Can we list and address other common econ journalism fallacies? Like the idea that the strength of a country’s currency represents how strong their economy is?
This is a great post. Such a clear explanation not only of how imports don't count in GDP but why it matters that people are getting it wrong. Thanks for writing this.
Apr 29, 2022·edited Apr 29, 2022Liked by Noah Smith
Thank you, thank you, thank you! I teach over 100 AP Macroeconomics students each year that imports do not reduce GDP even though some college-level textbooks and other resources do not teach this or don't emphasize it.
On the one hand, we teach that comparative advantage through specialization and trade makes both countries better off. On the other hand, many sources indicate that importing goods and services hurts the domestic economy. It's not rational.
Thanks Noah. I am arguably one of your biggest fans. Another amazing conclusion. Continue to stay humble, down to earth, and culturally relevant. You are the Kat Williams of comedy, and I mean that in the highest regards. May God bless your shining face, and May your continue to lead as an educator in a field which matters so much. I pray for your safety, peace, and salvation. Maybe God bless you.
"Macroeconomics", the title of the 2019 MMT text-book (by Mitchell, Watts and Wray), also agrees with you:, in resource terms..... Mitchell sees exports as a loss to the domestic economy because the nation loses the ability to consume that portion of its output which is sent overseas.
And if every 'imported' category starts to exceed each 'domestic' category, GDP is going to decrease, especially on a year to year and month to month comparison basis. Which IS what is actually happening.
Great post! I've always been confused by something - why are imports generally thought of as harmful or less desirable than exports? Going back to the moon-base example - aren't the moon colonists getting a great bargain? They do no work and yet enjoy $420M in consumption! The suckers are the exporters on Earth who are laboring away and giving away their wares for useless Moon-bucks they can't spend.
Naively, it seems like importing more than you export should be desirable. You're getting more useful goods than you're giving.
I listened to Bloomberg Surveillance this morning (June 16th) and heard Bloomberg's Chief U.S. Economist, Anna Wong, state that net exports are a negative drain on U.S. GDP. WTF??
My pick for most common mistake in econ journo is the equation of annual GDP with "the size of the economy". E.g. Peterson Foundation: "The National Debt Will Grow to Be Twice the Size of the Economy in 30 Years". No, the national debt will grow to be twice the economy's annual income or output.
The most common mistake economic journalists make is the assumption GDP is still a relevant metric. With this almost religious assumption you feed an economic machine that literally is destroying human existence as we speak.
>>>if the government forced American car producers to use more expensive American steel and less cheap European steel, U.S. steel producers would enjoy a boom, but this would probably be outweighed by the reduced output of American car companies<<<
This is important.
The MAGA movement supposedly prioritizes the strength of US manufacturing. But I can think of no better way to *weaken* American manufacturing than to interfere with the ability of US factories to source the best possible inputs at the lowest price.
Imports do not subtract from GDP
Can we list and address other common econ journalism fallacies? Like the idea that the strength of a country’s currency represents how strong their economy is?
This is a great post. Such a clear explanation not only of how imports don't count in GDP but why it matters that people are getting it wrong. Thanks for writing this.
Do you have any advice on self-studying economics? This post made me realize how much of economics I don't understand.
Thank you, thank you, thank you! I teach over 100 AP Macroeconomics students each year that imports do not reduce GDP even though some college-level textbooks and other resources do not teach this or don't emphasize it.
On the one hand, we teach that comparative advantage through specialization and trade makes both countries better off. On the other hand, many sources indicate that importing goods and services hurts the domestic economy. It's not rational.
Thanks Noah. I am arguably one of your biggest fans. Another amazing conclusion. Continue to stay humble, down to earth, and culturally relevant. You are the Kat Williams of comedy, and I mean that in the highest regards. May God bless your shining face, and May your continue to lead as an educator in a field which matters so much. I pray for your safety, peace, and salvation. Maybe God bless you.
Great post. Thank you for the excellent explanation.
Good post.
Very well done sir!
How did I not know this - thanks Noah
"Macroeconomics", the title of the 2019 MMT text-book (by Mitchell, Watts and Wray), also agrees with you:, in resource terms..... Mitchell sees exports as a loss to the domestic economy because the nation loses the ability to consume that portion of its output which is sent overseas.
And if every 'imported' category starts to exceed each 'domestic' category, GDP is going to decrease, especially on a year to year and month to month comparison basis. Which IS what is actually happening.
Great post! I've always been confused by something - why are imports generally thought of as harmful or less desirable than exports? Going back to the moon-base example - aren't the moon colonists getting a great bargain? They do no work and yet enjoy $420M in consumption! The suckers are the exporters on Earth who are laboring away and giving away their wares for useless Moon-bucks they can't spend.
Naively, it seems like importing more than you export should be desirable. You're getting more useful goods than you're giving.
I listened to Bloomberg Surveillance this morning (June 16th) and heard Bloomberg's Chief U.S. Economist, Anna Wong, state that net exports are a negative drain on U.S. GDP. WTF??
My pick for most common mistake in econ journo is the equation of annual GDP with "the size of the economy". E.g. Peterson Foundation: "The National Debt Will Grow to Be Twice the Size of the Economy in 30 Years". No, the national debt will grow to be twice the economy's annual income or output.
The most common mistake economic journalists make is the assumption GDP is still a relevant metric. With this almost religious assumption you feed an economic machine that literally is destroying human existence as we speak.
>>>if the government forced American car producers to use more expensive American steel and less cheap European steel, U.S. steel producers would enjoy a boom, but this would probably be outweighed by the reduced output of American car companies<<<
This is important.
The MAGA movement supposedly prioritizes the strength of US manufacturing. But I can think of no better way to *weaken* American manufacturing than to interfere with the ability of US factories to source the best possible inputs at the lowest price.