Tuesday, November 24, 2009

Understanding the GDP

I can't say I understand all the ins and outs of this, but the gist of it, that the GDP is artificially inflated by massive government spending is both good to know and bad to hear. In the example given, the $200,000 in salary paid by a corporation doesn't count toward the GDP. On the other hand, if the government takes $200,000 away from a corporation and spends it on waste and abuse, it does count toward the GDP.

This seems exactly backwards, as GDP is supposed to be a measure of growth. Wealth is created in the private sector, while government consumes wealth. So why is this a good formula?

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