There are fewer people unemployed. That’s good. Stock market is at the same point as it was in January. Not good. Wages are not up significantly. Not good. Etc. When it’s announced that “the economy is good,” for whom, specifically is it good? GNP is such a large, amorphous number, it doesn’t seem to apply to actual people. What IS the economy? (Huge question, I know, but if it’s to be a major election issue, I’d like to have a better idea of what most people mean by it and who it actually pertains to - individuals with retirement accounts, the financial industry, the poor, etc.)
The economy is the system of transactions that involves the distribution of resources (money, labor, materials) within and among societies.
Because these transactions are so diverse, there are many, many ways of measuring the economy. But each of these measures of course has pros and cons: if you measure something that really means something to an individual (e.g., are rents going up or down in my city?) then it has less relevance to the whole economy (e.g., rents in one town have no relevance to the entire country); but if a measurement has great relevance to the entire economy (e.g., the GDP), is become more abstract to individual people.
The economy is simply the movement of goods and services as well as capital. We say that the economy is good when there is lots of movement that impacts a wide array of people. We say that it is bad when there is less movement or the movement only impacts a small subset of people. So a good economy is when I go to the cafe and buy an avocado flatbread and then the cafe owner says, lots of people are buying my flatbread so I’m going to buy a car and the car manufacturer says my cars are selling well, so I’m going to hire a factory worker and the factory worker says lots of cars are being sold, so my job is secure, I’m going to send my daughter to uni and the uni president says enrollment is up, I’m going to give senoy a raise and with my raise, I buy an avocado flatbread. A bad economy is when I say, I’d better not buy that flatbread because my job isn’t stable and then things go to crap.
CC is making a good point.
Suppose a new law is enacted which increases the strength of unions. As a result, wages for unionized workers rise. Is that good for the economy or bad for the economy? If you’re a unionized worker, you probably think higher wages are a positive economic sign. But if you employ unionized workers, you probably think those same higher wages are a negative economic sign. If you own your small business and aren’t involved directly with unions, do you benefit because those unionized workers have more money to spend? Or do you suffer because costs rise to pay those higher wages? Do you benefit from a strong economy because it lets you raise your prices and make more profits? Or do you suffer from that same strong economy when all the other small businesses in your area do the same thing you did and raise their prices?
We use dollars and employment figures to measure the economy because they’re what we have, but they don’t tell the whole story, that’s why we can have lots of GDP growth and low unemployment, but still ‘feel’ the economy is bad. What’s going on is that employment is less stable and wages aren’t rising, so we ‘feel’ less secure about spending money. We’re in a phase where capital is accumulating in a very few hands and labor is being devalued. Since most of us only possess labor, it makes the economy for us feel bad. To go back to the above example, if the flatbread maker suddenly found ten other flatbread makers in his building, his product would be devalued and maybe the ‘GDP’ of flatbread was going up or stable, but due to the fact that it was devalued and he lost his percentage stake in the market, he’d say the flatbread economy is ‘bad’ since flatbread is what he possesses and flatbread is what is no longer valuable. Everyone ‘feels’ the economy differently. For instance, during the recession, my state was barely hit. We were flush with cash since natural resources didn’t take a hit and that’s what we had to offer. Now though, natural resources have nose-dived, so our economy is absolutely crap. Other people may not feel that way.
I do not think this is a good point, because it is confusing a subjective view (what is good for me is good for the economy) instead of a more objective one (does this change in policy have benefits that outweigh the costs).
The absurdity of this subjective view is clear if we think about a scenario in which the total wealth of a country becomes concentrated in one person’s hands, while everyone else ends up broke. Nobody could realistically judge that economy to be “good,” even through the eyes of that one wealthy person.
Yes, but to voters the economy is entirely subjective. And it is, of course, different for each individual/economic unit. It will also depend on the size of each unit’s economic monkey-sphere.
The economy pertains to everyone. Every product or service you buy, sell, rent, own, trade, make, your job, your house, your car, taxes you pay, any work that gets done, pretty much every activity that doesn’t involve you personally eking out a living picking berries and living in a home made lean-to in the wilderness is a result of economic activity.
Here are some definitions of some of the metrics you mentioned and what they measure:
Unemployment rate - The % of people looking for a job who are currently not working. Note that this number excludes retired people, students and people who have given up looking for a job. Typically around 4% is good. Much lower than that, companies have a hard time finding workers to fill positions.
Workforce participation rate - The percent of the population who is actually employed. When Republicans say “the real unemployment rate is 40%”, this is the statistic they use, presuming their base are either ignorant rubes who don’t know shit about economics or people who work on Wall Street who don’t care.
Stock market - This has a whole ton of measurements on it’s own. But generally they are referring to composite indexes like the Dow Jones Industrial Average, S&P 500 or NASDAQ composite that describe the movement of the overall market. Stocks represent shares of ownership in companies. Broadly speaking, when stock prices go up, people and investors have a belief that companies are going to increase in profitability (so it’s more worthwhile to own shares in them).
Wages - Obviously, what people are getting paid. Ideally, we like to see “real wages” (iow adjusted for inflation (see below)) increasing over time. Essentially that would indicate that standards of living are increasing as purchasing power increases.
**GDP **- Gross Domestic Product. How much stuff the country makes. (As a whole and per capita)
GNP - Gross National Product. How much stuff the country makes plus net income from foreign investments (both as a whole and per capita) More is better for both GNP and GDP as it means there is more stuff to go around (or sell).
Inflation - The difference in relative price of something between two points in time. Or IOW, why shit was so much cheaper years ago. High inflation is bad because it eats away savings and real wages. But low inflation has problems too as it can signal a weak economy and companies might be less willing to invest.
There are a lot of other ones, but they start getting more complex.
In general, a good economy benefits everyone (a rising tide lifts all boats and all). But a lot can depend on local factors. A boom on Wall Street might disproportionately benefit the New York City metro area more than, say, South Carolina. Silicon Valley and the greater San Francisco region receives a much greater visible benefit from the tech industry (although all industries do benefit).
As is every other issue, from abortion to zebra parking regulations, which doesn’t really provide insight on defining or understanding any issue, including the economy.
Which is why you can’t make general statements about the economy that really mean anything specific without lots of qualifications and modifications. “The GDP is up” is a general observation that might not mean squat to somebody whose employer just moved her job overseas. CC is asking for a couple of graduate-level courses in Economics, or at least a semesters-worth of lower division. I’m just reminding the OP to take everything with a few handfuls of salt and remember that commentators can take the exact same objective data and come to completely opposite conclusions. There doesn’t even need to be a second commentator involved. Remember the old saw “Always deal with a one-armed economist. It’s the only time you won’t hear one say ‘But on the other hand…’”
In practice this means, “The unemployment rate is low.”
As for obtaining a valid fix on the economy, you have to drill down.
Human Development Index, used by UN: Human Development Index - Wikipedia
The Genuine Progress Indicator tries to fix some problems in the GDP measure: Genuine progress indicator - Wikipedia
There is also the matter of income inequality. GDP measures total production: it is indifferent to the distribution of income. Here’s a graph of real median household income in the US. I’m not sure whether it reflects non-wage health care benefits. It’s an annual series, published with a lag, so it isn’t as exciting as the stock market. Real Median Household Income in the United States (MEHOINUSA672N) | FRED | St. Louis Fed
Note how different it looks relative to real GDP per capita: mean is different than median, to the detriment of the typical worker: Real gross domestic product per capita (A939RX0Q048SBEA) | FRED | St. Louis Fed
Mean: take total output and divide by population.
Median: find the amount of income for the family for whom 50% of the country is richer and 50% of the country is poorer, roughly speaking. The mean can be distorted by a small number of plutocrats; the median is a more robust measure.
So when the president says that the economy is good, whose experience would cause them to agree with him? People who have recently gotten hired? Employers who were looking for workers? Who else? (I mean besides his true believers.)
Not employers, because they find it harder to find workers. People who were hired, people whose friends or family members have been hired, people who get raises because they are harder to replace. Low unemployment is good no matter who is President.
Right this second? Investors are doing well (at least until this year, things have been kind of flat lately) businesses in aggregate are doing well-some sectors better than others, people who wanted low-wage jobs are doing well. Who isn’t doing as well are resource industries, brick and mortar retailers and people who already have jobs in the nebulous ‘middle class.’ Truthfully though, right this second, no group is really suffering, just some groups aren’t experiencing much growth.
One way to interpret OP’s question is to break down employment by sector. Healthcare is booming: The BLS category “Health care and social assistance” is expected to surge from 15.2 to 23 million employees over the period 2006-2026. “Leisure and hospitality”, providing services for the rich, is also booming — it now employs more people than the entire “Manufacturing” sector. With about 3 million employees — more than the entire federal government — insurance companies also represent a significant chunk of the U.S. economy.
But at the same time, they are probably doing well on sales since consumption is a lock to be better during times of growth. But yeah, employers would surely grouse about rising pay caused by the tight labor market.
Another way to look at it is that it’s the aggregate of all that stuff for some geopolitical unit, in much the same way that a market for a particular good or service is the aggregate of all the individual transactions of that good or service.
A low unemployment rate is correlated with a tight labor market, where it’s easier to find a job. Relative to times when the unemployment rate is high.
A low unemployment rate is correlated with higher real GDP growth, when some group sees its living standards increase. (GDP growth has a cyclic component, which is reflected in the unemployment rate, and a longer term trend component, which is observable on a decade by decade basis perhaps.)
Speaking generally, businesses don’t mind low unemployment rate, because it correlates with higher demand for their product or services. While low unemployment rates can lead to wage growth, after 1979 the Fed tended to take away the punchbowl before employers started to yelp too much. GQ GQ GQ GQ GQ GQ
Depends on the circumstances. Imagine a Star Trek like low-scarcity utopia. Suppose further that the only person to make money is the president, because they haven’t bothered to amend the US Constitution yet, so the president makes $1/yr and everyone else makes nothing. But it doesn’t matter because everyone has everything they need from solar-powered replicators.
That would be an astonishingly productive economy, even though very few people work and all money is held by one person.
The economy is about production and trade. Production because it transforms worthless resources into valuable products. Trade because it moves product from low-value applications to higher-value ones. Exactly how these things are implemented depends on the type of economy. The economy is doing well not just when there is high employment, but when jobs are conducted efficiently (high production per worker), and trade is not stagnant (which would prevent goods from moving to high-value applications).
Well, I didn’t realize I should be prefacing me posts in this thread with, “On planet Earth…”