But they are hard to exclude, because they get commingled with spending/consumption/investment. So what do you do? Leave them there, but then subtract total imports. They are counted positively, and negatively, so they have no net impact. Think it through and it should make sense.

EDIT: I want to give you the benefit of the doubt here because I like where you're headed (ignoring the timing effect that would make GDP useless under your framework), I really do, but let me chew on this. Because it is interesting, though it does completely ignore FDI (which is how imports are paid for)

But if I import something, that increases GDP (spending is positive to GDP). That starts to mess up the GDP numbers, because that spending is not value an economy produced. You have two choices, try to break down every purchase into domestic or import (impossibly complicated), or just leave it all in, and subtract out total imports at the end to nullify all the import spending (or foreign investment).

If imports went up in Q2, that means spending on imports went up. Those two cancel out for no net change to GDP.

--

My best shot at not being convoluted:

Why do we subtract imports in the GDP equation? It is not because imports reduce domestic production, it is because those dollars were previously added in the GDP equation as spending/investment. So to remove the effect of imports entirely, we need to subtract total imports.

So here's my counterpoint to you and Dr. Wolla, who has made this a big thing ( By the Way the Dunning-Kruger quip was uncalled for and could have really nipped this interesting discussion in the bud, so do with that what you will) ->

We agree that we are talking about quarters here, right? Not long-term GDP? We can agree on that, right?

Per the BEA, imports are tracked at "Collections of customs duties by port from Department of Treasury"

So logically, imports should then flow right into the other categories (Mostly Private Inventories then PCE)

But here's the rub that you don't see: For nonfarm industries, the estimates of inventory change are generally prepared by beginning with data on the end-of-period book value of inventories, as reported by private business using a variety of accounting methods.4 The inventory data are then adjusted—annually for 417 detailed industries and monthly for 82 aggregated industries—to value the inventories at a uniform set of prices and to remove holding gains or losses.

The rub of that is you assume imports immediately become inventory, but there's a lag b/c GAAP tells you to record inventory on receipt and railroads don't count cargo as inventory.

In normal times, no problem, in COVID times, big problem.

So that's why I reference lag and think my point stands (because your 1:1 math is broke), but I do appreciate you pushing me to think even if you were rude about it for no reason.

in your framework, economic activity is up, we are just paying for it via trade imbalance

Wrong, I don't have a framework. I am just trying to explain to you how GDP is calculated. Economic activity is down when measured used GDP.

Your original post misunderstands GDP. I am not being pedantic, it is just incorrect:

Ok, let's play your game. How much of the first quarter decline was due to the ports clearing and imports rising? Here, I'll give you a hint (More than 100%)

Wrong, None of the decline was due to increased imports, because by the definition of GDP, imports are excluded. To quote the fed from the link above, "imports do not add to or subtract from GDP."

You agree that, in aggregate, the amount of consumption/investment/government spend are up, right? GDP has only declined because we didn't make all of it, which, sure, maybe a long-term problem, but irrelevant to a recession.

Wrong, GDP declined because domestic spending and/or investment and/or exports declined. Nothing to do with imports at all. Imports are not included in GDP, ergo, imports can't cause a decline in GDP.

What is happening is that Americans are selling debt/assets in exchange for goods/services (that’s what a trade imbalance is). They are still able to consume and invest an increasing amount of goods/services and there’s no signs of that ability to finance those activities via trade imbalance decreasing any time soon. In fact, the reason GDP went down without C+I+G going down is that they did more of it than ever before!

So keep calling me D-K but you have no idea what GDP even represents (production is not the economy my guy, trade imbalances have an impact).

Like you get that assets/capital formation aren’t in GDP but you can still sell them, right?

And that’s why

> Wrong, GDP declined because domestic spending and/or investment and/or exports declined.

Is incorrect.

None of those things declined, we just financed them with a trade imbalance (instead of production) which is why you should google FDI

EDIT: Lets just put this to rest and answer me this question. Imagine a world where tomorrow, China is willing to sell America everything it wants in exchange for shares of BigCo. (To be clear, the flow is dollars used to purchase RMB, RMB used to purchase goods/services, RMB used to purchase dollars, dollars used to purchase shares of BigCo.)

America takes them up on this deal and increases consumption by 5x overnight. Given that America is importing all its goods/services, it has a GDP of zero, a 100% decline.

Is that a good measure of an economy increasing its consumption of goods/services from $20tn to $100tn, or is the trade imbalance hiding something important there?

Which again, my original point: sure GDP is down, but that reflects trade financing more than it does economic activity (whereas you seem to have this weird fixation of in-quarter production being the only source of value creation in an economy, which lol D-K)

I didn't equate a recession to anything. In fact, I never even used the word recession in any post, I don't have a framework, and not trying to push a political agenda. Literally, all I want to do is help you understand the GDP equation, which is often misunderstood as to how imports are excluded.

(production is not the economy my guy, trade imbalances have an impact)

Might be true, but we were talking about GDP. GDP is production. Imports are not included in GDP, so an increase in imports doesn't cause GDP to go down.

So keep calling me D-K but you have no idea what GDP even represents (production is not the economy my guy, trade imbalances have an impact).

OK, that is a very DK comment because all GDP does is try to represent production. So you may not like GDP, but you don't get to redefine it. It is what it is, flaws and all.

If you want to make the case that the health of an economy shouldn't be measured by GDP, awesome, go do it (somewhere else, I don't care, or even disagree). But when you do it, remember what I taught you: GDP excludes imports, so when imports go up and down they don't change GDP.

GDP is down, but that reflects trade financing

Wrong, because math. Spending is up equal to the amount of imports increasing, so there is no effect on GDP.

Lets just put this to rest and answer me this question.

You are conflating an increase in imports with a decrease in domestic spending. Trade is not zero sum.

Imports cause GDP to go down relative to C+I+G. Full stop. I'm sorry I didn't say "relative to economic activity which should be the true measure of a recession" but again, that's why I call you a pedant.

>Wrong, because math. Spending is up equal to the amount of imports increasing, so there is no effect on GDP.

Yes, but GDP is down relative to C+I+G because of imports. Why are you being so stubborn about that? And honestly, what's the Venn diagram of people who bring up D-K and those who suffer from it? Like ad hominen is a universal sign of intelligence, right?

>You are conflating an increase in imports with a decrease in domestic spending. Trade is not zero sum.

Answer my question about selling debt/assets please. Are those in GDP? Or can you sell things that aren't "produced" by GDP?

Imports are included in C+I+G, so when imports increase, C+I+G also increases. But the goal of calculating GDP is to exclude imports, so imports are subtracted from the total. Therefore there is no effect on GDP from increased imports.

You were wrong when you said GDP decreased because imports increased, which is how this started. That's not being pedantic, that's correcting a misunderstanding of the how GDP works.

Don't feel bad, this is very commonly misunderstood and misreported, so you have company. People see the "- Imports" at the end of the equation and think they understand imports subtract from GDP. Easy but naive mistake. It's your confidence in your misunderstanding that pushes it into DK territory. Your unwillingness to read or comment on the Fed's own explanation of this is a little shocking though.

Definitionally, trading doesn't create things on its own (though I do recognize your D-K mind is probably trying to make an irrelevant and inappropriate point about comparative advantage or personal utility).

The point that you're too stubborn to see is that one can trade goods/services (GDP) for debt/assets (Not GDP), and that is why imports can cause GDP to go down without economic activity going down, which I think is a fair read of the comment that started this whole dumb thing. You seem to have some reason to not want to understand that, even though I've tried very hard to gently inform you of that fact.

Do you not think one of the most important features of the US economy is its ability to form capital/assets? Because if so, I bet you are German.

So yeah you’re right I can’t give it a rest.

But I don’t know why citing BEA releases is considered politics.

Like I get it, you don’t like Biden, neither do I!

But it’s just so weird that people want to pin this fake recession on him, when in reality they should pin other real shit he did like the crypto bubble from stimulus payments or the inflation that followed.

My problem with you isn’t your politics. My problem is that you’re hungry for an easy answer to the detriment of accuracy.

Queen Elizabeth I called; she wants her 16th Century mercantilism back.

Please chill.

I'm aware I'm not 'fighting for my life'

And here we are, two nerds online.

You sure? :)

> And here we are, two nerds online.

Well yeah, that's kind of a given.