How do the economy and GDP resemble a bathtub

If the aim is to develop the economy what is our metric unit? The economy isn’t something tangible
therefore you cannot point to the economy so you cannot count it. However, when we talk about
growing or developing the economy, what we can count, and what we are talking about is growing
our national product, our industrial pie, our gross domestic product (GDP). What is a gross domestic
product you ask? In simple words? It is the entire health measured in the national currency of all
individual spending, purchasing newly-produced goods and services in each country. So, one thing
you can’t say for sure is that we should stop spending to grow the economy. The above would just
be an oxymoron. How well any economy is doing is gauged by how much money is being spent by
each country in comparison to how much it is drawing in.

Therefore, if you want a thriving economy, you need to increase spending. No way around it. If you
compare an economy to a bathtub, you should picture, somewhere in the tub is an imaginary line.
Furthermore, the line represents potential GDP or in other words full employment. Now if the
intention is to reach the most dynamic economy, to get the most out of your workers and your
resources to reach their full potential, you want to get that water level right up to the full
employment line. If it remains below that would just be ineffective and a shameful waste. On the
other hand, anything above that imaginary line, risks inflation, when you’ve bitten off more than you
can swallow.

It’s not more complicated than acknowledging that you have got a tap and you have got a drain. And
through the drain, the leakages take water out of the bathtub. The main issue here is what are these
leakages that keep taking water out of the bathtub and are ultimately moving us away from the
goal? Every single bit of funds we allocate buying goods and services that are produced somewhere
else in the world is a leakage. It sounds grim, but this would be a consequential quandary if we only
had leakages. We would have a tremendous problem. However, we have many ways to put water
into the bathtub. How do we do that?

One way is to support local businesses. This is what we mean when we say invest in businesses. We
do not mean share buybacks or that sort of thing. What we achieve by supporting local businesses is
that they will invest in plant and equipment, software research, and development and will generally
add to our GDP. These kinds of things put water in the tub. Paying your social security, and keeping
up with all your government responsibilities adds more water into the tub.

Further, every time someone else in some other part of the world purchases our materials, they
pour water into our bathtub. So now you have established these two flows, right? You have water
coming in and you have water going out. The big question is which flow is larger? Are the leakages
more than the water running in because if they are can’t we expect the water level to go down? If
you pour the water in faster than you are taking it out, the water level is going to rise. The big trick is
to learn how to equalize these flows so that we don’t have a bathtub that’s empty or overflowing.

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