Does anyone here understand economics?

Discussion in 'Human Science' started by Captain Kremmen, Dec 9, 2012.

  1. Captain Kremmen All aboard, me Hearties! Valued Senior Member

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    Does anyone here understand economics?
    If so, maybe you can answer me a question that puzzles me.

    Why does the economy collapse if there is no growth in GDP?

    It seems to me as a non-economist that it should make very little difference.
    If the economy shrinks by half a per cent then everyone is half a per cent worse off.
    They earn a little less and spend a little less.
    Then, in the following year, if the same happens, everyone would be one per cent worse off.
    This does not seem a disaster.

    Inflation would seem to me more important, but they accept a few percent of that as healthy.

    In the real world, two years of slightly lower GDP would cause unemployment, firms going out of business
    and austerity cuts.
    Why is that?
     
    Last edited: Dec 10, 2012
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  3. Aqueous Id flat Earth skeptic Valued Senior Member

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    I like the way you posed this. I am not an economist either, and I am skeptical of the shade-tree economists who think they can reduce an esoteric field of science to oversimplification and proclamations about how things work.
     
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  5. arauca Banned Banned

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    Yot should freeze salary and fringe benefits for government worker , increase the working length for government before they eligible for pension , that will increase productivity
     
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  7. Aqueous Id flat Earth skeptic Valued Senior Member

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    The floggings will continue until the morale improves

    What government workers aren't productive? I wonder how you improve the productivity of a soldier, a judge or prosecutor, or a person taking soil and water samples, or managing a road or bridge construction project?
     
  8. Captain Kremmen All aboard, me Hearties! Valued Senior Member

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    That's monetisation for you.
    If you have a thousand farmers, who live off their land, and neither buy nor sell anything, that has no GDP value.
    But if those farms are taken over by a capitalist, who pays the farmers to grow cotton,
    and then they buy their food from shops, then that counts towards GDP.
     
  9. Carcano Valued Senior Member

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    Focusing on GDP is the ultimate sin in economics.

    To accurately assess the wealth of nations one must look at the median net worth of the citizenry...minus their share of the government debt.

    The growth in American GDP for the last decade is almost entirely the accumulation of debt...which is a liability, not an asset.
     
  10. Carcano Valued Senior Member

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    To use Billy's example...if I sell you two cats for a trillion dollars, and you sell me one dog for a trillion dollars...we just bumped up the GDP by two trillion!
     
    Last edited: Dec 9, 2012
  11. arauca Banned Banned

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    Basically you know about butter or guns . About government workers , I live in Chicago and from time to time I have to go to city hall, I see the patronage workers and their productivity , and I look at my real estate bill, at the other side I look at my real estate bill and how much goes to education , then I look how many months a year apublic teacher works and the benefit they get . Believe me , If industry would give such benefits , this country cost of livig would be much but much more higher.
    Please dont start about judges and their benefits. In one of the suburban county , for a traffic ticket the court cost $ 270,00 the reasoning is the Judges needed an increase in salary. This are the on local level , I know my personal story about DOT which are not very good. but.
     
  12. kwhilborn Banned Banned

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    1% is a lot when dealing with hundreds of millions of people, and can give ammunition to opposing parties in a democracy/republic, but all news articles are sensationalized these days. Every presidential debate is a "lesson" in economics. Let's pretend however that president A managed to lower taxes to all and GDP sales went up because more people had money to spend. Would that be a real win situation if our debt continued to grow? GDP can be manipulated, or the percentages would be much farther apart than 2% for a quarter. It depends n the budget. The misuse of GDP data as an indicator of economic strength has been one of the biggest errors made in the field of U.S. economics. It can be used to hide recessions and natural unemployment figures. That's my 5 cent take on it.

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    I'm not an economist, but my wife says I look smart if that helps.

    google "manipulating gdp"
     
    Last edited: Dec 10, 2012
  13. kx000 Valued Senior Member

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    Jesus. OT.
     
  14. Buddha12 Valued Senior Member

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    What the Federal government and many state governments are doing is what is known as .....CREATIVE ACCOUNTING. That means they really can shuffle the money around without anyone but themselves knowing where it came from and where it went.
     
  15. Captain Kremmen All aboard, me Hearties! Valued Senior Member

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    Is this concentration on the GDP just a self fulfilling prophecy?
     
  16. elte Valued Senior Member

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    I'd say because economics mainly deals with human behavior which is affected by psychology. A depression represents an economic dip and also mass mental malaise.
     
  17. Fraggle Rocker Staff Member

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    I wonder why you didn't ask this question in Business & Economics, where ten people who understand the subject would jump in with answers. My suspicion is that you don't really want an answer because you wouldn't understand it!

    My degree is in business but I minored in economics and I was accepted into the UCLA graduate program in econ, so they must have thought that I understood it back then. I ended up taking a much more lucrative job as one of the early computer programmers so I never actually got the master's degree.

    To understand that you need to be familiar with the sequence of paradigms through which our species has advanced in our quest to seize control of the universe.
    • During the Paleolithic Era humans were nomadic hunter-gatherers whose only tools were made of stone or wood. They may have had base camps in caves with their winter clothes and a few precious bits of art, to which they returned periodically, but for all practical purposes the only things they could own were the ones they could carry with them on their hunting and gathering journeys--with no wheels or draft animals to make it easier. They couldn't even store a significant amount of food in anticipation of a lean year because even dried food is heavy and they couldn't leave it back in the cave where the hyenas would find it. Infant mortality was around 80% so the population grew slowly if at all. There was no way to produce a significant surplus because A) The technology of stone and wood wasn't productive enough to produce a surplus and B) Even if it could, there was no place to keep it. So if we were to call this lifestyle the first economy, it clearly qualifies as a scarcity-driven economy. There was no growth in per-capita GDP and even aggregate GDP grew very slowly, in synch with population. Economic growth was not an issue in an age when most people spent most of their time on Step 2 of Maslow's Hierarchy. Survival was everyone's primary concern, as they watched their children die before becoming old enough to reproduce and keep the tribe from vanishing.
    • The Agricultural Revolution (cultivation of plants and domestication of animals) began the Neolithic Era. For the first time ever, the planet had a food surplus. Tribes no longer had to kill each other during a bad year in order to have enough food. It was suddenly not only possible but mandatory to build permanent villages where it was possible to store not only the surplus food but big heavy ceramic containers, furniture, and all kinds of hitherto unimaginable objects. Cooperation became not only possible but productive, as people discovered that the economies of scale and division of labor that a larger population permits made life safer, more comfortable, and more fun. There was suddenly surplus productivity as a few people were freed from the food production "industry" and could become artists, roofers, traders, shoemakers, explorers and tinkerers who invented the next generation of labor-saving gadgets. The "economy" began to grow as most people had a tiny bit of "discretionary income" which directed the activities of the non-food-producing villagers. A growing economy was a sign of a healthy population with wise leaders and clever entrepreneurs--and it still is!
    • I'll combine the Bronze Age with the Iron Age because the differences aren't relevant to this discussion. Metallurgy increased the productivity of human labor enormously. Metal plows, carpentry tools, wheels, weapons and myriad little devices changed life in ways that are difficult for us to imagine, but just think about the changes that the computer revolution has wrought and multiply that by about 100. Although the economy was still scarcity-driven and more than 99% of the human race still had "jobs" as food producers, the modest economic surplus was visible as granaries, churches, palaces, roads, aqueducts, stadiums and monuments were built. It was the age of royalty (if not downright despotism) and the leaders competed to see who could build the showiest civilization as a tribute to themselves. This was still not an organized economy and the often-corrupt leaders did not run it very well, very often using the work of slaves, which we now know are less productive than paid, motivated workers. Nonetheless the per-capita GDP in the more enlightened empires began to grow visibly. 99% of the population were still farmers, but rather well off for subsistence farmers, with enough surplus produce to sell and increase their own wealth. By the time of the Renaissance and Reformation there was a thriving merchant class, and by the 18th-19th centuries the common folk were well enough fed, educated and organized to launch revolutions and experiment with various forms of democracy--although they weren't quite ready to abolish slavery.
    • The Industrial Revolution was, arguably, defined by a single technology: the conversion of chemical energy into heat and kinetic energy. This industrial energy augmented human and animal musclepower by orders of magnitude, causing an explosion in productivity. By the end of the 19th century the U.S. economy toggled from scarcity-driven to surplus-driven. (This happened at different times in different regions and there are still quite a few benighted countries where it hasn't happened at all yet thanks to their despotic and/or religious governments.) Advertising became an industry, as producers had to cajole people into spending their surplus money on their products. Entire new occupations sprang up, such as travel agents, fitness trainers and surgeons for pets. Almost everyone has significant surplus wealth and has to decide what to do with it. This is the point at which measurement of GDP and GDP growth becomes important. If the economy looks "bad" (however each individual defines that), people will hang onto their surplus wealth because their income may fall or stop in the future. This causes a recession among the producers of goods and services. If the economy looks "good," people will spend their surplus wealth and even go into debt by borrowing the surplus wealth of helpful bankers, confident that they'll have plenty more to get them through the future.
    So if per-capita GDP is rising, everyone feels comfortable and spends more money, which causes per-capita GDP to continue rising. But if it's falling, they stop spending on non-essentials, reducing the business of the people who produce non-essential goods and services, causing their employees to lose their jobs and have no more income. This causes per-capita GDP to continue to fall.

    One of the most important two or three duties of a modern government is to manage its nation's economy so it grows at a safe, reasonable rate, maintaining a reasonable level of prosperity for all the citizens. If they see the economy start to stall, they spend a lot of money on public works projects, they lend out money for people to buy homes and start businesses, they give kids scholarships to go to universities and become more productive citizens. The nastier ones even start wars, which result in the expenditure of enormous amounts of money to build weapons and hire security specialists. All of these tactics, in aggregate, cause the government to go into debt.

    Then when the economy is back in good order, the government slows down its own spending (because people don't need government jobs and services anymore) and raises taxes (because people can afford higher taxes now) and starts paying back the money it borrowed so it will be prepared for the next economic crisis.

    This is how a sensible, sound government manages GDP.

    The problem in the USA is that since the 1980s, the government has stopped paying its debts. During a period of unprecedented peace and prosperity it added a new zero to the national debt, and kept borrowing without raising taxes. They even started the longest war in U.S. history without raising taxes or even selling war bonds; they just borrowed the money from China!

    Nobody but a few economists noticed this, until 4-5 years ago. When the subprime mortgage debacle and a few other problems happened all at once, the economy was "suddenly" in trouble. The government can no longer help by lowering taxes (because they were already at their lowest level in half a century) or borrowing money (because the national debt is now approaching 100% of GDP, which is universally acknowledged to be, mathematically, very close to the point of no return since interest payments will begin to crowd out all other government expenditures).

    The GDP has not stopped increasing, but the rate of increase is dangerously low. People are already cutting back on spending--because they are (quite reasonably) worried that the economy will continue to worsen--and many companies are feeling the pinch of poor sales. Within this decade we will probably see the result. The economy of the USA is the world's largest, and the entire world economy is now integrated--not like 1929 when Japan, Brazil, China and India were relatively immune to anything that went wrong in the USA and Europe. If our GDP begins to shrink, the whole planet will follow suit. It could make the Great Depression of the 1930s look like a rehearsal.

    This is why we have economists.

    But only momentarily, and not uniformly. Some companies go out of business, some people lose their jobs and are 100% worse off. When people see a shrinking economy, they become conservative and start trying to save in case things get worse. If your family is the one that's 100% worse off, it does you absolutely no good to say, "Well that's okay, the economy as a whole is only one percent worse off." You still have no money to buy food or pay your mortgage.

    How about the sixteen layers of civil "servants" who sit around and "administer" each other all day? I can tell that you've never actually worked in a government office.

    This is not true. Yes, decades ago economists only counted monetary transactions when computing GDP, but they've gotten smarter. They include food and other commodities and products that people produce for themselves. Admittedly it's not easy to calculate the value since it varies from country to country, but at least they try.

    Toffler coined a word for these people: prosumers. The reason is that the computer age has made prosumers of all of us. We build our own databases. We create our own mix tapes, video libraries, Christmas cards, photo albums, and things that there are no convenient names for because nobody else does them. Even before the digitalization of life we were enthusiastic users of do-it-yourself tools, adding value to our houses without paying a contractor.

    No. It's taken us thousands of years to get this far. And it's only happened because of industrialization, which caused a then-unimaginable increase in GDP.

    Many of us predict that the Computer Revolution will have the same effect. So much of today's "products" are data and software. Once these things are invented, they can be reproduced at almost no cost at all. This will require a fundamentally new system of economics and accounting. But I'm betting that the GDP of the human race will grow at a rate that can barely be measured.

    And I'm hoping that it starts right now, because this may be the only way that we'll be able to crawl out of this economic downturn.

    Paradigm Shift! Paradigm Shift! Take up the cheer with me...
     
    Last edited: Dec 11, 2012
  18. Captain Kremmen All aboard, me Hearties! Valued Senior Member

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    "My suspicion is that you don't really want an answer because you wouldn't understand it!"

    No way. Let it never be said that I was unprepared to talk nonsense on any subject!

    To be fair, Economics is also a Human Science,
    but I have been noticing that the people here know as little about it as I do,
    so perhaps Business and Economics would have been better.

    Your point about some people faring worse than 1% worse off is flawed.
    That would happen even if the economy were growing by 1%, but is less likely admittedly.

    But isn't there a point where people have had enough growth?
    Isn't there a point at which it becomes greedy, and stupid?
    I despair when I see yet another Eden destroyed to grow Palm Oil.
    I know people have to live, but there's too damn many of us,
    and each of us wants more and more.

    As well as the environment being included in GDP, surely waste should count as a deficit.
    How can it be good to have an economy where some people
    think it better to throw clothes away than to wash and iron them?

    Not me. If I like some clothing, I will wear it for years, decades occasionally, and centuries if I could.

    Perhaps if environmental health were included in the equation, I might agree with growth.
    Growth that actually improves things.
     
  19. Fraggle Rocker Staff Member

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    Ya think maybe? The subforum with the word "economics" in its name?

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    I don't understand your reasoning... no, actually I don't even see your reasoning. In any case, you haven't quite absorbed the point that both expansion and contraction of an economy have a multiplier effect. When a population is growing, the new people go out shopping for goods and services that haven't been produced yet. This causes producers to ramp up production, which generates myriad second-order effects. The more obvious ones include hiring more workers, building more factories, and buying more raw materials--and all of these things take place before any of the new products or services are available for purchase. The less obvious include stress on the real estate market since land is a finite resource, and traffic congestion for the same reason (because roads are built on land) which bring their own third-order effects such as increased demand for fast food and a search for nannies by parents who never see their children when they're awake--creating the fourth-order effects of retired and never-employed older women taking these domestic jobs and immigrants being sponsored--creating the fifth-order effects of a demand for ESL teachers and the founding of new TV networks in languages we've never heard of.

    The same thing happens in reverse when an economy contracts; just run the above paragraph backwards. But three generations from now the human race is universally predicted to begin experiencing a phenomenon that has never happened before, at least not for tens of thousands of years: A contraction of the population.

    If the economy retained its current structure this would be a catastrophe. Demand starts falling and never stops. Idle factories, empty shops, enormous unemployment. Fortunately the Information Age will surely change the structure of the economy for reasons I noted in my earlier post. (Information can be reproduced and distributed for almost zero cost.) Just as the Industrial Revolution changed an economy that had been scarcity-driven forever into the surplus-driven economy of today's advertising-dominated conspicuously-consuming monetized-and-securitized culture whose largest man-made structure is the Fresh Kills Landfill on Staten Island where all the stuff we throw away ends up, the Information Revolution will cause all the econ books to be thrown out (maybe in that landfill) and rewritten. We don't even have the words for the concepts the economists of the 22nd century will be dealing with.

    Review my tracking of the Paradigm Shifts our species has created. Where would you have had us stop? Before we invented agriculture? Before we invented cities? Before we invented metallurgy? Before we invented reading and writing (written language evolved from the bookkeeping symbols which were needed by the larger, more complex business transactions of the Bronze Age)? Before we discovered vaccines, antibiotics and public health measures like covered sewers and wrapped food that lowered the infant mortality rate from 80% to nearly zero (my grandparents were the first generation of humans who could confidently expect all of their children to grow up so our cemeteries are no longer littered with tiny gravestones)? If you invent a time machine and try to stop it before mankind's greatest achievement: the technology that allows me to hear an incredible variety of professionally composed and performed music 24/7, I'll put out a contract on you

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    .

    During every one of those past eras, there were throngs of old curmudgeons insisting that those newfangled ideas were not only unnecessary, but were destroying civilization. After spending their entire lives sauntering through the wilderness with spears, never having to clean up after themselves, how do you think the old-timers in 10,000BCE felt about being told that they were now going to live in these things called "houses" with food growing in their back yards, requiring them to stay home all the time and tend it? I wonder how many people invented agriculture and were quietly assassinated before they had the chance to tell the rest of the tribe?

    People hated steam engines, people hated automobiles, people hated airplanes. There are still people who wish we hadn't domesticated dogs! I'm not sure what your biggest peeve is but 200 years from now somebody will be laughing at you, rolling his eyes and making finger-circles around his ear.

    And when you look at all the mistakes we've made in the last 12,000 years and managed to recover from them, you somehow lack the faith to assume that we'll get through this one too? Arguably most of our problems are the result of overpopulation. Sadly, the major cause of overpopulation was our good-hearted effort to bring modern medicine to the Third World. It didn't occur to us that you can't drag people kicking and screaming out of the Stone Age in one generation. When it has always been true that every adult has to create as many children as possible in order for the tribe to survive, it is not easy to realize that a quantum decrease in the infant mortality rate will be a disaster without finding a way to quickly change some fundamental beliefs.

    But it's finally happening. Prosperity is the most effective contraceptive and where couples used to have twelve children they now have eight, where they had eight they have five, and so on. And in the developed western countries the birth rate has already dropped below replacement level so the only thing propping up our National Ponzi Scheme--oops I meant to say "Social Security"--is immigration.

    Obviously you haven't been reading your memos. This is a phenomenon of our era. People 200 years from now will have problems that we can't even imagine, but they will be different problems.

    Some economists are trying to develop the formulas for the environment. But even that is affected by prosperity, because it turns out that the environment is a commodity that people are willing to pay for once they can afford it. The United States is now restoring forest land faster than we cut it down. Brazil, now the world's sixth-largest economy with a huge population of educated, prosperous people, will reach this point before 2020.

    But waste is not counted as a deficit. In the traditional economy it was a symptom of prosperity. "Waste not, want not," was the slogan for a scarcity-driven economy. Since the 1890s when our economy became surplus-driven, but inarguably since the 1930s when the Coca-Cola company turned Saint Nicholas into Santa Claus, a figure who exorted us to buy ice-cold drinks in winter because we could afford them, and by the way let's all buy each other gifts that we don't need because we can afford them too, conspicuous consumption has been a synonym for greatness.

    "Fashion" is one of the inventions of a surplus-driven economy. You can't sell people new things if they won't throw away their old things. These days many people aren't focused on clothing because they have other interests, but those other interests focus on electronic gadgets, and they throw those away faster than old clothes. Mister Green, I wonder how many perfectly serviceable cellphones, TVs, computers, game systems, GPS gadgets, personal stereos, etc., you have donated to the Fresh Kills Landfill?

    In any case, throwing stuff away isn't really so bad as long as you recycle it. Recycling creates jobs and reduces the pressure on natural resources. The Japanese have 24 different categories of recyclables and they don't have single-stream recycling. Every Japanese citizen uncomplainingly sorts all of his trash into 24 containers (I may have that number wrong, sorry) every week. A reporter who went to a shelter for the people displaced by Fukushima was astonished when he saw those 24 containers in the shelter, and they were full of sorted trash. He realized that this is one of the things that comprises the identity of the Japanese people. They're proud of it and they weren't going to let a silly little nuclear disaster turn them into barbarians who mingle their plastic and their paper with their compost. We could stand to make that a component of our national pride. Instead, after WWII, Norris Poulson (if I read my history correctly) was elected mayor of Los Angeles on one issue: Elect me and I promise you won't have to sort your trash anymore!

    Be patient. When population pressure vanishes, the environment won't be under such stress. The drastic reduction in the birth rate will have other consequences that are cause for optimism. We older people are less violent and more inclined to resolve disputes with words. How many wars do you think there will be when people my age (and a huge cohort 30 years older as advances in medicine make cenentarians a major demographic) dominate the world? Especially when young people become so rare that nobody would want to send them off to risk their lives in a silly little war! We are already effectively in charge of U.S. politics because, even though we're not a majority of the population, we're a majority of the voting population.
     
  20. Captain Kremmen All aboard, me Hearties! Valued Senior Member

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    Ya think maybe? The subforum with the word "economics" in its name?
    When I post a reply to a question I expect my answer to be accepted as truthful.
    I may not have put my question in the optimum forum, but I do not expect to be accused of dishonesty.
    Why on earth would I not want the best possible reply to my questions???????

    As for putting it in the Economics forum,
    I would like you to do that. Let's see what the hordes of economists there have to say.

    In any case, you haven't quite absorbed the point that both expansion and contraction of an economy have a multiplier effect.
    No. But that was the sort of answer I was expecting.
    I was looking for an economist's answer, even though, for some odd reason, you think I wasn't.
    I don't mean anything other than what I am saying.
    Why are you so suspicious of people?

    Where would you have had us stop?
    In terms of industrial exploitation of the world's resources, probably 50 years ago.
    Now we are destroying treasures that man may never be able to imitate with all his over vaulting ambition.
    There are other types of progress, and ways of evaluating wealth which are not in terms of swisher cars,
    or bigger houses or fatter bonuses.

    Maybe things are going my way.
    I hear that the richest people in the world are now increasingly to be found at events such as major arts prizes and the TED lectures.

    You can only live in one house, and sleep in one bed.
     
    Last edited: Dec 12, 2012
  21. Captain Kremmen All aboard, me Hearties! Valued Senior Member

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    If I wasn't a long established member, I could get very annoyed with you Fraggle

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  22. Syzygys As a mother, I am telling you Valued Senior Member

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  23. Captain Kremmen All aboard, me Hearties! Valued Senior Member

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    You are right about this. I don't know why I assumed they didn't count subsistence farming.
    Possibly it is because I am angry about the world's destruction, and didn't check.

    A wide variety of literature is available on the importance of agriculture to economic development in Africa and on the critical role that rural women play within this sector. Increasing attention is also being given to the role of smallholder subsistence agriculture in ensuring the food security of the continent, as 73% of the rural population consists of smallholder farmers (IFAD, 1993:6). In Sub-Saharan Africa, agriculture accounts for approximately 21% of the continent's GDP and women contribute 60-80% of the labour used to produce food both for household consumption and for sale.
    http://www.fao.org/docrep/X0250E/x0250e03.htm
     

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