Where is the US economy headed?

timberlandko, you said a while back in response to the above that Thomas got you with the above, implying you agreed. I would suggest you rethink your answer. Does Thomas and you actually believe the government produces wealth, commensurate with the money they spend? All blood goes through the heart, but what we are talking about is what produces blood? One could argue whether the government is even the heart, or if it is, should it be? Even if it is, if the body does not ingest food and water, it won't be long before the body starts shriveling up pretty rapidly. So my point is that the blood is produced by the digestive system, started in motion by a proper diet and exercise. The digestive system is made up mostly by private enterprise, which creates the vast majority of the wealth in this country, namely food, clothing, shelter, and most of the rest. If you wish to call police and fire protection and other things the government does as creation of wealth, I would concede that point to a minor extent, but even those are spinoffs from the original creation of the materials by private enterprise to provide those services, example a fire truck is produced by private enterprise.

I would indeed possibly agree to the idea that the heart could be likened to the government, which helps "regulate" the flow of blood to all parts of the body. But I think the heart would also include the economy in general, including banks and the federal reserve. Perhaps the government would be more like a pacemaker?

I think circulatory system migh be a more apt anology than pacemaker, okie; that firetruck rolls up to your house on a road government built, is crewed by government paid firefighters (unless they're volunteers, in which case still there's significant governmental aid and support) and puts out your fire with water pumped from the government-provided water supply. Its all one organism, each subsystem dependent upon and supportive of all the others, the way I figure it.

Good point, but as I conceded in earlier post, government may produce some wealth, but that is peripheral to the primary economic production of basics, such as food, clothing, and shelter, virtually all produced by private enterprise. And even where government provides a service, it is done via tax monies generated by private enterprise. The proof that government is not a primary blood producer is the history of countries wherein all economic activity is totally governed by government, the economic system generally shrivels and only exists in a very starved state, and may eventually die out if not reinvigorated by the incentive of profit.

So as I said before, the blood may go to some parts of the body through the heart, and so the blood may appear to have come from the heart, but the original source of production or strength of the body is food and water through the digestive system, which is private enterprise, the engine of profit and wealth. Without it, the heart shrivels and dies.

Sorry to get carried away with the body analogy, borrowed from Thomas, but I think its rather fascinating. I think it sort of fits. A very good and effective way to argue our beliefs about the economy and how it should work in a healthy manner.

2006 recall:

What we say over here is "Money is made round, to go round"

....and from another part of Europe, the Greeks have a saying.....

"A fish always goes rotten from the head first"

If you are interested in the model, you may find it worth Googling for "circular flow of funds", which will yield a lot of macroeconomics websites. Here is a reasonably realistic diagram from the first hit.


Source (a lecture note from a course at the University of Rhode Island.)

For a more literal account of the analogy between societies and biological organisms, I found Herbert Spencer's 1860 essay, The Social Organism interesting and insightful. I should caution you that Spencer has a bad reputation for inventing the concept of Social Darwinism. But in my personal view, academia in general greatly over-vilifies and underreads Spencers work, and The Social Organism in particular.

Thanks Thomas. I will admit I am not studied up on economics as a textbook subject. My discipline was geology and mathematics in college. As I get older, some of these other things become more interesting. I've worked around an economist in my old corporation job. I've listened to the ideas of many. I have not studied it. Laugh if you wish, but I've always viewed some economists as trying to complicate the simple, by making common sense into a science. They come up with graphs and theories, then apply strange names to all of the effects, ratios, and whatever, and by doing so, they place themselves on a more learned plateau than simple common sense, which I think would go a long way in figuring out the problems we have. Don't get me wrong. I fully believe we need the advanced study of economics, and we need economists. Unfortunately however, from what I've observed, many economists study economics from a particular political bias built in, so that their conclusions end up being rendered political rather than based on reality. This has lowered the validity of their opinions in my opinion.

But back to your analogy if you wish to discuss it any more. I realize these are my ideas, untainted by book learning, but common sense tells me that our society enjoys only as much wealth as it can produce or trade for in kind. Wealth would be the health of the body. The basic raw materials to produce this wealth are extremely important. I would judge these to be plants, in the way of food crops, other crops, and naturally growing plants such as timber, and very important would be oil, natural gas, and minerals. Boil it down and we have agriculture, timber industry, and the energy / mining industries. These basic industries would be like the food and water we add to our bodies to keep it going as we burn off the calories. I realize it takes machinery already manufactured to do the mining, the agriculture, etc. This could be likened to the fact that the body needs energy from past strength gained in order to consume the additional food and water, which in turn feeds the system for the future.

Bottom line of the analogy though is the main point that unless the system is fed with new energy in the way of food and water, it will not survive. Main point being that the body cannot continue to simply circulate the same blood over and over. It must be fed with new.

Now, getting back to the tax analogy, this is important because as a free enterprise guy, I do not believe the government can efficiently produce any new blood. It is us, the people, through free enterprise, that produces it and supplies the original source of the wealth that creates the tax money. So the main problem I see with your little flow diagram is that it needs to show an arrow coming from an outside source to partially feed the system as it goes. This would not be government. It would be the earth / raw materials production and extraction.

Now, I realize there are countries, such as Japan, that have done quite nicely without being a huge source of raw materials. However, they have accomplished much by being very big into the process of manufacturing and production, which is the next most essential building block of a healthy economy, which they trade for to obtain the raw materials needed to feed their economy.

Bottom line, if we simply become a bunch of "consumers," our economy will eventually burn itself out. We must be involved in the production of the wealth at some point. Now, our emphasis is shifting more into the technology or the know-how instead of the actual production and manufacturing. That may work until other countries overtake us in the technology and know-how. Then what would we have of any value to trade for the wealth that we are accustomed to enjoying? And where would we go to try to find that wealth? The government? I think not. If anybody thinks so, they are in for a very rude awakening. We know that other countries are ahead of us in producing scientists and mathematicians. To me, that is worrisome. Personally, I do not think it bodes well when some of our biggest stocks are epitomized by the Walmarts of the world instead of steel companies for example.

Sorry to bore you with these okie observations that never came from a text book, but personally, I think they make as much sense as some of the economists I've heard.

okie dokie, Thomas is an econ prof.

Neither econ nor prof. I'm a physicist by training.

I am delighted to learn that Thomas is an Economics Professor---My favorite professors. I wonder if Professor Thomas would be so good as to comment on the veracity or empirical integrity of one of my favorite themes which may correspond with some of Okie's concerns.

"The government's ability to finance its debt is tied to the size and strength of the economy or GDP"

If this is not a viable concept, a good deal of my thinking on economics as related to the USA will be in error.

Thank You, Professor Thomas.

I'm not at all questioning at all your eyesight or your reading capabilities.

So perhaps, Morkat, you better adjust your monitor's settings, make some changes to your videocard or other hardware, clean the monitor screen or something like that.

To clarify, being new to this forum, I thought Thomas seemed reasonably informed and I was frankly kind of complimenting him in hopes he would impart some wisdom to the subject of the economy. Even if he isn't an economist, maybe if he's done alot of reading on the subject, he could fill me in with the party line on the subject, or at least his party line. Oh well, if he's only a physicist, maybe my interpretation of economics as a geologist is just as good. But I am still interested in what he or any of you have to say. At least this thread seems to be avoiding the hatred and name calling of all the leftists out there. They seem to find threads like "Bush Lied," "Impeach Bush," "Bush caused global warming,", subjects like that, so they are all over there on those threads throwing insults at any conservative that dares to make any comment of logic to rain on their victory parade and lynching party.

And Thomas still hasn't tackled my rejection of his closed system economics diagram and my rejection of his suggested notion that government actually generates any significant portion of the wealth in this country.

His excellent diagram, Okie, is one of the reasons I asked him the question about GDP!!

Excellent question. We will await his great reservoir of knowledge to answer the question for us.

If "comparative advantage" is a common sense concept, why are there so many protectionists, left and right? If "supply and demand" is a common sense concept, why do 75% of Americans believe in raising the minimum wage? Why have 2000 years of Judeo-Christian tradition consistently supported laws against usury? Why is rent control so popular? I think the contrary of what you say is true: Most findings of economics that economists agree about are counter-intuitive and unpopular, but correct. And herein lies the value of economics as a science.


Karl Marx said the same thing. I invite you to compare his Kapital with John Stuart Mill's Principles of Political Economy, which was written around the same time. You can then decide which book has withstood the test of time better. Of course, for all we know, the present critics of economics may do better. But I am not holding my breath, given the critics' record so far, and given that most 'criticism of economics' consists of fallacies debunked centuries ago.


I agree that neither a human body nor an economy is a closed system energywise. The former runs on energy from food and air. The latter runs on the work, thrift, and risk-taking of the people, plus natural resources. I don't think that blood and money have anything to do with it. They are both media of exchange, but buth make up only a minor part of what bodies and economies produce.


The world economy as a whole is a closed system. There is no "outside."


You are. The USA is the second most productive nation in the world. (The most productive is Luxemburg. Luxemburg is tiny, and I'm sure one can cut a Luxemburg-sized chunk out of the US that is even more productive than Luxemburg. Long Island and the Bay Area seem like good candidates.)


Investors regard America's secure property rights as a major reason to invest in your country. They regard Zimbabwe's insecure property rights as a major reason not to invest there. Secure property rights are an important factor in creating wealth, and they are supplied by governments. As to your point about competing nations, economists have been debunking your argument since David Hume (1752). The debunking of your argument has been completed in Ricardo (1817). More evidence, I believe, that economics is not just a simple application of common sense, as you thought it is.


It is tied to that. It is also tied to investors' trust that the government actually intends to pay up. Argentinia's debt, measured as a share of GDP, was much lower than that of the US in 2001, when it defaulted on its debt. America and Europe haven't had a balance of payment crisis yet, not because their debt-to-GDP ratio is better than Argentina's, but because financial markets trust our governments more than they trust Argentina's government.

Thank You, Thomas.( I wish we were on a Physics site since there are a few questions I have after TRYING to read and understand Hawking). I must point out, with regard to the question of growing ourselves out of the debt that the USA has always been in debt. Sometimes, as in the last year of World War II, the deficit was larger than the GDP.

Perhaps, I am too optomistic but I do believe that if we allow the entrepreneurs to keep more of thier money to invest, thereby creating jobs and raising the GDP by 4%( I know that is a little bit over our past history), Our GDP which is, at this time, close to 11,500,000,000,000 will( given the 4% a year rise in GDP above) will be an amazing 23,000,000,000,000( Twenty three TRILLION ) by the year 2023.

It has been announced that this year, our deficit is about 333,000,000 Billion. That is a little less than 3% of our GDP.

If the USA can simultaneously cut spending or, at the very least, change the idiotic baseline parameters that are used and switch to actual cost of living figures, and continue to allow business to grow by keeping the tax load down( it has not, as most people know, cut revenues when the taxes were cut--Your comment about counter-intuitivity fits well here, Thomas). we can grow ourselves out of any fiscal problems.

333,000,000,000 is 2% of our present GDP but would be only less than one and a half percent of the propsosed 23 Trillion in 2023.

It would take, of course, a great deal of discipline from everyone, but we have no choice.

Mortkat, it has been observed that the only person on the planet who truly understands Hawking is Hawking himself ... and Hawking himself has said he thinks perhaps that estimation sets the count at one more than can be justified :wink:

Interesting Mortkat, because it has been my suspicion that the politicians know a dirty littly secret, not the least of which would include the Democrats and Clinton in the 90's, that if you lower the perceived rate of inflation, you can dampen the rate of increase of the entitlements, and by doing so over a period of years, you magicly grow your way out of the annual deficits. You simply tweak the way inflation figures are derived. Even one tenth of a percent inflation makes a huge difference in Social Security increases. Another slick way the Clintons raised revenues was to drasticly increase the ceiling on the annual income from which social security and medicare deductions are taken. Clinton did this, and of course the MSM did not publicize it, and of course no stink was raised over it because it was a Democrat that did it.

Actually, don't get me wrong folks, I actually think such measures are effective and appropriate. The humorous part of it is the press and the politicians constantly debate income tax, pros and cons, and how this rate or that rate is good or bad, but seldom do they talk about social security and medicare deductions, which are by far the most severe in terms of taxing most lower to even middle income Americans.

Williams, I will get to the reply of your points when I can.

It is a good thing that the US is in such great financial shape. These predictions would be serious for the US economy if they were in any trouble at the moment.
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Iraq war could cost US over $2 trillion, says Nobel prize-winning economist

Saturday January 7, 2006

The real cost to the US of the Iraq war is likely to be between $1 trillion and $2 trillion (£1.1 trillion), up to 10 times more than previously thought, according to a report written by a Nobel prize-winning economist and a Harvard budget expert.

The study, which expanded on traditional estimates by including such costs as lifetime disability and healthcare for troops injured in the conflict as well as the impact on the American economy, concluded that the US government is continuing to underestimate the cost of the war.

The report came during one of the most deadly periods in Iraq since the invasion, with the US military yesterday revising upwards to 11 the number of its troops killed during a wave of insurgent attacks on Thursday. More than 130 civilians were also killed.

http://www.guardian.co.uk/Iraq/Story/0,2763,1681119,00.html