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I'm trying to understand better the graphs: if this year a house in Manhattan appreciates in value, it won't reflect in GDP but it would reflect in the asset gr

by vladd 11y ago

I'm trying to understand better the graphs: if this year a house in Manhattan appreciates in value, it won't reflect in GDP but it would reflect in the asset growth curve? This might be a cause for the disconnect of the curves. If the economy is building specific surface hot-spots (city centers) that are allowing people to better monetize their job/time, a real estate increase of that (asset bubble or not) will drive assets up without a GDP equivalent increase? (I understand the real estate goes up because the producing GDP in that area also goes up. But it's like comparing asset price versus rent: the later reflects the GDP but goes up in absolute value much less than the asset value increase)

RyanZAG 11y ago
Technically if it was about shifting asset values and hot-spots, then it would have the equivalent decrease in asset values of assets not in those hot spots. Eg, increase in Manhattan apartments and a decrease in mid-western farms. That would cause asset prices to remain in sync with GDP as the worker would increase goods trade by producing more value in the hot spot. To me, this is probably caused by two things: foreign direct investment in property from China and oil princes which increases the demand for assets and boosts prices, along with slower than inflation wage growth allowing for more investment in assets instead of labor. Foreigner investment is obvious, but for the wage issue: if a business pays less of total profit towards workers, the business has more money to spend on assets. The GDP would be pushed down and the asset price would be pushed up. I'm no economist though. There might be other reasons that are more valid.
lottin 11y ago
In theory an increase in your home's value should reflect in the GDP as an increase in imputed rents. Even though you might not actually pay a rent because you're a home owner, as far as national accounting is concerned you do pay a rent to yourself, and such a rent is part of the GDP.

by vladd 11y ago

RyanZAG 11y ago

Technically if it was about shifting asset values and hot-spots, then it would have the equivalent decrease in asset values of assets not in those hot spots. Eg, increase in Manhattan apartments and a decrease in mid-western farms. That would cause asset prices to remain in sync with GDP as the worker would increase goods trade by producing more value in the hot spot. To me, this is probably caused by two things: foreign direct investment in property from China and oil princes which increases the demand for assets and boosts prices, along with slower than inflation wage growth allowing for more investment in assets instead of labor. Foreigner investment is obvious, but for the wage issue: if a business pays less of total profit towards workers, the business has more money to spend on assets. The GDP would be pushed down and the asset price would be pushed up. I'm no economist though. There might be other reasons that are more valid.

lottin 11y ago

In theory an increase in your home's value should reflect in the GDP as an increase in imputed rents. Even though you might not actually pay a rent because you're a home owner, as far as national accounting is concerned you do pay a rent to yourself, and such a rent is part of the GDP.