, whatever people like it or not. Nova Lingua or extreme double speech is translated in French by "Nov'Langue", and it is the source of common Confusion. It is used everyday when marrying opposed symbols as carps and rabbits, like "Republican Monarchy" about the election of a non-dynast monarch of the Republic for five years, or "Atheist Religion" for a political cult dedicated to "Goddess Reason" (from 1794), instead of Catholic Church.
Coming back to GDP, it is very important to stress that it is globally and mainly an account of expenditures.
The only revenues may come from X (the possible surpluses of the trade balance), which is neither the case of America, nor the one of France.
So it's a macro-economic instrument which is not at all adaptated for a grocery, or say for an economy trying catastrophically to imitate a big grocery.
Let's recall C means Consumption, I is for Investment, and G for Government expenditures considered at large, to be precise and helpful.

In our previous article, we thus made a comparison between the American structure of GDP, and the one of France which is a bit odd on an international point of view.
One year ago, G represented 18% of the total in the USA, and 56.7% in France.
Now, we must be at 21% for America, and 57% for France in spite of catchwords for the voters.
Almost everybody is criticizing the French figure, as if it was bad. The unsaid target seems to be a G reduction of 10 to 11% by 2017, which would be both irrealistic and harmful for our country's historicity.
In fact, 57% is not so bad or even not bad at all, if you consider it in a wide historical perspective.
At the time of Louis XIV (1638-1715) for instance, the figure was most likely around 66 % for the great Kingdom of France.

On the contrary, America is trying very logically to elevate G, in order to sustain and ...provoke growth.
It can only make progress on that point. And its margin of action would appear quite huge when compared to France, if the Republicans were not blocking the budget of president Obama (born in 1961).
At the time of Louis XIV, it was France to be the First Economic Power in the world, even if present people intend to ignore it. And the King even had a huge territorial possession in North America, with "Great Louisiana" (around 1/3 of the present area of the USA), without counting Canada.
Of course, it's not easy to make an historical comparison. But let's try one minute at least.

If you take a transversal and historical perspective, things can appear under a very different light.
With the present policy France intends to follow hesitatingly, to please you don't know who finally in Europe or elsewhere, there is a risk of sudden and dreadful collapse.
If France was breaking its natural trend inherited from the time of Louis XIV, id est high state expenditures, GDP could over suddenly shrink. There wouldn't be just an ordinary recession, but a contraction. And this contraction might be almost impossible to overcome this very time !
By 2017, the country might range around the 7th economic rank, instead of the 5th presently, and the 9th or more around 2022, knowing an overwhelming poverty of low class but also middle class people. To them would be integrated young poor people without hope including educated ones, and most old ones also, in a then ecliptical country.

If Louis XIV was here today, he would certainly be shocked by the evolution of his Kingdom.
Louis XIV's model was Alexander the Great (356-323 BC), beside Marcus Curtius, the Great Roman hero. And that's why with his skill, he was able to make France a giant.
Among other things, the King created the first system of "social security" in Europe for workers in public works from 1666, with the engineer Pierre-Paul Riquet, baron of Bonrepos (litteraly "Good Rest", 1609-1680). It was so successful that the King created a similar system for war invalids, who were pensioned and taken care of from the date of the Invalides creation (edict of 1670) : this way, France protected those social categories and their families.

But who noticed that nowadays in a non-Christian time, when France is engulfing so easily into an absurd and self-destructive social Darwinism ? Some creative managers have even been able to enforce a "Christian Darwinism". But as it can only shock God, nobody really paid attention to the enormous contradiction. Its environment is made of a very remarkable productive "shrinking" and a very weakening reexportation system from cheaper and less developped countries : no wander why the trade balance (X) is in the red for years !
Coming back to the King, astonishingly, he was also able to use "Veblen effect" about "the added value" of goods and services... before the economist Thorstein Bunde Veblen (1857 - 1929) discovered it. And the remaining success of the French industry of luxury, or public works notably, is coming from the King's firm orientations and leadership... through centuries.

Today, almost everybody strangely seem to follow a minimalist economic philosophy of downsizing, which looks so strange.
It can certainly be reached, but at the expense of France and its whole population, whatever French or of foreign origin. As a matter of fact the King was always talking of "his peoples", and not his people.
The lessons of that great time have been forgotten, as France has become a medium power.
The same applies to "the art of negociation", after the title of a famous breviary written by François de Caillères for the King Louis XIV. It is more used paradoxically by Anglo-Saxons in Brussels than by French negociators. And one of the numerous French problems presently, could be not being able to distinguish real talents beside "Yes-men or women", and consequently to lose them.

Another modern tendency is to get rid of too clever, too cultured, or too charismatic people, with hidden and unelegant tactics of "banana skin", rewarding "remora squales" on the contrary. No wander why nothing much is radiant. Who would dare tackling with GDP's growth after that ?
The only problem is France (or "the Republic" if you prefer revolutionary rhetorics) desperately needs clever, cultured and charismating people, to be able to survive the announced dreadful XXIst century.
Keeping GDP's equation in mind, when a minister is making huge savings in his department, he is then reducing G. And doing the same thing to social expenditures, which are also included in G, is mechanically synonym of a reduction of the French GDP. And it means clearly : no growth, or even bye bye growth ! Spending less means paradoxically contraction in term of GDP. So people shouldn't applaud at it without thinking !

The "Debt crisis" might be a mere illusion from the right beginning.
If following Slate, the report Carmen Reinhart-Kenneth Rogoff ("Growth in a time of debt") made by those two economists of Harvard University for the IMF in 2010 could be erroneous. Some criticisms emerged just recently in the USA about a misuse of Excel software in the calculations (period 1946-2009), and an oversight of several countries, about the correlation between a Debt exceeding 90% of GDP and growth rate.
The average potential growth rate wouldn't be - 0.1 %, but + 2.2 % most likely !

As France and America are above those fateful 90% of Debts, we would point that it's easy to observe what is happening : the first one is oriented for 2013 towards - 0.1% but the second paradoxically to + 2.2% in the same time, according to their totally opposite economic philosophy and position.
It means that the principles of Lord Keynes (1883 -1946) about pump priming are still valid.
Just watch also at what the Empire of Japan can presently do with a Debt of more than 236%, in a certain measure of course. But it would remain possible as long as no war is threatening to burst out with its neighbours, not only because of the Diaoyu /Senkaku islands' dispute with China, but also due to the dark shadows of Imperialist Japan's crual, agressive, and unfair past in the area with North Korea and China. As Japan is clumsily and unwisely taking up with its old militarist devils, it could unexpectedly pave the way to a devastating lost war.

Anyhow, something appears very strange about the present economic situation.
Almost every day, we citizens are "bombed" with catastrophic informations and figures about our country, more and more weak and poor "officially".
But where is exactly the truth behind this smoke screen ?
If France is now so empoverished, how come the French Savings could reach the astonishing amount of 11 trillion Euros at the end of last year ? As a matter of fact, it represents at the very least a bit more than the added GDPs of China and Japan, and a bit less than the USA's GDP !

Are we not told in fact more Rhetorics than Economics ?
The French trend to an easy "punching ball" policy can add to useless worry internally, scare away potential investors, and end up to be finally self-destructive.
Rhetorics in the conception of Aristotle (384 - 322 BC) was the art to be always right, whatever the reality might be.
And it's on that very point Aristotle and Alexander the Great parted.
Alexander started to consider his master of philosophy too confusing and without substance, among other faults, when Aristotle admitted having demonstrated to him as true something totally wrong.
And this terrific King made real his dream we call now "Occident" without him - and even against his misconceptions -, as an effective and glorious demonstration of personal intelligence, strength and mastery through millenii !

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