The GDP Illusion: Why Economic Growth Is Losing Its Meaning

Growing up, illusions were a wonderful thing. Watching David Copperfield fool the audience on television was amazing, even magical.

As you get older, though, you realize that there are really two different types of illusions, one magical and wonderful. The other, a sort of con game to distract us from paying attention to what really matters.

I‘m not going to get political today. Instead, I’ll simply say that I can remember talked about our nations Gross Domestic Product (GDP) as the top measurement that we should all use to evaluate overall economic health.

So, the higher the GDP, the better the White House says the economy is doing. Thanks to their own policies and decisions, of course.

But is that true? Today we‘ll explore the concept of a GDP and I’ll let you decide for yourself how relevant this number is for you…

What is included in that GDP figure?

GDP is a measure of economic activity. It‘s calculated by adding up every dollar that was spent in the U.S. (Here’s a more technical definition for the curious, but honestly you dont need to know about it.)

Heres the formula for calculating GDP:

Heres the breakdown (2024 numbers):

• 68%: Consumer spendingis the biggest component, like I mentioned previously. Everything you spend money on, from haircuts to homes to Hawaiian vacations, increases GDP.
• 18%: Domestic investmentis a business category that includes construction, capital investment like machinery purchases and business inventory (including, for example, unsold cars on a dealers parking lot. This is the most important category overall, in terms of boosting overall economic productivity.
• 17%: Government spendingis also a significant component. Government spending on infrastructure, defense and payroll for both federal employees and contractors.
• -3%: Net exports of goods and services is negative because the U.S. more than we

First, you can see that “consumption” is by far the – and thats troublesome, because Necessary (food and fuel for example) but not productive.

Domestic investment includes building new factories, setting up or modernizing existing assembly lines and so on. This is the most important category for future economic growth.

Heres the most worrisome thing about GDP calculations though – None!

Debt-financed purchases like a new home or a new federal construction program to GDP. Paying off the debt incurred No matter when you pay it off.

In other words, GDP only tells you how much you spent on the shopping spree –

Now that you know what GDP means, lets take another look at the current GDP report.

What current GDP figures are saying

The most recent figures tell us GDP is growing. As informs us, “The U.S. economy grew faster than expected in the second quarter.” GDP grew 3.8% (annualized).

What changed? Well, imports dropped about 9% while exports fell a lot less, about -1%.

In other words, overall we and which nets out as a win for GDP!

This seems so amazingly backwards to me… How can work out as a win?

Imagine youre running a car dealership, for example. You bought 5,000 cars from the factory. You only sold 4,500 of them.

• For these unsold cars are a headache and a red flag about demand
• To the GDP statisticians, theyre a sign of “production,” so they count as growth!

How does this make any sense at all?

As confusing as it is, it helps you understand the difference between GDP reports and our personal experience with the economy…

What does this GDP surprise look like to American families?

What GDP isnt telling you, though, is how the higher GDP is affecting the average family. See, according to the Bureau of Labor Statistics (BLS), the price of ground beef increased by over the last five years.

Other necessities, like electricity, went up 36% since 2020.

Here‘s the astonishing thing: As your cost of living increases, GDP increases too! That’s right – higher bills means “increased economic activity” which is often interpreted as a

Do you feel wealthier at the grocery store, when your trip costs you 25% morethan it wouldve in 2020?

I seriously doubt it. (I know I sure dont!)

Heres the reality: Higher GDP has nearly correlation to prosperity.

Period.

The GDP illusion

Now do you understand how GDP is as much a measure of higher costs of living as it is a measure of real economic activity?

Every time an elected official says, “The economy is doing great,” thats not the whole story.

Again, I‘m not trying to be political here. I understand that the best and the worst of them, to paint a rosy picture of how great the economy is doing. And, frankly, “the economy” is an abstract concept. “The economy” That’s just the word we use to describe the one billion transactions that happen across the nation

Obviously its completely impossible to say anything meaningful about a billion separate transactions. So lumping them all together and calling them “the economy” is a useful metaphor.

But And when official GDP reports are contradicted by in the real world?

Its like my grandpa used to say: “Who are you going to believe, or your lying eyes?”

The closer you look at abstractions like “the economy” or “GDP,”

This is why its a mistake to take these numbers at face value.

Economists tell a nerdy joke about this: “An economic downturn is when your neighbor loses his job. A recession is when you lose yours.”

So what does this mean for you? Simply this: No matter how well (or poorly) “the economy” is doing, your experience is what matters. Your personal economic success is than the second quarters GDP report.

Everyday Americans who‘ve figured this out, who understand that experience just isn’t accurately reflected by GDP reports or CPI updates – those are usually the folks who reach out to Birch Gold Group. When you understand that official numbers translate into stability or financial security for family, you start looking for stability.

That‘s where physical precious metals come in. Why precious metals? They aren’t an abstraction or a metaphor or a statistic. Theyre real, tangible assets you can hold in your hand. And for of different families all across the nation, physical gold and silver have become an anchor in uncertain times.