Last week, we discussed the fundamental flaw in GDP. GDP is a perfect tool for central planning tools. But for measuring the economy, not so much. This is because it looks only at cash revenues. It does not look at the balance sheet. It does not take into account capital consumption or debt accumulation. Any Keynesian fool can add to GDP by borrowing to spend. But that is not economic growth.
Borrowing to Consume
Today, let’s look at another problem with GDP. To understand it, let’s walk through a plausible scenario. It begins with Johnny Fastlane. Johnny borrows $10,000 on his credit card to (yes, our favorite example) go on a gambling vacation in Las Vegas. An airline carries away some of his cash. A hotel lodges some. A few restaurants eat it. And of course, the casinos roll in his dough.