can anyone answer grandpa’s question?


Grandpa took me to the town hall meeting one night and we sat there listening to the procedings for a time. When it was time for people to stand up and have their say grandpa got in line with the rest. When it was his turn at the podium he looked around to all that was there then he spoke up.

“I have a question for anyone to answer if they can. It is a question on economics. It has always been my understanding that economics was economics and the same rules applied to everyone whether it be government, business, charities, families or individuals.

If my presupposition is correct then why do economists look at the debt of the federal government as a proportion of GNP to determine the financial health of the federal government? I could understand its use if we had a socialistic form economic system but we do not. If someone could logically explain this to me I’d really appreciate it.

To me the only value of its use is to create the perception that the financial health of the government is better than it really is. Businesses cannot use it to determine its financial health nor can any family or individual. So, what is it about government that allows it to use different rules of economics than everybody else? Can someone answer this question for me, please?”

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Categories: Economics, Education, Politics, Science | Tags: , , , | 15 Comments

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15 thoughts on “can anyone answer grandpa’s question?

  1. BB-Idaho

    Grandpa asks a good question. One reason GDP is used as an economic baseline,
    IMO, is that it permits both historical and country-to-country comparison. In addition,
    GDP consists of quite a number of significant input variables. Lastly, the few alternatives that economists have come up with have proven inadequate in many
    cases. I look at it from my experience in theoretical modeling of explosions…TNT, gun propellant, rocket fuel, nitroglycerin etc. Each produces unique output: energy, temperature, exhaust products, brisance etc. To better compare (the old apples to
    apples approach) the chemical theromdynamics of various compositions and mixtures,
    a pragmatic approach is to constrain the system; for example, how do these compare
    in say a confined chamber with nozzle exit to operate at 1000 psi. This actually
    produces tables of comparable data which is more useful in further research.
    [the efficacy of comparing economics with science is of course questionable, as
    I am sure Grandpa would note] In any event the question of why GNP? prompts
    “if not that…then what?”

  2. The Griper

    BB,
    “I am sure Grandpa would note] In any event the question of why GNP? prompts
    “if not that…then what?”

    the answer would be the same thing you would use to determine your financial health, your assets.

  3. BB-Idaho

    Naturally, I operate on my own budget. But, sometimes I like to know the budget of
    Chad, Bangladesh, Nepa, China ..whatever. Sometimes I like to study the decline of mfg in the US (or the rise in the service sector). So I find things like GDP convenient.
    ..and understandable.

  4. The Griper

    yes, those stats are nice to know, BB, but what does those stats have to do with the financial health of a government or to put it another way, how close it is to bankruptsy?.

    i’m not saying that gnp is not a useful stat. i’m asking why it is used as a determinant of whether or not the government has too much debt which you see espoused by so many poloticians and political pundits, you would not use it and neither would i or any business trying to control our financial situation. its as if the government considers the gnp as its only or one of its assets.

    understand what i am concerned about?

  5. BB-Idaho

    How close to bankruptcy? No stats for that really. Consider individuals: they can lose their job, get sued, rack up a million in medical bills…unplanned for contingencies.
    When I was doing mfg budgets, I always wanted an unplanned contingency amount,
    but was overridden by the financial folk. Apparently Greece is in some sort of bankrupt state..we could check their GDP data for clues. Since most economists used the
    GDP
    as a reference point, we could (er, rather YOU could!) rearrange the data to some
    different reference point…but I suspect the results would still reflect the original data.
    Along those lines, we note that some US counties and cities (Harrisburg, PA being the
    latest) are in apparent bankrupt condition. As for unplanned contingency, my personal budget addresses that in terms of a big savings account-liquid assets. I know of no
    government at any level that maintains a savings account…leading to one of those
    ‘collective’ things of either reducing cost or raising taxes. (That is not confined to
    the public sector…business runs on reducing costs and raising prices)

  6. The Griper

    no stats? sure there is, BB. bankruptcy is nothing but the recognition that debts are larger than assets without enough income to pay for short term expenses and to pay down some of the balance of the debts. the federal government runs a deliberate deficit with every budget, thus creating a situation of not only being able to cover expenses but to add to the debt rather than paying it down. and they know this when creating and enacting the budget so unknown contingencies are not relevant to the issue. unknown contingencies only add to the already known deficit.

    the only question that would remain is how much is the value of the government assets needed to pay off that debt just like you or i would have to ascertain in evaluating our finances.

    the only unknown contingency in the federal budget is an act of war.

    as i said in the post, i was taught that economics is economics and the same rules apply to everyone. i would just like to know why it doesn’t apply to the government under these circumstances. what allows them to use different rules?

    and if there is no valid answer then the government is not only deceiving the people it is abusing its powers and we, the taxpayers, are the victims of this abuse, is it not?

    isn’t that the whole purpose and intent of the principle behind “no taxation without representation”, to prevent that type of abuse?

    am i making any type of sense?

  7. BB-Idaho

    “unknown contingencies are not relevant to the issue. unknown contingencies only add to the already known deficit.” ..presume we are speaking of the many billions spent
    in Iraq & Afghanistan. ?

  8. The Griper

    as well as in lybia now too. while lybia may not be called a war it is still the use of the military for the purpose of aiding in a war. and its cost wasn’t in the budget at the beginning of the fiscal year when Obama decided to aid the rebellion. in other words, take the costs of those military actions out and you’d still have a deficit budget, wouldn’t you?

  9. The Griper

    we could also take into consideration the costs of being in so. korea because technically we are still at war with no.korea.

  10. BB-Idaho

    Rather expensive, when you consider our military spending is 43% of the world
    total. (..can’t resist: tis only 4.7% of our GDP) Now ol James Madison noted,
    “Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes … known instruments for bringing the many under the domination of the few.… No nation could preserve its freedom in the midst of continual warfare” …but we also observe that president Madison and Dolly had to flee the
    captial when the British redcoats burned it in 1814.

  11. BB-Idaho

    The cost of Iraq & Afghanistan is about $1.3 trillion (Libya $2 million, a mere spec,
    albeit a bit more successful). I’m thinking grandpa might prefer to watch the ticking
    numbers in realtime rather than wading
    though GDP stuff?

  12. The Griper

    the cost of Iraq needs to go all the way back to the time we kicked their butt the first time. that is another war that was stopped as a result of a cease fire agreement just like the one in no. korea. pundits view them as two separarate wars but in reality they were one and the same war.

    and for this issue that i’m addressing the cost of wars only have relevance because of their effect on the budget of a government as well as the debt.

    my concern behind this post is about how our government spends money and whether or not they are being fiscally responsible. and to do that we, the people, need to be honestly informed. if the government is reporting it in a deceptive manner then it is time we held their feet to the fire. and the only way to do that is to reveal the deception. if the way it is being reported is not a deception i am only asking why it isn’t when it goes against everything i was taught about economic principles.

    deception has always been the first clue of abuse of power, not only in governments but on any level, in my book.

  13. I wouldn’t know where to begin. Governments aren’t businesses. But I suppose you
    could say the Government is a civil society’s global cost center. Government debt
    as a percentage of economic output of society seems like a useful indicator of the
    burden of that servicing the debt.

    But I suspect the question was mostly rhetorical. Otherwise you might have taken the
    time to explain what you meant by “economics”. But as you didn’t one can only presume you might just grinding you’rs axe.

  14. The Griper

    les,
    the question was a very sincere question. and i agree with you that governments are not businesses but neither is the individual. but the same economic principles apply to all. that means the same principles apply to governments, individuals and businesses. each entity uses the same basic formula, revenues – expenses = credit/ debit.

    economics is a science that evaluates the financial health of an entity, nothing else. i didn’t explain my meaning of it because it is a commonly known idea.

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