Episode #107: “More Than a Number? What GDP Really Measures”

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Transcript

Speaker 0:01

Welcome to the Physical Physical Podcast. Join us this week is we sit down with the founder of Alchemy Wealth Management and author of your physical physical, Ryan Nelson. Tune in to gain valuable insights and practical tips as we simplify complex financial concepts into digestible lessons. From budgeting to retirement planning, this podcast is your go-to resource for mastering financial literacy.

What GDP Is And Why It Matters

Aaron Hoisington 0:33

Welcome everybody. This week's episode of the Fiscal Physical Podcast. Uh, not to be confused with uh uh Ryan Nelson, my co-host book, uh Your Fiscal Physical, Seven Keys to Becoming Financially Fit. Find that on Amazon. It's always a tongue twister when I say that there, but highly recommend you guys check out that book. And uh I happen to be here with the uh the author today. Uh Ryan, how are you? I'm doing well. How about yourself? Not too bad, man. Not too bad. Living the living the dream over here, as uh some might say. So uh but today we're gonna jump into some uh um a topic on uh GDP or gross domestic products. So hopefully that really in uh invites everybody. You guys are locked in from uh minute one here, but uh um Ryan, uh you are you do you know a little bit about GDP? Very little. Okay, perfect. Now we're talking. Yeah, but I do think it's a it is one of for myself, like you might have said that facetiously, but I actually really I hear that word thrown out quite a bit, and like I you know googled it about like, hey, what does this actually mean? What how do you kind of break it down? And I was like, hey, you know what? I think this could fall into like our bucket of uh you know financial literacy that I think would be uh uh pretty good to kind of break down for us here. So uh I'll uh I'll turn it over to you to start with the basics and see where we kind of lead here.

Ryan Nelson 1:49

Yeah. So like you already said, so GDP stands for gross domestic product, and it's effectively it's the value of all goods and services a country produces in a year. Okay. So the value of all goods and services a country produces in a year. So you can kind of think of it as like the the the country's annual report card from a production standpoint, and so it effectively exists to measure the size and overall health of a country's economy. So it would be hard to know how does um, you know, how does the I don't know how does Italy's economy compare to um Uruguay's economy? Sure. Nice. Yeah. Hard to tell. I don't know. I don't know. Um but GDP gives us a structure in which to compare the size of those two economies. So you would just look at the value of all the goods and services each country produces in that year. Um and then it also gives us a tool to compare, you know, if we take, say, the US, how does the US's economy compare in say 2026 to 2025 or 2027? Sure. Is it growing? Is it shrinking, right? So we can see if we're continually uh if the value of our goods and services are continuing continually increasing or are they decreasing? So it just gives us a tool to compare country to country and even inside the same country year to year. So it also is useful for lawmakers and economists and investors to understand are is like say our economy growing or shrinking, and then it helps set the stage for decisions like the Fed if are they gonna raise interest rates rates or lower interest rates? Um, is the government gonna be, you know, as they're trying to create their budget and spend, you know, how are what are they gonna spend money on and how much can they spend? They would use you know things like our GDP as a as a one of many variables to help determine um all of those decisions.

Aaron Hoisington 3:50

Yeah, no, that's that's a cool kind of way to break it. I like the report card aspect of it because most everybody has received a report card in some cases, and they're like, cool, like I get I'm gonna get an A or I'm getting a B, but I also feel like with a report card, it doesn't capture. I feel like probably with this, is there's certain things it doesn't capture, does capture too. So I'm curious to think about to kind of have you see if you can break down like what is in there and what is not, I guess, when it comes to that report card, if you will.

How GDP Is Measured: The Spending Approach

Growth, Recession, And Real-Life Impact

GDP Quiz: What Counts And What Doesn’t

Ryan Nelson 4:18

Perfect. Um, so I think a simple way to think about GDP would be using like a spending approach. So you add up everything that the people, the businesses, and the government spend, right? So this would be like consumer spending, business investments, government spending, and then you'd also look at our exports. So what are other countries spending on our goods, right? And minus our imports. So if we're spending money on um a computer from China, that doesn't help our GDP, that helps their GDP, right? So you think of just all the spending um on all the US goods and services, and that is effectively the value. So the value would be all the spending. So another way to think about this or a different approach would be just think about all the money that's being spent on the services and goods of our country. Um, so again, any exports would be another country buying our goods, that would count towards our GDP GDP. Anything we spend on another country's goods, that would be subtracted from our GDP because it's not spent on our value. So things like cars, healthcare services, groceries, financial services, construction, travel, manufacturing, all of those would be examples of things that would count towards our GDP. Um, obviously, unpaid work, there's no value being assigned to it. Ums goods, there's not they're not gonna contribute to our GDP. Um transferring money, like buying a stock, does not contribute to our GDP. If I go buy a stock, I haven't I I there hasn't been any service or value exchange, uh service or good exchanged. So anytime you're just transferring um assets or buying used goods, those are not gonna be counted um in our GDP. So uh yeah, we'll we'll we'll we'll keep leave it at that for now. Yeah. Um but so what GDP can tell us is you know, if GDP is growing, so if it's steadily getting larger, it's gonna signal a healthy, what we would call expanding economy. If GDP slows down or shrinks, uh potentially it's an indication of trouble, such as a recession. And in fact, a recession is typically defined by GDP. We can talk about that a little bit later. Uh well, we can do it now. So a recession is defined as two quarters of shrinking GDP. So typically there's not been a great definition of this, and it seems the benchmark has seemed to have changed a little bit, but largely a lot of people consider if there's two quarters of GDP decline, that's when they would consider um a recession. Um but, anyways, back to what GDP can tell us. So if a strong GDP growth, uh if if there's strong GDP growth, it can lead to more jobs and rising incomes. Whereas again, weaker GDP growth can lead to layoffs or slower, um, slower wage grow growth. So it ultimately, if you kind of think about everything we just talked about, so this can affect job security, sure, wages, um, mortgage rates, your investment returns, your retirement savings, therefore. Um, so it can have a large impact on you know you as a citizen of a given country. It can have a large impact on your day-to-day living. Um, so when GDP slows, companies are gonna be less likely to effectively be in investing, which can mean that their market returns could be slower. It means that again, they may be hiring less people, they may be more inclined to lay off people, things like that. Um, so some things uh I'll give you a little quiz here. Um so I I don't know if you can see this or not, so hopefully you can't, but um, but uh so here I'll give you a couple of examples and you pick which ones um increase GDP and uh what doesn't increase GDP. Um so um let's say uh a kitchen remodel. If I go remodel my kitchen, is that does that boost GDP or not?

Aaron Hoisington 8:19

That does boost GDP because if you paid for like the services and if you had like a company come and like remodel your kitchen, then I'd say that yeah, it would boost you buy the lumber, you buy the cabinets, whatever it might be to do that. So I I would say that would affect it.

Ryan Nelson 8:34

Perfect. Um let's say I go out to dinner, go buy some dinner.

Aaron Hoisington 8:39

Yes, I think that would affect it as well, too, because you're buying the food or goods and services. Yeah, absolutely. Two for two.

Ryan Nelson 8:46

All right, yeah.

Aaron Hoisington 8:47

Well that's it. And that's all up for today, guys.

Ryan Nelson 8:50

Um let's say I go buy a used car.

Aaron Hoisington 8:58

No, because we just covered the used piece of it, I think. I think that was one of the things that you said.

Ryan Nelson 9:02

So if it's like secondhand things, then if you buy a used car, it would not boost GDP because it the the GDP was basically counted when the car was first made.

Aaron Hoisington 9:13

I was gonna say, because in my mind I was just like, wait a minute, like that technically is like a service, but I since it's already like it can only be counted once, I suppose. Yeah, so it can get tricky, exactly.

Ryan Nelson 9:22

Yeah, yeah. So you car yeah, exactly. So if you it producing the car increased GDP in the year it was produced, but then if that car gets sold every single year for the next 20 years, it's not creating more value twenty every single year. You know, you can't sell a car every day and it create the you know that much more value. So so exactly. So good catch there. So buying a new car definitely does increase. Yep, exactly. So good job. Well, interesting.

Aaron Hoisington 9:46

That is that's interesting to think about. Like it's like, oh, cool, you just get it once kind of thing, like when it comes to those. Yeah, okay.

Don’t Let GDP Derail Your Plan

Ryan Nelson 9:52

Yep, exactly. So, so um, you know, kind of if we were to summarize all of this, so you know, like you said, you kind of like that scorecard analogy. GDP is essentially that scorecard for the nation's economy. It can help explain things like why interest rates might raise or fall when the Fed is making their decision. You know, that's gonna be an element they're deciding, they're they're looking at how the quote unquote economy is doing, what the GDP is, is it going up, is it going down, is it staying steady? And that's gonna help inform their decision if they should increase or decrease rates or just keep them the same. Um and then I would say yeah, I ultimately one thing I would say if we almost separate ourselves a little from GDP here real quick, though, what I maybe if we were to summarize everything, GDP it's a cool report card, right? So to speak. It gives us a cool idea of what's happening in the market, right? The value of that country's services and goods. What I would say, if the if you're gonna try to apply this to like investing in retirement planning, um I would say sometimes it might be too easy to see or hear that GDP is going down and then make investment decisions based on that. Right. And I would say if we just thought about everything we just talked about, there we could see how GDP impacts a lot of things throughout um throughout the country, including job security and wages and all that stuff. What I didn't mention is anything related to say your retirement goals, right? Right. And so what I would say is like the things you can control, things like your savings rates, what you're investing in, like doing tax planning, like having a disciplined investment approach. Um should you should maintain a disciplined investment approach, whether GDP is going up, whether GDP is going down, whether GDP is holding flat, whether GDP is GDP is oscillating between high and low, right? Like it shouldn't really necessarily matter. Your investment approach should have a longer term approach that's focused on your goals. And it's maybe wise not to focus too much on GDP when it comes to investing. But GDP itself is a great economic indicator to know what the economy is doing. Sure.

GDP vs Happiness: Bhutan’s Approach

Aaron Hoisington 12:10

So that's interesting. That's it, because yeah, it's like the separation of those two, yet they're like kind of intertwined, I suppose. Sure. But I and I think that you know, we've you mention it the all the at the end of this podcast all the time, like staying the course with like cool. Like you know, if we have two quarters where it's like you know, the GDP's down or something like that, is that gonna change my retirement goals? Probably not. Like, is that over the long term, over 30 years? Um, you know, could it impact somebody who's maybe retiring like in a month though? Maybe like it could have some impact on that. But uh, you know, if if your plan is done correctly, if you are thinking about these things and such too, like hopefully this is all built in like the ups and downs of just like how things work, like when it comes to that. I would hope so if you have the if you have a good financial planner or advisor for sure. So absolutely, yeah. So yeah, so that's GD GDP in a nutshell. Awesome, man. That was that was super cool. That was that was neat. Um, I do remember I do this quick little story. Uh when I was in uh I was in college, I took a geography course, and uh we got assigned like a country to like do go over whatever, and I got assigned the country of Chad, okay, which is in Africa. Yeah, it was like I'd heard the name, but I was like, I don't know where the heck this place is or whatever. And like we had to do like the report on like the GDP and talk about like, and it was so hard to figure out like this is back in like 2010.

Ryan Nelson 13:30

Yeah, yeah, yeah.

Aaron Hoisington 13:31

There is not a lot going on in Chad. That's funny at all. And I remember like we had to give this presentation, I was just scrambling to figure out like Phil stuff versus like, yeah, not a lot going on here, kind of thing. And and I'd be curious to see like 15 years later, like where that sits. But at the time I was like, this is like the most but one of the things was GDP, and I remember like reporting on it, and it wasn't at the time it was not very high. And I was like, cool, like Chad, not the most stuff going on here. So uh, but it is uh it is interesting to think about uh how those certain countries like can you measure certain things? Sure, but like uh does it measure happiness? Does it measure these other things? Well, hard to doesn't doesn't capture everything, but it can give you kind of a good picture there.

Ryan Nelson 14:14

So yeah, uh did did we ever talk on the podcast about gross domestic happiness? I don't think so. There's uh there's there's a measure for that? Uh I think if I'm remembering correctly, and I could be butchering this, but and I'm just trying to uh verify. But anyways, so there's a country called Bhutan, and I believe they refuse to measure gross domestic domestic pro GDP. Oh and instead they measure gross domestic happiness. Okay. Um and so I don't know, they have some I don't know ex exactly know the process, but they have some philosophy to measure the happiness of their country. And um yeah, kind of interesting, uh completely different approach.

Aaron Hoisington 14:52

Um really just kind of going against the the norm with that, but yeah, yeah. Yes. I mean, I I don't know, like do you just take polls of people to say, hey, are you happy? Like Yeah, I honestly can't remember.

Ryan Nelson 15:05

I think they have some objective measures around like um um like mental well-being, like as far as like diagnoses and like things in their economy. Or yeah, I don't know. I don't know enough about it to speak educatedly, but if anybody's curious, you can go uh you can look up uh uh Bhutan's uh gross domestic happiness and and then you can uh call in and inform us.

Personal Segment: Road Trip Snacks

Aaron Hoisington 15:27

Yeah, just please let us know. We'd love to love to hear that for sure. So awesome, Ryan. Well, appreciate it, man. We'll go ahead and pause right here, be back on the other side with some uh personal stuff, everybody. Uh hang tight.

Speaker 15:36

And now to put the personal in personal finance.

Aaron Hoisington 15:43

Welcome back, everybody, this side of the physical physical podcast. I am here with uh Ryan, and I got a I got a food question for you, Ryan. You uh you ready to ready to answer this? Absolutely. All right, so uh what is your go-to road trip snack? So say you're hopping in the car, you're driving over here in Reno, we're about four, three and a half, four hours from the Bay Area, you're going over to San Francisco for the day, you're driving over, you got like four hours to kill in the car. Like, what would you what would you you're like? I need a snack here. What would you what would you pack?

Ryan Nelson 16:13

Yeah, it's a tough question.

Aaron Hoisington 16:15

Eat, yeah. It's a tough question.

Ryan Nelson 16:16

I don't know. Uh I mean, gotta get gotta get some water in the car, but uh naturally I'm gonna go with uh I love beef jerky. Uh just you can't go wrong with beef jerky. Um, but for those, for some reason for long drives, I also like um uh sunflower seeds. Oh, nice. Excellent choice. Yeah, it's like uh it's uh it's a process. Yes, you know, it's a it's a it takes a it's a much slower process and it's uh more of a distraction maybe than uh something like beef jerky. But I also love uh like the trolley uh is it is it trolley or trolley? Uh but the sour gummy worms. Oh yeah, the gummy worms, yeah, yeah, yeah, yeah.

Aaron Hoisington 16:48

Oh, those are delicious.

Ryan Nelson 16:49

So yeah, I I don't I don't know about one, but those would be my top three beef jerky, the sour gummy worms, and uh and uh sunflower seeds. What about you? That's that's good.

Aaron Hoisington 16:57

I beef jerky for sure. Like for classic. I rarely eat beef jerky, like just in general. Uh-huh. But if I'm going on a road trip and we're like getting ready to go, I was like, oh, gotta get some beef jerky. I was like, it and I'm like, why did I need that just for this? Like, but it's delicious. Um I also really like um I don't know if you have you ever had wasabi peas? Uh like like dried peas. Yeah, dried peas. Yeah, I don't think so. No. So at Winco, or at least they used to, they used to have like the bins there. They sell the and you can get dried wasabi peas. And I would go and like get them, and they like you've obviously had wasabi, I would assume, and they like give you that little burn like in your nose. And like, so for some reason, like they are just like an excellent, like if you're ever tired on a road trip or you're just trying to mix it up a little bit, you pop a couple wasabi peas, and they just like whoa, interesting just get you going. So it's like an energy drink, but just through food kind of thing. So that's funny. I've never eaten them outside of a road trip though. I just don't just like regularly just why buy wasabi peas and eat them, but it's kind of a weird one, kind of like how I like the smell of fresh tires. Yeah, yeah. So I don't know how many people would have said wasabi peas for a road trip snack. No double bubble for you, huh? You know, I I I would, I love double bubble. I've really tried to swear it off though as much as possible because my jaw gets sore.

Ryan Nelson 18:15

Yeah.

Closing, Stay The Course, And CTA

Aaron Hoisington 18:15

Like, and I I don't know if I have like I grind my teeth at night or something, but like I can't chew as much double bubble as I used to. So fair enough. I uh I love that stuff though. If anybody's looking to get me a gift at some point, uh uh that just give me a thing of double bubble. There you go. Um, or maybe don't. Maybe I shouldn't. Don't do that. Yeah, just uh just email us at podcast at alchemy wealth management what your road trip snack is, and I'd uh I'd be curious to see what uh everybody else thinks there. But uh um awesome, Ryan. Appreciate you sharing as always, appreciate the insight on this episode here, and uh um as uh as we normally do, I'll uh turn it over to you to uh play us out. As always, stay the course.

Speaker 18:54

Thank you for joining us for the Fiscal Physical Podcast. Until next time, happy listening. And as always, stay the course. If you have a question or topic suggestions, please email us at podcast at alchemywealth.com. If you enjoyed today's discussion, subscribe to the podcast to ensure you never miss an episode. And consider leaving us a rating and review on your favorite platform. This helps other listeners like you find this channel. For more resources, you can visit Alchemy Wealth Management's website at www.alchemywealth.com or find your physical physical to book on Amazon. We'd be remiss if we didn't mention the personal finances just then. First of all, please don't take anything we say as advised. The pre-the content is for informational and entertainment purposes only. It's not an offer or a solicitation, nor should it be construed or relied upon for tax, legal, or investment advice. It doesn't consider your personal financial situation or objectives and may not be suitable for you.