Much of the time, we hear a lot of opinions about the president of the United States. We hear about his approval rating, policies he’s pushing for, and other decisions he makes. One subject we tend to hear a lot about is the economy of our nation. “GDP is up, unemployment rate’s down. Thus, our economy is improving!” Statements similar to this one make me worry because our nation’s economy is much more than GDP and unemployment. There’s labor force participation, disposable income, and income per capita, just to name a few.
Though, I don’t particularly agree with some of these economic indicators, there are still many indicators that Americans should understand in order to keep themselves well informed. Some may read this and think, “Why should we even care in the first place?” The answer is simple: The president can manipulate his image if he understands economics well. If Americans are very uneducated about topics like economics, he can, and will, use that to his advantage in order to get himself, or his party, reelected.
Gross Domestic Product (GDP)
What Most People Think it is: National Income
What it Really is: National Income from Domestic Operations
The Difference: GDP is our national income before we receive income from overseas. The equation economists use is GDP = C+I+G+Xn, which is GDP = Consumption + net Investments + Government expenditures + net eXports. There are still sources of income we have from people in other countries that need to be added before we really have our national income.
How the President Can Manipulate it: Consumption and government expenditures are two of the most effective ways that the president can raise our GDP. When any president issues an economic stimulus package to the tax payers, we should all ask ourselves, “Why is he doing this?” The reason is because an economic stimulus can increase GDP through what’s called the money multiplier.
The money multiplier occurs through various rounds of spending. For example, if the nation were given a total of $5 billion in stimulus packages, the majority of us would spend it. $5 billion was spent in the first round, $4 billion was spent in the second round, $2 billion spent in the third round, and $2 billion spent in the fourth round. These four rounds of spending created a multiplier of 2.6, which means that the initial $5 billion was spent into $13 billion. It works like this because everybody who receives money like this must report it on their taxes.
Government expenditures is a little more obvious and harder for the president to do. It’s government spending and if the president can get congress to approve his budgets that may increase spending, he can get our GDP raised a little here and a little there. If he increased our spending by $1 trillion for the year, we may see more of that wind up in our GDP.
What Most People Think it is: The rate of Americans without employment
What it Really is: The rate of Americans without employment and looking for work
The Difference: Rather than just being a number that reflects people without jobs, the unemployment rate has difference categories within it. These categories are frictional unemployment, structural unemployment, and cyclical unemployment. The rate of Americans without employment and not looking for work is called discouraged workers. This does not include the homeless.
How the President Can Manipulate it: It may be hard, but the president is certainly able to manipulate this indirectly. As mentioned earlier, there is a rate of unemployment that isn’t the unemployment rate known as discouraged workers. This means that the unemployment rate drops when people decide that it’s not worth it to look for work anymore.
Here’s what the Bureau of Labor Statistics said the five reasons workers become discouraged are:
“The five specific reasons for discouragement are 1) [worker] thinks no work available, 2) [workers] could not find work, 3) [worker] lacks schooling or training, 4) employer thinks too young or old, and 5) other types of discrimination.”
So where does the president come in with any of this? He gives plenty of public speeches throughout the year. In his 2008 acceptance speech, President Obama said things about the economy that could give some people hope. However, he also said some scarier things about the economy that could make people think the wrong way. He said that our country “sits on its hands while a major American city drowns before our eyes.”
He also said, “…more Americans are out of work and more are working harder for less. More of you have lost your homes and even more are watching your home values plummet. More of you have cars you can’t afford to drive, credit cards, bills you can’t afford to pay, and tuition that’s beyond your reach.”
If any president were to give this kind of speech and then talk later during his State of the Union Address that there is a lot of progress happening in America, it would really discourage those who weren’t able to find a job for over a year. In fact, it might even make people across the nation stop looking for work. Thus, these people wouldn’t be included in the unemployment rate. This is a more indirect way to lower the unemployment rate, but there’s also the more direct way.
A much more direct way to cause a drop in unemployment is to get a certain group of people on welfare to stop looking for work. It’s no secret that there are some people in this country who would rather be taken care of than fend for themselves. If the president can target them and give them a little more here and a little more there in government aid, they will stop working and won’t look for it until the next president decreases their aid.
Don’t forget to always compare the unemployment rate with the labor force participation rate. This other rate I mentioned is more or less the rate of employment. If unemployment drops, labor force participation should increase. If it drops with unemployment, there’s a problem in the economy.
Per Capita Income
What Most People Think it is: The level of income most people earn
What it Really is: The average level of income earned
The Difference: While these two notions are close, the difference is that instead of being a level of income amongst most people (indicating the entire population wasn’t used), it’s an average level of income earned using all reported incomes with the entire population.
How the President Can Manipulate it: The president is capable, as chief legislator, of pushing lawmakers to make and pass laws. One thing that he can support is minimum wage laws. If the president shows support or opposition towards a certain issue, he can influence many in his party to feel the same way. This is because he’s also the party leader. Either way, if he can get a minimum wage increase passed, it would give everybody a little more money. But does this really show economic progress?
The thing about per capita income is that it uses all reported incomes. This means that if a lot of people quit their jobs or if a lot of bonuses were given, the per capita income would increase. If we were to have the lowest incomes increase by thousands of dollars, like the organization 15 Now would like to see as an outcome of a $15 minimum wage, the per capita income would go up. This would give a false sense of improvement to a large population.
Still wondering why the per capita income increasing can be a bad thing? It’s quite simple, really. If the per capita income rises but nobody is seeing an increase in their wages, then it just means that some of the wealthier are getting, well, wealthier. If the per capita income rises through a minimum wage increase, then we will see other economic issues such as an increase in unemployment and an increase in the consumer (and producer) price index.
Informed and Educated Voters Know Better
Voters that look into the facts and educate themselves will not be fooled. Anybody that is informed about how these economic indicators work, even on a basic level, will be better off. Don’t think that just because you think you know what these politicians are talking about that you do. Even I, someone who is studying economics, is still asking my classmates and professors for insights on economic issues. I will never say that I’m smarter than anybody else. But I will say that I feel like I try to be as informed as I can.
If you have any questions for me, I’m more than happy to answer them in the comments below.