NO.183 My macroeconomics. Principles of economic growth.Maybe heresy.


Essence of macroeconomics


The products produced by the industry are purchased with payment.


“Products produced by the industry are paid for and purchased.” This is the starting point.
“How massively are the products produced by industry in the entire economy purchased?” This is the key to economic growth.

I have never read a macroeconomic text, but I had the opportunity to hear about the essence of macroeconomics.
From now on, I will follow the essence of macroeconomics.

The added value produced is supplied to people's income.


“The added value produced is supplied to people's income.”
In the production of goods in industry, the value of products that were not present at the time of raw materials is created and added to the goods.
In macroeconomics, the price of value added to this product is called “added value”.

Added value = Product sales price-All costs including raw material costs

This “added value” is always someone's “income”.

Gross domestic product (GDP) = total investment + total consumption
Here, total investment is the total “added value” of investment materials purchased throughout the country. Total consumption is the total “value added” of consumer goods purchased throughout the country.

This is the essence of macroeconomics. I understand that.

Macroeconomic conclusions so far


There is no problem with spending money on waste.



The above GDP formula shows that both total consumption and total investment achieve economic growth. Private consumption realizes economic growth. Private consumption does not contribute to production activities. Personal consumption is a waste of money. If personal waste can achieve economic growth, government waste can also achieve economic growth.
The important point is that "the price is paid and the product is purchased".


Economic policy is not effective without debt.


“Economic growth depends on how much of the product is purchased throughout the country.” The above GDP formula shows this.
In other words, economic growth is determined by the amount of funds available to purchase goods, in total, by the government and the private sector.
When the government collects taxes, the financial resources for purchasing private goods will be reduced by the scale of the taxes.
“The government purchases goods instead of the scale of private goods purchases.” This means that the government uses taxes for economic policy.

Keynes policy based on “underwriting of government bonds by central bank”.


As an example of an economic policy that the government borrows, let us cite the Keynes policy by “underwriting government bonds by a central bank”. The government issues government bonds. The central bank issues a new currency and pays the government for the purchase of government bonds.
The government conducts public works with financial resources issued by government bonds, hires unemployed people and pays wages.

The above equation for GDP is:

Gross Domestic Product (GDP) = Total Investment + Total Consumption + Fiscal Dispatch

GDP will grow by this amount of fiscal spending.

If economic growth is realized, the government's tax revenue will grow, so the government will repay the debt.

What is happening behind economic growth?


Macroeconomics has no connection with the actual state of society.
By comparing the GDP of a country in a certain year with the GDP of the country in the next year, you can know that economic growth has been realized.
However, it is impossible to know from macroeconomics what happened in an actual society and the realization of economic growth.

I think innovation is happening in the real world when GDP grows.
In industrial production activities, new value is created and added to products. This value creation is created from scratch, and a new currency is issued for the amount of this value.

Suppose you have a product that many people need to buy. However, suppose that the industry does not have enough production equipment to meet that need. People can only buy the goods for the capacity of the production facility.
The size of total consumption in GDP is limited by production capacity.

If the industry expands its production capacity through capital investment, it will be possible to provide products that meet the needs of people. The scale of total consumption in GDP expands, freed from production capacity constraints.

If innovation is realized in an industry and a new product is developed, consumption of a new scale is added by the scale of people's needs for the product.

Total consumption = Existing total consumption + Total consumption by new products

Economic cycle


A person is engaged in industrial production activities and is paid to earn income. A person who earns income purchases and pays for products produced and sold by the industry.
The industry from which the produced goods are purchased earns and pays workers. Those who are paid and earn income purchase the following items.

By repeating this, an economic cycle is established and the economy grows.

The Great Depression occurs when this economic cycle is cut off. I think so.
Macroeconomics deals with an economy with an economic cycle. Therefore, measures against the Great Depression cannot be handled by macroeconomics. I think so.

Great Depression and Recession.


The Great Depression and the Recession are different.

Recession is a temporary economic downturn. People's needs for goods are temporarily contracted, and goods are no longer purchased. However, when the time for replacement of the product comes, the product is purchased again.
At that time, inventory will be disposed of.
Here, if the product is remodeled, it is likely that the stock of the old model will not sell.
I think that the storage of the produced products in the warehouse as inventory and the suppression of production from the beginning will be handled as inventory in economics.

The Great Depression is the destruction of the economy. For some reason, the economic cycle is interrupted.

The current global economy incorporates a dynamism that allocates the majority of wealth to a small number of wealthy people.
Even American middle-class people are becoming worried due to high prices and real estate prices, even though they are employed by companies and get wages.
Perhaps the people who should receive more wealth are not receiving proper wealth.
Currently, cheap Chinese products are supplied to American society. Nevertheless, middle class people in American society may not be able to realize the low price.


If the economic inequality continues to widen, the economic cycle will suddenly break. The economy falls into a deflationary spiral and collapses.
That would be the Great Depression.




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