TEN Home


The U.S. Economy


The following is a simple but accurate description of our economy.  Simple in that it conveys in just 115 words the essence of MMT without having to explain the creation of money through borrowing or the complications of existing Treasury/central bank interactions.  Accurate in that the the first 4 sentences come almost literally from the Bureau of Economic Analysis (BEA) National Income and Product Account (NIPA) methodology publications.

GDP is the measure of our productive economy.  GDP is the sum of household, business and government spending (and likewise the income of those sectors equals that spending, because ALL spending is someone else's income).  Our economy depends on household spending (2/3 of GDP).  That spending is limited by household income (which comes only from those three sectors). Business provides that income to the extent demand (business opportunity) exists, and government provides the rest (by way of bookkeeping entries to household bank accounts).  All that's important to the economy is maintaining this flow, and with a fiat currency (whose value, by definition, depends ONLY on currency-users perception), there are no limits other than that perception.

I see this last sentence as the crux of understanding our economy.  It's saying that the dollars that we pass back & forth are only tokens, that have value (ie, purchasing power) only because we believe they have.  They're accepted by our landlord, grocer, auto dealer... only because the owners of those businesses believe that their employees and the businesses they patronize will accept them.  That can be a little frightening when one observes how easy it is to build cult-like thinking through social media (eg, the Trump experience).  What keeps wealth viable is largely the continuous assurance (propaganda?) from the wealthy.

Addenda

1) The income side of GDP is GDI.  GDI is equal to GDP "because ALL spending is someone else's income".  GDI is the net income of all domestic employees and employers.  GDI does not include personal or corporate income taxes or personal property taxes (nor the government's borrowing).  So those taxes (and borrowing) cannot be funding the GDP spending — reinforcing the statement above that all that's important to the economy is maintaining that spending flow.  The spending of each entity is income to another entity.  Increasing government spending increases GDP — IF that government spending is spent by it's reciptients.

2) Note that the productive economy is the production-and-consumption economy — not the financial and property economy.

TEN Home