We can have sustainable economic growth and a thriving stock market while working less and enjoying life more.
In this podcast, you’ll learn:
- What is the true meaning of leisure.
- Scott and Helen Nearings definition of the Good Life.
- John Maynard Keynes’ prediction of the four hour work day.
- A fourth, but non-recommended, way to invest.
- What is socially responsible investing.
- How we often compartmentalize our financial activities.
- Can we achieve our personal financial goals and still benefit society.
- How the economy grows in long-term.
- What if we become so efficient at making things with robots that no one had to work at all?
- How we can grow a sustainable economy and have workers work less.
- How we can grow a sustainable economy by becoming less productive.
- Why we should care that the economy grows
- How we can influence the quality and sustainability of economic growth.
- How the Good Life is like hitting the sweet spot.
- How we can hit the sweet spot both in our own lives and in the economy.
Short Video on Scott and Helen Nearing – Living the Good Life
John Maynard Keynes talk – Economic Possibilities for Our Grandchildren
Martin Wolf article on leisure – Enslave the Robots and Free the Poor
My essay on how living the Good Life is like hitting the sweet spot – Living the Good Life
How The Economy Is Measured
Last week, the U.S. Bureau of Economic Analysis (BEA) announced the U.S. economy contracted in the first quarter.
What does that mean?
The official measure of U.S. economic growth is called the Gross Domestic Product or GDP for short.
What Is GDP?
GDP is the measure of a nation’s output. More specifically, it is the local currency value of all the goods and services produced by a country during a given period, including the value of cars manufactured, food harvested, houses built, students taught at school, meals served at restaurants, and the hundreds of thousands of other items manufactured in and services provided across the country.
In the U.S., the sum total of all that output produced in a year is a very large number. $17.1 trillion to be exact. Except the number is never exact. It is an estimate released quarterly by the BEA and then revised monthly as more data becomes available.
That is why the BEA first estimated the U.S. economy grew at an annual rate of 0.1% in the first quarter, and now it says the economy contracted at a 1.0% annual rate. More recent data showed manufacturers produced less output in the first quarter than they did in the fourth quarter of 2013.
Output Not Spending
One nuance in estimating economic growth is while it is an approximation of the economic output produced, the proxies used to measure that output are spending and income. In other words, GDP is not how much was spent by households, government and businesses, but those spending figures are used to estimate the dollar value of the goods and services businesses actually produced.
Deciding How Much to Produce
How do businesses decide how much to produce? They do so based on what they believe they will be able to sell. If businesses think demand is waning, they might produce less output, which is what occurred in the first quarter. If the economy contracts for several quarters in a row, it is called a recession.
As consumers, we play an important role in helping businesses decide what and how much output to produce.
How Debt Can Distort Economic Growth
When we borrow money to buy things, it sends a false demand signal to businesses. Incurring debt shifts our future spending capacity into the present. Unless our income increases, money borrowed to buy things today, means we will have to reduce our spending in the future in order to pay back the debt, reducing demand for future business output.
A significant increase in household debt is what contributed to the economic boom that culminated in the severe recession and near-economic collapse of 2008. The global recovery from that economic catastrophe has been slow as many consumers continue to hold high debt balances and pay down debt, all while living in homes that are worth less than what they owe.
Debt amplifies the volatility of economic cycles.
Value Not Volume
Another consideration is GDP only measures the local currency value of goods and services produced within a country. It does not measure how many things are produced.
When we choose to buy fewer but higher quality and higher priced goods and services instead of buying more, cheaper goods and services, we send very different signals to businesses as to the type of goods and services they should produce.
The economic impact of a company that produces ten shirts valued at $100 each is the same as a company that produces forty shirts valued at $25 each. The advantage of producing fewer but higher value goods is it has less of an environmental impact.
Of course, if we choose to buy $10 shirts that are made in Bangladesh and then imported to the U.S., the signal we send to U.S. businesses is not to produce shirts at all.
This results in slower economic growth since, as we have discussed, GDP is a measure of what is produced in the U.S.