Economy #GoodEconomy #BadEconomy #EconomicIndicators #GDP #Unemployment #Inflation #EconomicGrowth
Understanding a "Good" Economy
Ever wonder why people constantly debate if the economy is "good" or "bad"? Let’s break it down in simple terms. 🧐
Key Indicators of a "Good" Economy
Several factors objectively determine the health of an economy. Let’s look at the most important ones:
💰 GDP Growth
Gross Domestic Product (GDP) represents the total value of goods and services a country produces. A rising GDP indicates a "good" economy because it shows increasing productivity and wealth.
📉 Low Unemployment
When most people have jobs, they spend more money, which boosts the economy. Low unemployment rates signal a "good" economy.
📊 Stable Inflation
Inflation measures how much the prices of goods and services rise over time. Moderate inflation is normal, but runaway inflation or deflation can harm the economy. A stable inflation rate suggests economic balance.
📈 Economic Growth
Economic growth happens when there’s an increase in the production of goods and services. It usually means better living standards and more job opportunities.
Who Decides If an Economy is "Good"?
Multiple entities analyze economic indicators to determine the state of the economy:
🏛️ Government Agencies
Government bodies like the Bureau of Economic Analysis (BEA) publish data on GDP, unemployment, and inflation. They use this data to make policy decisions.
📚 Economists
Experts in economics study these indicators to provide insights and forecasts. They help guide public and private sector decisions.
💼 Businesses
Companies analyze economic data to make investment and hiring decisions. A "good" economy often means more business opportunities.
Why People Complain About the Economy
Ever wonder why there’s so much economic pessimism? Here’s why:
😕 Personal Experience
People judge the economy based on their financial situation. If they’re facing job loss or rising prices, they might label the economy as "bad."
🌐 Media Influence
News outlets often focus on negative stories for higher engagement. This can skew public perception of the economy.
📉 Economic Disparities
Even if the economy is doing well as a whole, income inequality can make it feel "bad" for those not benefiting from the growth.
Key Takeaways
Understanding what makes an economy "good" involves looking at multiple indicators and perspectives. Here’s a quick recap:
- GDP Growth 📈
- Low Unemployment 📉
- Stable Inflation 📊
- Economic Growth 💼
So next time you hear someone complaining about the economy, you’ll know what to look at to determine if it’s objectively "good" or "bad"! 😊
An economy is so complex, it’s hard to say… and in almost any case, there will be those people/jobs/regions doing well and others not doing well. But in general, there are some key economic stats that are looked at:
– GDP (gross domestic product) is the combined value of everything produced. We want to see year-over-year growth in this. Two quarters of negative GDP growth means a recession.
– Unemployment rate is percentage of people working or looking for work who are employed. 5% unemployment is considered “full employment” as there are always people entering workforce, quitting jobs, etc. Currently, unemployment is around 4% meaning it’s hard for employers to find and hire enough workers.
– Stock market indexes like Dow Jones Industrial Average, NASDAQ, S&P500.
– Inflation rate. We want to see a little inflation, around 2%. Much higher and that can be bad.
things that make an economy good
* people have jobs
* people think it would be easy to find another job if needed or wanted
* cost of goods and services are relatively cheap to income
* inflation is low
* wages are rising
* debt is low
* debt is cheap
its very easy to quantify a bad economy; and bad news sells. no one wants to hear how good things are or how lucky they are
At the very core, the difference between a good economy and a bad economy is money movement.
If people are earning money and spending money, your economy is good. If people are scared to spend money, then it’ll be bad.
Interest rates, inflation, taxes, etc. All these are just ways too incentivize people to spend money.
The base principle is activity, if an economy is highly active that means lots of people are trading and therefore accessing wealth. If it slows down that implies some section of the population is not able to trade, implying that they are unable to access goods and services that facilitate and enrich their life.
An economy can still be highly active while some people are still unable to trade, so you can have a strong economy while still lacking equality or good living conditions for some section of the population, which is why it should always be examined in tandem with other metrics like food access and quality of living across the board.
Well, in general an economy has so many subsystems that we must talk about averages here. Just because the overall economy is doing bad doesn’t mean there can be certain fields of business that do really well.
In general good economy means companies are growing, hiring people, making profits and can pay taxes on it. If that’s the case then things get easier for everyone involved basically (company, employees, government).
A bad economy is the opposite. Companies can’t sell all their product, so they are forced to downsize, fire people, make losses and therefore can’t pay taxes on profits. That’s bad for everyone.
Both of these states *tend* to amplify itself. Because a company that does well can pay higher wages, wich allows people to spend more money on things wich leads to even more demand/profits and vice versa.
Now the difficult part: how to measure in wich part we are? Well, there actually is no single objective measure that covers everything. There are many actors, and you can’t directly compare how well they are doing with each other. So there are lots of cases where the economy is neither objectively good or objectively bad for everyone. This is also very political, so many people will say things in order to influence policy “we’re doing badly please give us tax cuts to stimulate business!”.
One thing to look at is economic growth (GDP). How much companies grow in revenue overall gives a measure. If it grows fast that’s a clear sign economy is doing fine. But there is no magic number from where it’s considered good/bad, it’s a spectrum. Another thing is employment percentage, or purchase power of consumers, or inflation rate. But each of these numbers has the problem of only evaluating one aspect of the overall economy, and there are no generally agreed upon numbers of what is good and what isn’t
There will always be people who are having a good time and a bad time given any state of the economy. A “good” economy could be seen as a healthy balance somewhere in the middle.
People have enough money to buy what the need, but not so much money that prices get driven up.
There are jobs available to people to find work, but not so many jobs available that companies are understaffed.
Interest rates are high enough that people are encouraged to invest, but not so high that loans (which includes buying a home) are unaffordable.
Economic growth phase is generally considered good, life is easy, life in nice, everyone has money up to eyebrows, there are jobs enough for everyone, companies grow like mushrooms after rain etc.
However… there is a quote that applies here, “Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times”
When times are good, any sensible company focuses of growth above all else. Most relevantly, growth above efficiency. Why bother with difficult penny pinching when easy expansion can bring in way more money than you could ever save? But those small inefficiencies pile up, on level of individual companies and on level of the entire economy because everyone behaves the same.
And sooner or later, those inefficiencies start costing so much that the economic growth stalls and contraction starts. That is generally considered as bad economy. There is not enough money to go around, life is hard, many companies go bankrupt, people lose jobs etc.
But, who is thrown under the bus first? Where ever the money runs out fastest, the most inefficient companies go under first, the least necessary employees lose their jobs first. There is no growth to be had, so companies focus on improving efficiency. Which sets conditions up for another round of growth and the cycle repeats. That is why economy is cyclic.
People earning enough to pay for housing+food and have money left over for entertainment+hobbies = economy good
People not earning enough to pay for housing+food and don’t have money left over for entertainment+hobbies = economy bad
Almost every measure people are talking about are just means to an end.
An economy is “good” if:
* 99+% of your population can achieve material security, as in their have the means to reliably and confidently have housing and clothing and food and transportation and access to basic medical care.
* 80%+ of your population is able to achieve moderate material prosperity, as in they are able to have a nice house and nice clothes and a nice car and own some luxuries and take the occasional vacation.
* 20% or so of your population is able to achieve wealth, as in they can afford a higher end lifestyle, engage in greater amounts of conspicuous consumption, have enough wealth to themselves become investors or economic resources for others in their community.
* 5% or so of your population is able to become quite wealthy.
While not necessary, greater stability will be achieved if those last two tiers are not tied or titles or inherited positions, but rather are accessible, at least in theory, to anyone.
The reason I say all of this is because what makes an economy “good” is it’s institutional stability. If your economy goes gang busters and generates extreme wealth, but does so at the cost of extreme social inequity and domestic unrest leading to rebellion and collapse, then it wasn’t a “good” economy really, even if a snap shot of the performance just before that collapse makes it seem that way.
A “good” economy is one that provides the necessary wealth and prosperity to maintain domestic tranquility among the population, or at least have economic stratification and material anxiety not be the source of unrest if unrest is present. But of course nothing lasts forever, all empires eventually fall, so we can gauge a “good” economy as the one that does the best job at that goal for the longest period.
This is something a lot of people miss when we talk about wealth inequality. Yes there is a moral component, but there is also a practical component. Wealth inequity can only go so far, the bulk of the people can only endure so much material anxiety, before they storm the bastille and start beheading aristocrats. That’s just the natural course. It is in everyone’s best interest to allow for a healthy, broad, and secure middle class for the majority of the population, and at least a safety net of material security for the poor. It makes for a better society in every possible way.
As other people have said, there are lots of different objective measures that can be used to determine whether an economy is good or bad.
But ultimately “good” and “bad” are subjective.
It depends on what you value, it depends on where you draw the line. What matters to you? How well-off the poorest in society are? Your country’s economic power against others? Should you benchmark your economy against its peers, against past performance, against other goals you’ve set?
Generally the factors described in prior comments paint a good picture, growth and low unemployment are felt as good and high inflation is seen as bad.
The state of the economy now is:
-the economy is growing, but slowly
-unemployment is low
-inflation is high, and was recently much higher
However
-inflation adjusted (real) wages are increasing (this is good), slowly, that is to say, wages are growing faster than prices, but only barely and only in aggregate
This all has the psychological effect of prosperity not really improving much (even though it is) over the short term and most people feel poorer (even though they aren’t) because they remember a few years ago when prices were lower.
People would feel much different if the economy and wages were growing faster. 4-5% growth feels like dynamic and exciting prosperity, while 1-2% growth feels kinda slow/static
Getting handed a bunch of free Covid money that dramatically boosts your discretionary income is apparently the new normal and anything that isn’t that is an awful economy.
Jobs are plentiful and well paying.
Housing and medical care are the core problems. Beyond that the economy is good by any historical measure.
If you are a Leftist, the economy is never good because acknowledging as much would undermine the core narrative about the economic system being fundamentally unjust, unsound, in perpetual crisis and hurtling toward cataclysm.
If you are Right-wing, the economy is never good when the occupant of the White House isn’t Right-wing. When the president is on your team, the economy is great, regardless of the facts on the ground.
It frequently depends on who you ask.
In election years the out of power party will harp on the economy being BAD, no matter the actual state of things.
I would define a ‘good economy’ as:
“A state of society where the material needs of the members of that society are sustainably met with the minimal input of their labor and materials.”
You get a ‘bad economy’ when material needs can’t be met, either due to scarcity or poor distribution.
For an ELI5, a “good” economy is objectively
a) Producing sufficient goods and services so that most people can obtain the necessary stuff. This can have dimensions of quality and access but that becomes rather complex (eg healthcare or education). So in simple terms, enough “stuff” usually measured in dollar terms as GDP. So high GDP per capita (per person) and growing reasonably.
b) People who want employment are able to get employed and their wages broadly allow them to lead a “reasonable” life. Broadly measured as unemployment rate (want it low) and also rate of workforce participation (want it reasonably high). A critical measure of current and future economic performance is productivity (GDP/per hour worked) – this needs to be high and growing as the economy develops.
c) Low levels of poverty and moderate levels of inequality (GINI coefficient). Wage as a percentage of GDP, wage distribution (usually into quintiles)
d) Healthy breakdown of the economy into major segments – consumption, savings, investment and government spending. Reasonable spending on social safety nets. Government spending does not grow debt too fast (debt/GDP ratio as absolute debt almost always grows as economies get larger) Private sector debt grows reasonably (private debt/GDP). The money supply is a widely watched measure of the economy (called M1/M2 money supply) it should grow but not too quickly.
e) Broadly healthy trade patterns (as no economy is perfectly closed) – balance of trade (exports minus imports). stable currency (to facilitate trade and investment). Foreign direct investment (FDI) is a very important measure especially in developing economies.
f) Subsidiary measures not directly related to economy but indicative of social “health” and future growth (level of educational attainment, life expectancy, infant mortality, fertility rates, home ownership rates, crime rates, rates of incarceration)
There are lots of other measures that dig deeper but they get well beyond ELI5 to explain. It is important to understand that for many economic measures “trends” are more useful than “levels”. Mostly we want healthy “trends” rather than a specific target level since each economy is built differently. So comparing measures across different countries is not always very useful. But it is useful to see trends over time within a country.
The point of an economy is to produce and trade goods and services. Usually a “good economy” means that a greater quantity of goods and services are being produced and traded. This means more jobs for the people who are employed in the production and trade of goods and services, amongst other things.
This is a complex question with a complex answer but on the most basic level an economy is good when there is steady growth. Growth means that more money is made as a whole, more money is circulating, company revenues are higher, people are making more and spending more. Growth is good because it promotes further investment into the economy, because investors expect to make more money due to this growth. In an ideal economy, most people are making enough money to not only survive but thrive, cover their needs, save up and have extra money left over to spend. A stagnant economy is one with no growth, or at least very slow, and a recession is persistent shrinking of the economy.
However it’s important to note that growth on paper doesn’t always translate to good things for everyone, nor does it necessarily mean things are good, just like a stagnant economy or a recession don’t necessarily mean the end of the world. Part of an economy’s growth or recession is based on market speculation. That means that an economy could be growing or shrinking through no reason other than pure speculation, basically the market’s expectations as to where it’s going.
The US economy is almost always growing, usually far outpacing any other country or region in size, but just because it’s growing it doesn’t mean everyone in the US is doing great. Wealth disparity is big, the cost of living keeps rising and affecting a lot of people, and many people live paycheck to paycheck. Contrast that with the Japanese economy which has been in a near constant recession for decades, either shrinking or growing at a very slow rate. You’ll see tons of sensationalist headlines about this and talking heads discussing how bad it is. Despite that however while people are not as prosperous as they used to be before the recession the standard of living remains high and people can make do with what they make without struggling.
Anything used as a political prop is going to be slanted toward the most negative interpretation possible.
I think right now, people say that the economy is “bad” because everything is so expensive and people are struggling with basic necessities while working a full time job (some people work two jobs and still struggle).We hear stories from our grandparents about how they were able to feed a family of 4 on a single income. Some of us even lived through it with our parents. They could afford to live with 1 income or even 1 and a half incomes. I think that’s what we considered “good”. These days it seems like a family could have 4 different jobs and still be struggling.
You kind of hit the nail on the head. In general, even in a “good” economy, there are some people who will not be happy. So every measure of a “good” economy also has opinions about whether the people it is making happy and the ways it is doing that are better than the ways it is making people unhappy.
An objectively “bad” economy is one where nobody’s making or spending any money. These exist, but usually it takes something like a war or famine or some other major catastrophe to get here.
An objectively “good” economy is one where everybody has enough stuff and enough money to buy new stuff and keeps spending on new stuff so that the people who make stuff are getting paid enough… etc. Unlike objectively “bad” economies we’re pretty sure this is an ideal that can’t happen. Maybe if we had free energy or a way to make food with almost no effort. We’re pretty sure that’s impossible.
So we’re usually somewhere in between. We look at a lot of factors to try and decide what the economy is doing. It’s more art than science, and has to do with noting that if we pick some time in the past when things were “good”, and our measures of the economy look similar to those times, we’re probably still doing “good”.
But there are some complaints. For example, it’s generally our politicians who choose how we measure the economy. If they have bad news, it’s harder for them to get re-elected. That means they might be motivated to pick economic measures that hide bad things.
For example, they might measure how companies are performing in a “bad” economy where companies are getting a lot of money but *not* spending that money on their employees. That would be a “wealth transfer”, meaning citizens are losing money to make companies wealthier. Long-term, that can’t continue, because eventually citizens run out of money to spend on things, which makes the companies stop making money, which means they can’t make as many things, which means they can’t sell things, which means people can’t BUY things… you get the picture. So in this case I’m painting an objectively “bad” picture because this is an economy that, if it continues, will stop benefiting everybody from the wealthy to the poor.
If that was happening, you’d see the news talking about how strong the government says the stock market and unemployment rates are and that measures like inflation are healthy. Meanwhile, you’d also hear lots of people talking about how they can’t afford the same groceries anymore and have stopped doing simple things like eating out. The signs it’s starting to get bad would include major businesses complaining that revenue is down because people have “changed spending habits”. You’d see things like name brands worrying that people are buying more store brands, or fast-food restaurants upset that people are cooking at home. These are all signs of businesses (who take money from customers then redistribute it to employees and other businesses) starting to feel like that they don’t have customers (who are paid money as employees they then give back to businesses as customers).
Part of the problem is that many people are being lied to about the state of the economy, and believing it:
>Lauren Aratani of The Guardian reported earlier this week on an exclusive Harris poll showing that 56% of Americans believe incorrectly that the U.S. is in a recession. Those following the stock market are slightly more informed: 49% of them think the S&P stock market index is down for the year. Almost half of those polled—49%—think unemployment is at a 50-year high. Seventy-two percent think inflation is increasing. Fifty-eight percent of those polled blame Biden for mismanaging an economy that is in fact the strongest in the world.
A quick and dirty way to measure it is what’s known in some circles as “the modified big Mac index”
Let’s take a really simple version of it. A can of coca cola anywhere in the world has roughly similar production costs and essentially the same value (for the sake of argument, irl it’s obviously more complicated) so it’s a useful benchmark. Then you look at how much the consumer cost is for said can of coke. Now if you stop there you’re gonna be like “well in Alabama it costs X but in California it costs 1.5X and has the same value, obviously Alabama has the better economy”
So what you do as your final step is you look at MEDIAN wages per hour, factoring for unemployment, and you look at how long the “typical” person in the economy takes to earn enough money to pay for said can of coke.
That’s one of the better ways of getting a quick look at prosperity
Everyone can afford to better their lives by working hard. Not possible with current us policies.
The economy in a capitalist state is driven by consumer spending. So people need to have available capital, or liquidity, in order to be consumers. For this too happen we need low inflation and low unemployment. And when folks want to buy but need financial assistance, they need low interest rates for their loans.
So, a Good or Strong Economy needs…
High employment rate
Strong consumer spending
Stable CoL (cost of living)
Zero or low inflation
Low interest rates from banks
Bad and good are descriptions of any system that has capacity to change in a way that has subjective ramifications. The economy is the embodiment of our two trade items – our time and the money exchanged for it. The time we spend working is infinitely more valuable than the money we get in return and this asymmetry is the mechanism of the whole thing
Good and bad are irrelevant to the working people – those concepts are the talking points of the ones who own the system at large. It’s a macro level state and it fluctuates in a pendulus manner
There is a reason money is described as a currency – it ebbs and flows like the sea and the perpetual guarantee of that predictable change is the way they artificially imbue money with value
A bad economy is remidied with certain processes and a good one is kept in check with others.
Depends entirely on who you ask and what you’re trying to measure. America likes to use the stock market and GDP, but that really only tells you how the rich are doing (to be fair, those are also the only people America tends to care about). Some would argue poverty rates, but how you define poverty can break that (ie: if you can afford one meal a day, you’re not in poverty).
Others would argue disposable income after necessities, but those numbers can be fudged.
Others would argue unemployment, but we just redefine that when it’s inconvenient results.
Others would argue unfilled labor roles, but companies create positions with no intention of filling them.
I would argue that crime rates are a better indicator, but even those can be twisted be manipulated.
Politics is all about how you can frame shit, and economics is all about politics. In the rate instance is not about politics, it is logistics and that’s even more complicated but more real.
People’s individual views on the state of an economy are entirely subjective and usually based on how much their fiscal position has changed since some arbitrary point in the past, real or imagined.
Is their preferred political party currently in power? Yep things are good, usually. If not, it’s the other guy’s fault.