By Stephanie Kelton, Associate Professor of Economics at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives. My Twitter followers are constantly asking me if I think more spending would really help the economy recover. I understand their skepticism. Many are probably struggling with high debt levels, and the last thing they want is some economist urging them to rack up more debt for the good of the economy. (Bad advice, indeed.) Others have heard President Obama
talk about putting Americans back to work by investing in our nation’s infrastructure, educational system, energy future, etc., but many aren’t sure if the “stimulus even worked“, so they, too, wonder if more spending is really the right way to grow the economy. Well, here’s the answer.
Spending isn’t the just the right way to grow the economy, it’s the only way.
After all, what is “the economy”? For most economists, it’s a simple number. We use a country’s Gross Domestic Product (GDP) to measure its “economy.” So where does this GDP come from?
There are different ways to calculate GDP, but each method is designed to yield the same result. Let’s look at the most popular method — the one based on expenditure. GDP basically measures the total amount of spending (at market prices) on newly-produced goods and services (by their end users). In other words, GDP measure how much money we spend. ... Continue to read.
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