GDP, Free Trade, and Prosperity

By Matthew Tanous

In my recent social media discussions on the subject of free trade, a certain thread of argument related to GDP has become more common. The argument, such as it goes, asserts that international trade is not very important as a component of GDP. The net impact of trade is a small impact on GDP, with imports and exports generally “balancing” each other out, leaving just a few percentage points either way. Trade (and immigration) restrictions seem like a small price to pay, economically, according to this framework.

Despite its superficial validity, this is a wholly erroneous way to look at the problem of generating prosperity and rests primarily on two economic fallacies. The first is the use of the GDP aggregate as a viable measure of national prosperity, which has been heavily criticized in other contexts.

Many criticisms of the concept of GDP focus on the concept’s formulaic assumption that government spending is inherently productive. This assumption has resulted in many errors, including economists and laymen alike in the 1970s and 80s looking at the growing GDP of the USSR and assuming the Soviets would economically overtake the West as a result. To a lesser degree, the same fallacy has driven concerns about China’s growing economy in the last couple of decades. However, in the context of international trade, the aggregate GDP fails to measure human welfare in yet another way. GDP’s focus on the supposed “net production” of a country fails to see the absolute production of a country and how much is involved in trade.

Read more here…

CFOs Looking to Spend on Growth

CFOs’ focus on digital transformation is consistent with other industry surveys. Deloitte research released last year found 77% of CFOs are retooling their operations to add more automation and redeploy financing and accounting staff for higher-value functions.

The relatively low priority on M&A, and the almost complete absence of IPO plans, are also consistent with other research.  

survey by consulting firm Baker McKenzie found finance leaders are expecting a 25% drop in M&A activity, from $2.8 billion to $2.1 billion. And the continuing weak interest in IPOs has been a concern of the Securities and Exchange Commission for several years now, although at the Davos Economic Summit two weeks ago, the heads of the New York Stock Exchange and Nasdaq said they’re seeing an uptick in interest in IPOs so far this year.​​

Internally, CFOs have big plans for positioning their companies for growth. Almost two-thirds are planning to pour more money into research and development while only 12% are planning to pull back on that. Almost a third say they’ll spend about the same.

Read more here: