The Economy and a Bucket of Sand

Some might call it a butterfly effect, wherein a small change in one element results in a very large change in outcome. The multiple in the Gross Domestic Product, GDP, acts in just this way. This small multiple drives the GDP. This often ignored turnover rate, this relatively small multiple, times a very large number of market dollars, defines the GDP, a product of market activity.

That small turnover rate in recent years has remained flat or decreased due to the lack of discretionary dollars in the consumer market. While families require multiple jobs to meet necessities, there has been little or no discretionary income. Families shopped at factory stores like WalMart or Costco, bought discounted on the internet, paid  down debt or didn’t  shop at all.

As the economy improved, nothing much changed. everyone worked to just catch up. Here is where the bucket of sand comes in. When poring water into a bucket of sand, you see no change. You keep poring and poring then all of a sudden you reach a critical point, the bucket overflows. Economically speaking, we have been poring water into a bucket of sand and see no progress. The multiple has not changed. If we can continue to build back the economy with increasing employment and increasing wages, we will eventually reach that critical point when consumers once again have abundant discretionary income. The bucket will overflow. Customers will demand service, quality, ambience and courtesy and will be willing to pay for it. At that critical point the multiple will grow and only a small increase in market activity/ turnover will yield exponential growth in GDP.

More importantly that per capita growth in GDP will accrue to the general population, not so much the to the multinationals as it has done in the past. It’s taken 30 years to strip wealth from our middle class. It will take time to rebuild it, not through globalism, but with US workers, small business, industry and productivity.