In Toolbox Theory deficit spending by the government results directly in GDP growth. This matches no historical or modern economic theory, would not be endorsed by any historical or contemporary economist, and is a fundamental misrepresentation of economics. The direct result of this is going to be a bunch of TNO players spouting the idea that government spending = GDP growth, which will be to the detriment of the playerbase, simply because it's irresponsible to let people think that.
This does not particularly concern the gameplay mechanics of TT, although I think it's perfectly conceivable to either add a multiplier effect determined by focus trees+events or a different method of calculating GDP growth, but that does not affect the further content of this post. I will counter the claim "but it is this way because it is simpler" with the response that including both interest rates and inflation means you are already creating a thorough macroeconomic model and should see it through completion, and not include something fundamentally inaccurate. Furthermore this is the whole reason I made this post - you now have a whole gang of TNO players who genuinely, avidly believe that unlimited deficit spending will resulting in unilateral economic growth, with the same fervour they usually have for the memes and ideas that whip up in this community, and in the interest of good governance and economics that shouldn't be encouraged.
I understand that most of the people reading this will have never studied any (macro)economics before, and that's fine. You may say to yourself "why should I trust you over the TNO devs", the answer being that the TNO devs did not invent the concept of inflation and interest rates and government spending, and that these have been long studied, and that everything in TT is based on these real life, real-studied concepts. As such you should refer to the real theory, which as I stated before, does not endorse government spending directly increasing GDP growth, even amongst the most heterodox of liberal economists.
Ok I got you with the flashy title and intro, now here's the economics. I will briefly explain what what GDP is, what deficit spending is, how government spending affects GDP, the multiplier effect, and then why it is agreed that government spending only SOMETIMES causes the economy to grow.
GDP
Most modern economists now measure GDP through 'aggregate demand' - the total demand for goods and services in a given econom
... keep reading on reddit ➡
It’s OK to use “two consecutive quarters of negative growth” as a rough rule of thumb for a recession.
It’s wrong to claim that this is the definition of a recession. Economists do not use any such definition.
This was made clear by the short and sharp recessions experienced by many economies around the world circa March 2020. The US National Bureau of Economic Research (NBER, 2021) dated the US as having entered and exited a recession in February and April 2020:
The recession lasted two months, which makes it the shortest US recession on record.
Unfortunately, many high schools around the world incorrectly teach that a recession is defined as “two consecutive quarters of negative GDP growth”. This mistake is also made by the International Baccalaureate (IB), Cambridge International A- and AS-Levels, textbooks, and Singapore JCs.
Economists Don’t Have A Simple and Precise Definition of Recession
- San Francisco Fed (2007):
journalists often describe a recession as two consecutive quarters of declines …
The definition used by economists differs.
- US Bureau of Economic Analysis (2018):
two consecutive quarters … is not an official designation. … The NBER recession is a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth. Therefore, while negative GDP growth and recessions closely track each other, the consideration by the NBER of the monthly indicators, especially employment, means that the identification of a recession with two consecutive quarters of negative GDP growth does not always hold.
...
Okun’s Invention?
- Stovall (1996):
To satisfy impatient politicians, the economist Arthur Okun (an advisor to Presidents Kennedy and Johnson) suggested that two consecutive quarters of shrinking gross domestic product (GDP) be used to signal a recession. In 1980, however, the United States entered into a recession with only one quarter declining GDP.
- Jay (as quoted by The Telegraph, 2008)
*the definition – two consecutive quarters of negative growth – had no basis in economic theory and was created by the US Government in 1967 to aid the re-election prospects of Pre
... keep reading on reddit ➡After the US, EU and China have grown we in Latin America haven’t used all of our potential but they expect us to follow their guide lines?
Example we cut down our Forrest at a fast rate but we in Latin America havent polluted the world at the rate developed countries have yet they want us to play by their rule…..
They had their cake and we haven’t
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The firm sees the benchmark index reaching 5200 by the end of 2022, higher than its previous target of 5000.
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The new projection implies about 11% upside from the S&P 500′s close Tuesday at 4,686.75.
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“This constructive outlook is based on robust projections for economic growth in both real and nominal terms, further margin upside in cyclical groups, a pickup in buybacks and a favorable discount rate despite Fed tightening.”
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Credit Suisse believes the U.S. economy will expand in 2022. The firm projects nominal GDP will grow 7% in 2022, real GDP will increase by 4% and inflation will rise 3%.
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The labor market recovery and improvements in backlogs and inventories should also support stronger economic and sales growth
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firm recommends investors be overweight in cyclical stocks in the energy, materials, industrials and discretionary retail sectors.... be market weight in technology, internet service and internet retail stocks.
What's your take on these bullish projections? Will we go into recession or is CS correct? Are you looking to rotate from tech into cyclicals? If so, which cyclicals?
It’s OK to use “two consecutive quarters of negative growth” as a rough rule of thumb for a recession.
It’s wrong to claim that this is the definition of a recession. Economists do not use any such definition.
This was made clear by the short and sharp recessions experienced by many economies around the world circa March 2020. The US National Bureau of Economic Research (NBER, 2021) dated the US as having entered and exited a recession in February and April 2020:
The recession lasted two months, which makes it the shortest US recession on record.
Unfortunately, many high schools around the world incorrectly teach that a recession is defined as “two consecutive quarters of negative GDP growth”. This mistake is also made by the International Baccalaureate (IB).
Economists Don’t Have A Simple and Precise Definition of Recession
- San Francisco Fed (2007):
journalists often describe a recession as two consecutive quarters of declines …
The definition used by economists differs.
- US Bureau of Economic Analysis (2018):
two consecutive quarters … is not an official designation. … The NBER recession is a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth. Therefore, while negative GDP growth and recessions closely track each other, the consideration by the NBER of the monthly indicators, especially employment, means that the identification of a recession with two consecutive quarters of negative GDP growth does not always hold.
Continued here.
