Reply #33: Artificial Wealth [View All]

[unlawflcombatnt]

The top 2% tax cuts and the reduced interest rates have created a large amount of artificial wealth. I have devised some quasi-mathematical formulas for the housing bubble and its effects.

Top 2% Tax Cuts + Low Interest Rates = Housing Bubble

I'd also like to take a stab at showing how this artificial wealth is added to the GDP equation. Here's the GDP equation:

GDP=ConsumerSpending+Investment+GovSpend+TradeBal

Here are the additions to the formula from the new, artificially created wealth:

Normal Home Value + Artificial Increase in Home Equity = Current Home Equity Value

Artificial Increase in Home Value = Combined Effect of Lowered Interest Rate + Top 2% Tax Cuts

Consumer Spending = Spent Income + Spent Excess Home Equity + Other Credit Spending + Spent Tax Cuts

Investment = Normal Investment Spending + Invested top 2% tax cuts + Invested Home Equity

Thus, when calculating the GDP, much of the numerical increase is the result of borrowing off the artificially increased value of real estate. A portion of that artificial value supplements consumer spending. The "investment" portion is also supplemented by the top 2% tax cuts and loans off artificially increased home equities.

In addition, the accounting system the government uses for GDP (unlike the Keynesian GDP method) allows them to add UNSOLD business inventories to the investment part of the equation, further increasing the total GDP. (This allows them to include excess, completely worthless business investment to the formula as well.)

Most, if not all, of our economic "growth" is due to artificially created wealth from the tax cuts and real estate overvaluation.

The only "growth" we're experiencing is "growth" in debt. Again, let's not underestimate Boy George. He's as good at creating debt as he is at creating facts.

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

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Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment.

There must be balance between the "means of consumption" and the "means of production."