Economics gurus... please enlighten me.

[Bigmack]

I just heard a statistic.. from two sources in the MSM... that 70% of GDP is consumer-oriented. Both sources mentioned that number in relation to "Black Friday" spending... i.e. We have to spend this Xmas season.

How can we continue to be a "Consumer Economy"?

Don't we have to be a "Producer Economy"?... or something like that?

If we buy what other countries produce, won't they eventually bury us?

[truedelphi]

1. Your theory about us needing to be a producer nation is

Exactly why the Dummies that founded this country threw the tea into the harbor.

They believed in the idea that without strict control over imports, we wouldn't be creating enough jobs for our nation to succeed.

[Deja Q]

5. I thought they bunged the tea overboard as protest over insanely high taxes...

Of course, I doubt the king of England had spent a trillion pounds sterling on hookers, but that was 1773 (mid-December, right?), I wasn't there, so what would I know... :D

That was also a prevailing impetus behind America switching from tea to coffee (and amphetamines)...

[truedelphi]

11. It was a two-fer - they hated the taxes, and they hated paying for something

That could not be controlled locally.

They hated the unfairness of the tax situation so much that soemtimes the Colonists would take the Tax Assesser or Custom Enforcer's house apart brick by brick!!

[Knight_errant]

15. What?

"Exactly why the Dummies that founded this country threw the tea into the harbor.

They believed in the idea that without strict control over imports, we wouldn't be creating enough jobs for our nation to succeed."

No, they had more libertarian motives, and were against taxing import duties, among other things.

[Double T]

2. Welcome to the american 'phony' economy where the 'numbers' never add up.

We have already buried ourselves alive; all that is left is the economic suffocation.

[defendandprotect]

8. Humanity is intact -- corrupt capitalism, however, is the destroyer ....

Imagine uninventing the dollar bill .....

[Double T]

10. humanity is on course for self destruction.

Let's check back in 100 million years to see if evolution can make the same mistake twice.

[defendandprotect]

13. Looks like we're hybrids ...

The male war on nature -- "Manifest Destiny" -- "Man's Dominion Over Nature"

are licenses for fatal exploitation -- the fatal disconnect from nature.

And Global Warming will be taking us out soon as far as I can see...

[sandnsea]

3. An "investor class" economy

We were supposed to produce the wealth, the capital, that the rest of the world used to produce goods. It was supposed to be the investor class and those who serve them. The investors got greedy, as they always do.

[Idealism]

4. I'm not sure if that is the exact figure but yes

Consumer spending is the single biggest force driving our country's economic engine. Yet, we don't produce nearly as much domestically as we once did. Our trade defecits have set records, year after year, and this year it will be no differant. It has been estimated to be over $-800 billion balance of trade in 2008. Its a huge part of why we have such a crushing national debt of over $10.4 trillion and rising each second, literally...

We haven't been a "producer" or creditor nation since the 60s. The United States economy is based on incurring debt and grinding out payments, mostly interest and little principal paid off, for much of our life times.

[gravity]

6. That 70% is related to the total spending that goes on in the economy

The production isn't factored into that equation. If we buy goods and services that are in the US, then that consumer spending is fueling our own production. Other factors that go into this equation are government spending, investments, and imports/exports which together make up the other 30%.

The net change of exports/imports is about a 6% deficit, which is the statistic you want to refer to when you are concerned about production. This number should go down some because we import less in a recession and the price of oil is down, but is still a concern that needs to be dealt with in the future.

Other countries have less consumer spending in their economy, and rely more on exports to drive their economy too. There are some drawbacks from these policies too, like being dependent on foreign countries (like the US) to support your economic growth. If they targeted more of their policies to promote consumer spending, they can help grow their economies from the inside too.

[Bigmack]

9. I'm not arguing...

I'm trying to understand.

You said... "If we buy goods and services that are in the US, then that consumer spending is fueling our own production." Isn't that the problem?

If we make the donuts that we sell each other, does that make a stable economy?

If we brew the coffee - that we import - to go with that donut, isn't the only "new" money (money that doesn't just trade hands within the country) go to the country where we got the coffee?

[gravity]

12. If we make the goods here, and sell them here, the economy is stable

Production and consumption are equal each other, which is in equilibrium. The money that pays for the donuts comes from someone selling another good or service.

To simplify lets say coffee and donuts are the only goods in the economy. You use the profits from selling donuts to buy coffee and someone else uses the profits from coffee to buy your donuts.

If we buy goods overseas, then a stable situation will be for us to sell the same amount of goods to them.

The United States has been getting away with not doing this because the US dollar is a reserve currency so many foreign countries like dollars enough to hold onto them instead of spending it. This won't last forever so it will become a problem eventually.

[Skink]

7. We are also becoming a capatalist world.

All other ideologies are dying out. At what point does China start outsourcing? Although that might be good if all countries realize they must produce for themselves.

[Knight_errant]

16. Two words

"...if all countries realize they must produce for themselves."

Two words, my friend:

Comparative advantage.

[Knight_errant]

14. More answers

"I just heard a statistic.. from two sources in the MSM... that 70% of GDP is consumer-oriented. Both sources mentioned that number in relation to "Black Friday" spending... i.e. We have to spend this Xmas season."

The central fallacy of economics is that the economy is entirely demand-oriented. The reason for the economic crisis is a shortage of demand, for example. However, realize that in order to obtain a cake, you have to bake it first. I discovered that GDP is useless in the free market.

"How can we continue to be a "Consumer Economy"?"

"Don't we have to be a "Producer Economy"?... or something like that?"

In order to consume something, it must be produced, correct? And realize that people who don't consume but save, are always saving for something. And in order to finance production processes with more than one stage of production, like building a house or making a knife, it requires savings.

"If we buy what other countries produce, won't they eventually bury us?"

How would it "bury us"? There is nothing wrong with people buying what other countries produce, in fact, it is to the benefit of both parties involved in the transaction.

[HamdenRice]

17. Here's a simple explanation, and it's nothing bad for the overall economy

As halo experiment pointed out in a post above, this stat comes from comparing the dollar value of what consumers spend and the dollar value of what is produced through the production process.

Even in a simple economy, this is usually true. Imagine a simple farmer operating in a simple economy selling food directly to the public. Consider all the stuff he buys in order to produce a crop -- seeds, fertilizer and so on. He sells his crop for more than he paid in inputs (other wise he would go out of business). When you compare the dollar value of the sale of the food to the public to the dollar value of the inputs, the dollar value of the sale of food to the public (the consumer economy) is going to be greater than the dollar value of the inputs (the producer economy). In fact, because of the huge markups in the consumer economy, it's going to be much bigger.

Consider the sale of a car to a dealer and the sale of a car to the public. The markup may be 100%. If the dealer buys the car for $10,000 (which reflects all the cost of making the car in the producer economy) and sells it for $20,000, then the entire economy in this example is $30,000, but the consumer economy is 66% -- that is, $20,000/$30,000.

In certain communist economies the consumer economy was drastically curtailed in favor of the producer economy -- and the economy produced heavy machinery and military hardware, but not much chicken, cars, or clothing.