Widdekind
Member
- Mar 26, 2012
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The "Great Society" of the 1960s-70s not only ushered in a new tax regime, of increasing gross taxes, that account for a third of all US spending today, so raising the the AS curve by about 50%; but also the mix of products (goods & services) generating US GDP also was transformed. The "Q" variable plotted on AD/AS charts is actually a complicated "creature", being a complex vector, representing all of the 'widgets' bought and sold in the economy. Most simply, you could represent the mix of products, with a "Q" having two possible components (manufacturing, services). Then, the mix of products in that "Q" has also been radically altered, as the US economy has shifted from an industrial "manufacturing posture", to a health-care "service posture". Thus, the heavy tax burden in the US not only hikes costs 50%, but also "re-orients" the entire economy, away from productive pursuits, towards services, entertainment, etc
The aforesaid "Great Society" social programs have "rotated" the US economy, on its "production possibilities frontier", away from "manufacturing & industry", towards "services & entertainment". Overall spending, measured only in dollars, does not notice, that what those dollars are spent on, is very different today, than what it was yesterday. Quoting a single statistic (spending in dollars per year) masks the profound transformation of the US economy, away from industry, manufacturing, and moon missions; towards health-care, entertainment. Overall spending, by itself, overlooks that some sectors of the US economy have shrunken, even whilst others, taking their taxes in transfers, have grown. In analogy, looking only at the size of the whole pie (GDP) overlooks who winds up with how much (industry losing to entertainment).