Econ 101

Based on the first estimate, US GDP grew at an annualized rate of 4.1% in the second quarter of 2018. This number may be revised later and, at any rate, is just one data point albeit a good one. (For the last five quarters, the average GDP growth rate is 3.1%.)

In the simple Keynesian model of Aggregate Demand (AD) in an economy:

AD = C + I + G + X – M

C is consumption which is a function of the Marginal Propensity to Consume (MPC) and taxes (T); obviously if the MPC is higher then C is higher (ceterus paribus or all other things being equal) and if T is higher then C is lower (ditto)

I is business investment, should probably be expressed as I-sub-g for gross investment but I wanted to keep the terms simple

G is government spending

X is exports

M is imports

This model was the rationale for Keynes advocating government spending, without raising taxes, as the best way to get out of the Great Depression.

Implicit in the policy views of virtually all current Democrats is that unless the stimulus is direct government spending, then the MPC is basically zero as is the Marginal Propensity to Invest (MPI). This is provably false.

Implicit in the policy views of virtually all current Republicans is that cutting taxes is always a better stimulus than raising government spending (a debatable proposition) and that the MPC and MPI approach one, which is false. No deficit-financed tax cut has ever completely paid for itself, but tax cuts always boost GDP although the magnitude and duration of the boost can vary greatly.

The only political axiom to which I subscribe is that no matter where one thinks they stand on the political spectrum, much of the truth is usually somewhere else.


On this day in 1990, after having been in production since 1948, the last one of these rolled off an assembly line in Portugal:

See the source image

From a picture of a Citroën 2CV. English automotive writer Leonard John Kensell Setright wrote that the car was, “the most intelligent application of minimalism ever to succeed as a car”, and a car of “remorseless rationality.” Almost four million 2CVs were produced.

The 2CV is not really my kind of car, but I can appreciate its significance. Remember the remark my college professor from China used to repeat, “It doesn’t matter what color a cat is. Any cat that catches mice is a good cat.” For those to whom the car is just transportation, the 2CV was a very good cat.


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