Naked Economics by Wheelan, Charles (spanish books to read .txt) 📕

Of course, Americans aren’t gloating about that these days. After fifteen years of a generally strong economy in the United States, we stumbled into the worst economic downturn since the Great Depression. Why is it that all economies, rich and poor, proceed in fits and starts, stumbling from growth to recession and back to growth again? During the robust growth of the 1990s, the labor market was so tight that fast-food restaurants were paying signing bonuses, college graduates were getting stock options worth millions, and anyone with a pulse was earning double-digit returns in the stock market. Consumers were buoyed by rising home and stock prices. Capital flowed in from the rest of the world, most notably China, making it easy for Americans to borrow cheaply.

And then everything went wildly off track, like one of those NASCAR wrecks. Consumers were suddenly overburdened with debt and stuck with homes they couldn’t sell. The stock market plunged. The unemployment rate climbed toward 10 percent. America’s biggest banks were on the brink of insolvency. The Chinese started musing publicly about whether they should continue to buy American treasury bonds. We liked it better the first way. What happened?

To understand the cycle of recession and recovery—the “business cycle,” as economists call it—we need to first learn about the tools for measuring a modern economy. If the president really did wake up from a coma after suffering a horseshoe accident, it’s a fair bet that he would ask for one number first: gross domestic product, or GDP, which represents the total value of all goods and services produced in an economy. When the headlines proclaim that the economy grew 2.3 percent in a particular year, they are referring to GDP growth. It means simply that we as a country produced 2.3 percent more goods and services than we did the year before. Similarly, if we say that public education promotes economic growth, we are saying that it raises the rate of GDP growth. Or if we were asked whether an African country is better off in 2010 than it was in 2000, our answer would begin (though certainly not end) with a description of what happened to GDP over the course of the decade.

Can we really gauge our collective well-being by the quantity of goods and services that we produce? Yes and no. We’ll start with “yes,” though we will come to “no” before the chapter is done. GDP is a decent measure of our well-being for the simple reason that what we can consume is constrained by what we can produce—either because we consume those goods directly or because we trade them away for goods produced somewhere else. A country with a GDP per capita of $1,000 cannot consume $20,000 per capita. Where exactly are the other $19,000 worth of goods and services going to come from? What we consume can deviate from what we produce for short stretches, just as family spending can deviate from family income for a while. In the long run, however, what a country produces and what it consumes are going to be nearly identical.

I must make two important qualifications. First, what we care about is real GDP, which means that the figure has been adjusted to account for inflation. In contrast, nominal figures have not been adjusted for inflation. If nominal GDP climbs 10 percent in 2012 but inflation is also 10 percent, then we haven’t actually produced more of anything. We’ve just sold the same amount of stuff at higher prices, which has not made us any better off. Your salary will have most likely gone up 10 percent as well, but so will have the price of everything you buy. It’s the economic equivalent of swapping a $10 bill for ten $1 bills—it looks good in your wallet, but you’re not any richer. We will explore inflation in greater depth in the next chapter. For now, suffice it to say that our standard of living depends on the quantity of goods and services we take home with us, not on the price that shows up at the register.

Second, we care about GDP per capita, which is a nation’s GDP divided by its population. Again, this adjustment is necessary to prevent wildly misleading conclusions. India has a GDP of $3.3 trillion while Israel has a GDP of $201 billion. Which is the richer country? Israel by far. India has more than a billion people while Israel has only seven million; GDP per capita in Israel is $28,300 compared to only $2,900 in India. Similarly, if a country’s economy grows 3 percent in a given year but the population grows 5 percent, then GDP per capita will fall. The country is producing more goods and services, but not enough more to keep up with a population that is growing faster.

If we look at real GDP in America, it tells us several things. First, the American economy is massive by global standards. American GDP is roughly $14 trillion, which is only slightly smaller than all the countries of the European Union combined. The next-largest single economy is China, which has a GDP of around $8 trillion. On a per capita basis, we are rich, both by global standards and by our own historical standards. In 2008, America’s GDP per capita was roughly $47,000, slightly less than Norway, Singapore, and a few small countries with a lot of oil, but still nearly the highest in the world. Our real GDP per capita is more than twice what it was in 1970 and five times what it was in 1940.

In other words, the average American is five times as rich as he or she would have been in 1940. How could that be? The answer is back in Chapter 5: We’re more productive. The day is not any longer, but what we can get done in twenty-four hours has changed dramatically. The Federal Reserve Bank of Dallas