July 18, 2012
It's The Economy, Stupid!
During the 1992 campaign for president, James Carville, an advisor to then candidate Bill Clinton gave a speech that was originally meant for internal use only. In this speech he coined the phrase “It’s the economy, stupid.” Carville understood that the American people, although in many ways ignorant to the mechanism of the economy, still understood enough to cast their vote for the candidate most likely to improve their economic condition. They may not have known the difference between Gross Domestic Product (GDP) and Real Gross Domestic Product but they knew something was not right. Similarly they may have been blissfully unaware of exactly how interest rates and unemployment rates were calculated but they understood that household disposable income was tight. The lesson of that election was regardless if your constituents can plot a circular flow diagram or not a leader must be well versed in the intricacies of macroeconomics and must also be adept at communicating those factors to the public he or she represents. When endeavoring to understand the principles of macroeconomics it is important to have a basic knowledge of the most used economy related terms. Gross Domestic Product or GDP is a perfect example. It is almost impossible to watch a nightly newscast without hearing the term. Investopedia defines GDP as “The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory (Investopedia, 2012).” In other words if it is made in the country it is counted and it is part of the GDP. It is arguable whether GDP is a good indicator of the health of an economy but it is generally conceded that it...