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The case against GDP: time to change the way we measure the wealth of nations
- based2 9y agohttps://en.wikipedia.org/wiki/Human_Development_Index https://en.wikipedia.org/wiki/Human_Development_Index
- neonate 9y agohttp://archive.is/vXmyX http://archive.is/vXmyX
- tweezy 9y agoThank you.
- whack 9y agoThe author brings up a good point wrt GDP not accounting for debt. If the US were to borrow $1tn from China and splurged it all on military spending, we'd see a massive increase in GDP next year, but we would only be impoverishing ourselves in the long run. Adjusting the GDP figures to account for foreign-debt, and investments held by foreigners, seems like something that can be computed objectively, and would still serve as a superior metric.
- cryptonector 9y agoAnother way to think of it is that China would be giving us $1trn worth of stuff for only the cost of servicing that $1trn of debt (remember to subtract inflation). Does that make us or them poorer? Think carefully.
- shard972 9y agoSo the only way the US comes out ahead in that situation is through playing games with inflating the currency while lying about it to recoup the costs of servicing the debt. In the end, once the US is caught with it's pants down it will definitely not be making the US any richer.
- cryptonector 9y agoAll fiat currencies have significant inflation though. Few also benefit from mercantilists incessantly wanting to sell products for that currency. Mind you, mercantilism can have significant detrimental effects on the importer -- no doubt. But it's not all roses for the mercantilist exporter either. Really, a multi-decade trade imbalance is not a good thing for anyone, but it's not that clear who is the worst off.
- handsomechad 9y agoWhy is a multi-decade trade surplus bad? Doesn't that mean you have an extremely productive / competitive economic engine? Is it bad because of the opportunity cost of not levering up and investing research and future productivity growth?
- fjsolwmv 9y agoYou are giving goods to people in exchange for IOUs, but those IOUs can't be redeemed for anything you want, by assumption
- cryptonector 9y agoCorrect. The only way you can use those IOUs is if the roles are reversed and the U.S. starts maintaining a trade surplus with the rest of the world (and so the rest of the world a trade deficit with the U.S.). Before the dollar became the reserve currency of the world, the world settled trade in gold. With gold as the reserve currency it was very important to not run out of gold, and this served to keep trade balanced in the long term (and probably also served to keep the lid on growth of international trade, since to buy one kind of thing you'd have to sell some other kind). Incidentally, the concept of comparative advantages is probably a lot more meaningful in the context of balanced trade... But the dollar is the reserve currency. Which means that the world maintains a trade surplus with the U.S. Which means they export things to the U.S. in exchange for IOUs that will get them nothing much (it does help to defend their currencies during crises, but not much more). Meanwhile, Chinese people (in China) are effectively paid less than they should be for the labor they put into manufacturing things to sell to the U.S. This is obvious in that China forces exporters to exchange their dollars for Renminbi, which means those exporters can't buy other things with those dollars than Renmimbi. Also, all those factories in China make things people want in the U.S., not things that people want in China (though maybe there's a lot of overlap). So my take is that mercantilism hurts the mercantilist. It does also hurt the importer in different ways: by reducing employment, for example, and removing productive assets for another, and these things might hurt more when it comes time to rebalance world trade. Who knows, maybe Chinese people in China and Americans will gladly continue this state of affairs. But somehow I doubt it.
- thomasmeeks 9y agoIt really depends on what we use it for, what strings are attached to the money besides interest (official or otherwise), how that would affect our credit rating / percieved value of the dollar with other countries, our effectiveness in spending that money, etc. I’d submit that it isn’t a question we can really predict the answer to. Way too many variables.
- cryptonector 9y agoNot really. We could burn the money and then default: we'd still have received $1trn worth of gadgets. Sure, it'd be better to use the money productively, then we get two things: $1trn worth of gadgets + whatever $1trn bought in the U.S. And, of course, one could do worse than burn $1trn. One could finance one's enemies, for example.
- phkahler 9y ago>> Sure, it'd be better to use the money productively, then we get two things: $1trn worth of gadgets + whatever $1trn bought in the U.S. The OP asked what if the US borrowed $1trn from china and spent it. Where does this $trn worth of gadgets come from in that scenario?
- AnimalMuppet 9y agoThe OP asked what if the US borrowed $1trn from china and spent it all on military spending. That's where the $1trn worth of "gadgets" comes from.
- cryptonector 9y agoChina exports N dollars' worth of trinkets to the U.S., then buys N dollars' worth of dollar-denominated assets, the majority of which are U.S. treasuries (so China lends them back to the U.S.). Therefore "what if China lent the U.S. $1trn ..." is roughly equivalent to and interchangeable with "what if China sold $1trn worth of trinkets to the U.S. ..." and vice-versa.
- javitury 9y agoYou mean the Gross National Product(GNP)?
- gozur88 9y agoThat's what they used in the US when I was a kid. There are some legitimate-sounding reasons to switch to GDP instead, but I think the real reason was GNP turned negative.
- dragonwriter 9y ago> There are some legitimate-sounding reasons to switch to GDP instead, but I think the real reason was GNP turned negative. GNP never turned negative. If you mean GNP growth rate turning negative, well, if you look at real GNP and real GDP historical charts, the places where GNP growth goes negative line up pretty much with those for GDP growth, though GDP tends to have lower peak and higher trough levels.
- tedsanders 9y agoI mean, GDP shouldn't account for debt. GDP is a measure of how much we produce. If people within our borders spend a year building $1tn worth of tanks, then we have produced $1tn of GDP that year. In terms of measuring what we produce, it's irrelevant how much we promised to pay China in the future. (Though of course in terms of predicting our future wellbeing, our promises to China do of course matter.)
- vageli 9y agoIf your production was only possible with the injection of foreign funds, why should the value count towards your nation's GDP and not the lender nation?
- deleted 9y ago[deleted]
- tedsanders 9y agoGDP measures (traded) production. If you produce $2tn of tanks, in tanks, then by definition that production is part of your GDP. Now if China sold you $1tn in tank parts in exchange for future payments, then sure, that $1tn will be part of China's GDP.
- rbcgerard 9y agoexcept you can't account for debt without accounting for assets. Japan, Greece, and Italy have the highest portion of debt to GDP (235%, 182%, 133%) except that Japan and Italy are very rich countries, Greece less so...
- RobertoG 9y agoYou can't compare Japan with Italy or Greece. Japan issue its own currency, so it's in the same position that USA. Italy or Greece are in the same position that California or any other state. Actually worse, because the FED work for the USA states, the Central European Bank, for the European states, not so much.
- rbcgerard 9y ago
- mywittyname 9y agoIf that trillion dollar investment earns more than the cost of interest on it, then we are better off. You seem to equating "military spending" with "lighting a mountain of money on fire", which is intellectually dishonest. To put things into perspective, a medium-sized military base will generate roughly $5 billion in economic activity and contribute to ~50,000 full time jobs. A trillion dollars is enough to put a new city on the map. Military spending isn't limited to tanks, it also directly contributes to scientific research, technological advancement and improvements in manufacturing techniques.
- kiba 9y agoThat may be true, but so does other form of spending, like funding space programs or just funding scientific research directly.
- mywittyname 9y agoAgreed, but the OP said that giving a trillion dollars of borrowed money to the military would impoverish the nation in the long run. My counter-argument is that that money will still find its way into places that truly drive economic, technological, and productivity growth. And if the ROI from that is greater than the cost of the debt, the nation will not be impoverished, but will be better off. I agree that its not the most efficient means of investing in these things, but it is a way that has worked in the past.
- alexbeloi 9y agoA military base buys labor, technology, services, raw resources and produces defense/security. You're conflating what the military base spends with what it produces. (the point of the argument against GDP) Just because I spend money on something, does not mean that I produce that thing, even if my spending increases demand for said good. That results in double counting production, which was already counted once by the seller.
- ithkuil 9y agoBut what if it's mostly domestic spending? The money spent for salaries flows in whatever those individuals need/desire to spend (groceries, barber shop, you name it). The part of the trillion dollar injected in any economic activity in a closed system stays in that system. (The part of that sum that is used to buy imports is another thing, although I guess it's far more complicated to properly account for) Honestly, every time I think about this my mind just melts; I'll be really glad if somebody can clearly explain where is the catch.
- ksec 9y agoMay be GDP wasn;t designed for this usecase. But since you have mentioned this I have an stupid idea, Could we theoretically measure countries like Stocks, and each countries get its Debt, Asset, Cash, Profit Loss Account as well as P/E and PEG etc.
- zeveb 9y agoThis basically works out to the difference between income & net worth — and it's as important to nations as it is to people.
- yodsanklai 9y agoAll of this seems to be well-known and convincing. Yet, GDP is still the only metric media and politicians seem to care about. Is it a another case of the "emperor has no clothes"?
- _delirium 9y agoWe want a number, and GDP is a well-known number. As the article notes, there are various replacement proposals, but all get significant push-back from economists, and none of them have gained enough critical mass to rival GDP as a thing people quote. So GDP wins by default even though many people are unhappy with it. People are also unhappy with it for pretty different reasons, which doesn't help in consolidating an alternative.
- Florin_Andrei 9y agoA lot of cameras are sold solely based on the simple metric of "megapixels". Of course, there's a lot of trash out there that has tons of pixels but severely underperforms. Sometimes we need to simplify reality in order to make decisions. The question is - how simple is too simple? It seems like an exclusive focus on GDP as the sole indicator of the well-being of nations, just like the focus on megapixels as the indicator of performance of cameras, might be too simple indeed.
- gozur88 9y agoI think unemployment is more politically significant. The followup question for anyone reporting a rising GDP is "sure, but what does this do for job growth?"
- vkou 9y agoUnemployment is even less useful then GDP. At least GDP is some sort of proxy for how well-off a country is. You can have 0% unemployment (I hear North Korea is currently there), with mostly poverty-line wages with everyone making a meager third-world living, or you can have 30% unemployment with everyone being relatively better off, with fewer people working more productive jobs, and paying for an overall social safety net/others to go to school/raise children/retire. I'd far rather live in the second society, then the first.
- lkrubner 9y agoRelated, an excerpt: One of my pet peeves are people who try to reduce a vector to a scalar, with no admission of the information loss. For some reason, this has become accepted practice when it comes to estimating our standard of living. Suppose the economy grows 5% but violent crime goes up 10%. Has the standard of living increased? Suppose the price of gasoline declines 30% but people stop going to church. Has the standard of living increased? Suppose the price of cell phone plans decline 90% but the people who speak your language become a minority, and people who speak a different language become the majority. Has your standard of living increased? Suppose your wages increase 10% but the amount of air pollution increases 200%. Has your standard of living increased? Suppose your wages increase 20% but the government changes the law to make it easier for companies to fire workers, so you face a greater risk of losing your job. Has your standard of living increased? In every case, we are talking about a vector that can not be reduced to a scalar without information loss. http://www.smashcompany.com/philosophy/if-women-had-invented-economics-there-would-be-no-assumption-of-a-global-optimum http://www.smashcompany.com/philosophy/if-women-had-invented...
- danieltillett 9y agoIf we are going to stick with GDP we should at least use GDP per hour worked [0] so we look at the only thing that matters in the long run - labour efficiency. Looking at this I am amazed how much more efficient Australian labour is than New Zealand labour $55.87 verse $36.83. 0. https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_hour_worked https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_(PP...
- tonyedgecombe 9y agoExcept the easy way to increase productivity is to fire all the low paid workers, productivity would go up but I'm not sure that would be desirable.
- danieltillett 9y agoOr the alternative of raising the minimum wage. No business is going to fire a worker they need to increase the nation's GDP per hour worked, but as an aim for the nation it would be better if everyone if we worked towards increasing the efficiency of labour.
- SilasX 9y agoIt should be “per hour lost to work” (so you account for commute times) and subtract off minimal housing costs.
- bcheung 9y agoThe GDP is only an approximate measure and is only roughly correlated with wealth. There are many things that contribute to GDP but do absolutely nothing to increase wealth, prosperity, or productivity. This funny video reminds me of that: https://www.youtube.com/watch?v=HBgJqgUmSZE https://www.youtube.com/watch?v=HBgJqgUmSZE Summary from the video: Person A says he'll pay Person B $20K to eat poop. Person A does it. Person B says he'll pay person A $20K to eat poop. Person B does it. Nobody is wealthier. They both ate poop. Yet $40K was contributed to the GDP. Moral of the story: Don't eat poop.
- rlanday 9y agoWho are you to say that a person eating poop doesn't create $20k of value? Someone did, after all, pay them $20k to do it...
- llukas 9y agoGDB increased yet still A and B at the end have both $20k same as when they started.
- skj 9y agoAh, the little-known poop-eating income tax loophole...
- zo1 9y agoThat's a very good point to make in this entire thing. They both earned 20K, therefore they should each pay x% of those earnings over to the government due to income tax. Does that lead anyone into conspiracy-theory territory regarding why government seeks to increase GDP? Other than the obvious benefit of having Yet Another Silly Variable to optimize through various programs and policies?
- epistasis 9y agoYes, because ultimately GDP aims at measuring the value of the performance. What is the value of a dollar, anyway? The only reason this example would be odd is if the person paid the $20k for something they did not want. Which would mean that they did something they did not want to do, perhaps under duress? The presupposition of the GDP is that (except for things like taxes), the transactions measured are things that individuals want to do, and they get something out of that transaction that they value in dollar amounts. The total amount of dollars at the end is irrelevant, and who has them, is less important. The failure of the GDP is where people get "value" and the amount of value does not correspond to the dollars exchanged.
- maxxxxx 9y agoWe should have a number that combines numbers like GDP, average net worth, average wage and inflation. This may give a better balanced picture of an economy. The current GDP growth is pretty useless if it goes mostly into the pockets of a few.
- dragonwriter 9y agoOr we could have multiple different numbers (including all the things you describe, plis employment measures, plus medians where you've already named averages, plus gini coefficients of wealth and income, plus other distributional measures, plus...) and recognize that the economy is multidimensional and how to balance the importance of those dimensions is a matter of ongoing debate. Which is what we—when we choose to look beyond what mass media focus on as the headline number—already have.
- maxxxxx 9y agoTotally agree. It just seems that public discourse likes single factors.
- FiatLuxDave 9y agoA child goes to the doctor for a checkup. The nurse weights the child and measures their blood pressure. After the doctor checks out the child, the parent picks them up and asks, "So, how much bigger are you than last year?" Smiling, child replies "120 over 80!". GDP is important, because it is a measure of economic activity. That is like blood pressure for the economy. Unlike humans, where our blood pressure is pretty constant, the economy has periods of with lots of money flowing and times with little. This is the reason why politicians and smart media people focus on it, because it indicates are we in recovery or recession. That is not the same thing as measuring change in wealth. That is like gaining weight (in the healthy sense of a child growing). When the GDP goes up, it doesn't mean more wealth, it means more money changed hands. Like managers are taught, what you measure is what you get. We as a society focus too much on moving money around and too little on generating wealth.
- hammock 9y agoThat is a wordy way to say that national wealth is a stock and GDP is a flow. How does it relate to the criticism of GDP at hand?
- FiatLuxDave 9y agoThe point is that the flow is not the same as the change in stock. If A is the stock of wealth, people tend to think that GDP is dA/dt. It is not. It is more like dA/dt + dD/dt - dW/dt + ... These extra terms are things like increase in debt, change in mean velocity of money, usage of non-durable goods, etc. Confusing GDP for wealth flow is ignoring some of the largest factors in its calculation.
- neilwilson 9y agoNational wealth is a flow. The supply of bread is somewhat more important than creating piles of gold bars.
- emiliobumachar 9y agoThat's some extreme cherry-picking. What about sugary drinks versus house construction? There are good and bad consumables, and there are good and bad durables.
- novaRom 9y agoThe very first impression after I land at any US airport is - why everything is so inefficient and of such a low quality? Roads, hotel rooms, transportation, food - everything looks inferior to what you see in an average European country. But still, US has higher GDP. Strange.
- marcell 9y agoThe US is a large country with poor and rich areas. Older airports will be dirtier than newer airports. Generally public transit will be worse as most people drive cars. Also, per capita GDP is comparable or lower than parts of Western Europe, which will affect how nice/poor it looks.
- adventured 9y agoPer capita GDP is considerably higher for the US than everywhere in Europe except for a few small nations. Norway and Switzerland primarily. It closed out 2017 near $59,000 for the US. That's nearly 70% higher than the European Union's GDP per capita. Germany is around $42,000. Austria $44,000. Finland $43,000. Netherlands $45,000. Belgium $41,000. UK $40,000. France $38,000. Italy $30,000. Spain $26,000. Denmark and Sweden get the closest otherwise at $54k and $51k. To put it into further perspective, France, Italy, Belgium, the UK would be among the poorest US states on a GDP per capita level, comparable to West Virginia and Arkansas. The US problem is allocation of resources. $200+ billion should be chopped right off of the military budget and redirected to infrastructure. Another $100 billion could be redirected for infrastructure by altering war on drugs / policing policies. $300+ billion extra per year into US infrastructure would result in the US having among the best infrastructure on the planet.
- strongholdmedia 9y agoOr perhaps it is time to stop measuring them altogether.
- FabHK 9y agoThe approach of Sir John James Cowperthwaite, Financial Secretary of Hong Kong in the 1960's, who famously "refused to collect economic statistics to avoid officials meddling in the economy." He is subject of a recent well-received biography, The Architect of Prosperity. https://en.wikipedia.org/wiki/John_James_Cowperthwaite https://en.wikipedia.org/wiki/John_James_Cowperthwaite http://architectofprosperity.com http://architectofprosperity.com
- alex_young 9y agoI really don't understand the point of this criticism. Isn't GDP the best way we have of measuring the volume of work being done? If I exchange production of some craft for money in the bank and then exchange that money for some other product I fancy, we've not only moved the money around, but created real quantifiable new value through the production purchased. GDP - Gross Domestic Product. Producing things. That's what it's all about.
- dredmorbius 9y agoShort answer: no. It is, however, the accepted answer in most parts.
- nabla9 9y agoGDP is not measuring wealth. It's measure of market value of all final goods and services produced. National wealth is completely different measure.
- dredmorbius 9y agoAdam Smith defined wealth ... well, several ways. But his initial definition is "the annual produce of the land and labour of the society". Which, as numerous commentators have comentatored, is a flow rather than a stock. https://en.wikisource.org/wiki/The_Wealth_of_Nations/Introduction_and_plan_of_the_work https://en.wikisource.org/wiki/The_Wealth_of_Nations/Introdu... In his other statements, Smith isn't consistent on this distinction. It's a curiosity, however.
- freech 9y agoAs soon as a measure becomes a target it ceases to be a useful measure.
- choward 9y agoTrue. It just becomes a new number to game.
- dredmorbius 9y agoGoodhart's Law: https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law
- stretchwithme 9y agoIf I invented a cheap machine that did all your housework and fixed your car for free, GDP would fall. Despite the fact that everybody's lives would be permanently improved. Say a person saves his money and lends it to people in another country. He's creating wealth for himself. The other country is getting further into debt. Maybe the money is spent frivolously or invested in a soon-to-collapse bubble. Or it's spent on productive investments. Either way, the effect on GDP is the same. And it goes to the borrowing country, not the one accumulating assets (unless the borrower makes successful investments). As individuals, trying to maximize our own GDP would mean spending every dollar we get and avoiding investments that could reduce how much we need to spend to live our lives. That's the opposite of our best interests.
- dragonwriter 9y ago> If I invented a cheap machine that did all your housework and fixed your car for free, GDP would fall. Probably not, because people would redirect both time and resources currently spent on housework and car repairs to other pursuits; this would most likely by GDP neutral or positive. > As individuals, trying to maximize our own GDP would mean spending every dollar we get and avoiding investments that could reduce how much we need to spend to live our lives. Technically, no, for several reasons. First, “your own GDP” (what might be called “gross personal domestic product”) is not increased by spending that goes to anyone but you, so maximizing it is just maximizing what people pay you for goods and services, not what you spend. But to maximize your personal activity reflected in national GDP, your description is still wrong. Certainly, you are going to want to maximize spending on domestic goods and services, but spending on capital goods that reduced future cost doesn't hurt. Since economic wants are unlimited, any cost reduction has no necessary effect on your total future spending, it just increases the realizable utility at any level of spending.
- stretchwithme 9y agoYes, the saved resources can be redirected to other uses. But not necessarily in the same economy. As for your second point, I should have said "your own contribution to GDP" rather than "your own GDP". And with that, you CAN invest what you don't spend on yourself in other economies, as I said. It may reap benefits in the future. But GDP calculations can credit some other economy's GDP, as I said.
- dilippkumar 9y agoGDP measures of the value of the total economic output. Take two countries with similar population in 2016 [1] - Mexico (127,540,423) and Japan(127,748,513) and compare it with the GDP of the two countries[2] - Mexico(1 Trillion USD), Japan (4.9 Trillion USD). This says nothing about the wealth of Japan or Mexico. It does say that the Japanese economy is producing 4x more than the Mexican economy. This metric is interesting in itself. When taken alongside the resources consumed by Japan and Mexico, or the population of Japan and Mexico, one can determine which country is using it's resources more efficiently and which population is more efficient at producing things of value. When historical GDP numbers are taken into account along with a history of government policies, it provides insight into how efficient the government bureaucracy is, how efficient the financial markets are, how education and computerized tools are impacting the economy and so on. The author appears to have completely missed the point behind GDP. [1] https://en.wikipedia.org/wiki/List_of_countries_by_population_(United_Nations) https://en.wikipedia.org/wiki/List_of_countries_by_populatio... [2] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal) https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...
- imtringued 9y agoUse GDP (PPP) please. Differences in GDP are heavily influenced in differences in exchange rate but the vast majority of economic activity is domestic and doesnt involve trade with other countries. Japan 5,405,072 Mexico 2,406,087 https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP) https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
- dragonwriter 9y ago> This metric is interesting in itself. When taken alongside the resources consumed by Japan and Mexico, or the population of Japan and Mexico, one can determine which country is using it's resources more efficiently and which population is more efficient at producing things of value. Except you can't, reliably. If I mow my lawn and cook my dinner, and my neighbor does the same, it has no contribution to GDP. If I mow my neighbors lawn for $5 and mow mine as well, and my neighbor cooks my dinner for $5 and cooks his own as well, well, look, $10 of GDP. GDP measured value of traded output, not total output, and so doesn't measure how effectively resources are used. You can make assumptions about the relations between the two values being constant, but that's probably not true across societies with different cultural patterns, or even in the same country over time given cultural change. GDP is, for many purposes, apparently the best measure we have. But we shouldn't delude ourselves into thinking it tells us more than it does.
- benjaminjackman 9y agoThe best metric we used when optimizing low latency systems was fixing the slowest outlier. Maybe a similar metric could be used for economies eg focusing on the worse off person.
- Quanttek 9y ago> focusing on the worse off person. I recommend you read John Rawls's seminal work A Theory of Justice. For him, there are three principles a society should be based on (in lexical order): Maximum, equal liberties for all > Equality of opportunity > Difference principle Difference principle: Any inequality has to be to the biggest advantage for the least well-off person
- YesThatTom2 9y agoWow. You just merged my professional life and my personal philosophy!
- fjsolwmv 9y agoThis is the Gini Coefficient
- yorwba 9y agoThe Gini coefficient is about the relative inequality in a distribution. If everyone were brought down to the level of the person who is currently worst off, the Gini coefficient would improve, although everyone's quality of life decreased.
- choward 9y agoWhile we're at it, can we stop talking about the Dow Jones Industrial Average?
- asah 9y agoRelated: https://en.m.wikipedia.org/wiki/Gross_National_Happiness https://en.m.wikipedia.org/wiki/Gross_National_Happiness
- acd 9y agoThe current economy including GDP does not account for garbage and co2 emisssions. If we only optimize in one dimension for maximum GDP output then we will have huge economic output and also destroy the planet we are living on. We should optimize for gross happiness and long term sustainability. Gross happiness include more vacation, using sustainable materials like wood and metal instead of cheap plastics. Recycle more materials in the goods we consume so that its a continuous cycle instead of buy consume and throw. If we prized the carbon emission on the production and transportation of all goods we would have a totally different economy. The automation economy allows us to be both rich and have more spare time.
- MarkMc 9y agoI don't have an FT subscription. Can someone tell me whether the article suggest an alternative measure of wealth?
- dragonwriter 9y agoYou can read the article bypassing the paywall with the “web” link under the article title on HN.
- dredmorbius 9y agohttps://archive.fo/vXmyX https://archive.fo/vXmyX
- dredmorbius 9y agoIn the opening example, Pilling discusses income vs. wealth of a banker and gardener. One of the more interesting (and novel) approaches I've seen to this question comes from Yonatan Zunger based on discussions over the past few years, and culminating in his Medium essay, "What is Your 'Financial Shock' Wealth?", which examines financial security by an individual's (or organisation's) capability to withstand financial shocks of various sizes, and then looks at the likelihood of such shocks. https://shift.newco.co/your-financial-shock-wealth-4845e6dc1d2f https://shift.newco.co/your-financial-shock-wealth-4845e6dc1... So far as moving the discussion of poverty forward, this strikes me as a significant advance, and one I'm not aware of having been made elsewhere in the economic literature. But that's still not GDP. On that front, I've been looking at combining a number of concepts, a key element of which is the idea of tiers or levels of economic activity. There are classifications ranging from 3-5. One of the first such I'm aware of comes in Alexandre Dumas, The Count of Monte Cristo (I'm exploring the origins of that notion), and one of the latter being the one James Beniger gives in his 1986 book, The Control Revolution Breaking that out as bullets, but other wise quoting Beniger. * The primary sector -- agriculture, fishing, lumber, mining, oil and gas -- represents the extraction of matter from the environment to produce energy, including the calories to sustain individual organisms. * The secondary sector -- processing primary goods, as in construction and manufacturing -- represents the synthesis of matter and energy into more organized forms (negentropy). * The tertiary sector, including transportation and utilities, represents the infrastructure for distributing matter and energy about the system, while ... * the quaternary sector -- trade, finance, insurance, and real estate -- constitutes a parallel infrastructure for the collection, processing, and distribution of information that is necessary in all living system for the control of material flows. * Finally, the "highest" of all sectors in its remove from the physical environment is the quinary sector, including government, law, and education, representing the societal programming -- socialization, education, law making -- and collective or representative decision making to effect control. You can quibble over which activities should attend which tier (trade and commerce are often classed with #3, giving #4 exclusive domain of the FIRE sector, which has certain coherences). There's a strong correspondence between these levels and classifications of industrial sectors (the SIC, NAICS, or ISIC). There's also some correspondence to the classifications of goods early classical economists derived (particularly Smith), and perhaps to technological mechanisms. What I see, though, is that actual useful benefit derives from the first two tiers, with the others being necessary but not of themselves directly of use -- they're coordination, management, and information flows. Moreover, you can divide the primary sector into stocks and flows, where virtually all extractive material and energy sourcing is drawing down of some natural stock, whilst agriculture, forestry, fishing, and renewable energy are (or at least can be) sustainable, taking from a flow as that flow is replenished. Accounting for the stock draw-down, and not counting the outputs of the 3rd - 5th sectors as "useful", would tend to arrive at a much-modified measure of GDP. And one almost certainly much smaller than is presently computed. I'm looking at how valid such measures might be, and the history of GDP formulation. It's interesting. (Kuznets is among those who argued for a three-tiered economic classification.) More discussion at the link below. https://www.reddit.com/r/dredmorbius/comments/74dm5o/seeking_research_on_inclusive_measures_of/ https://www.reddit.com/r/dredmorbius/comments/74dm5o/seeking...
- dredmorbius 9y agoFor those looking to read the content but stymied by FT's paywall, the author has just published a book, The Growth Delusion, and discusses it in numerous other articles. Unpaywalled: http://www.resilience.org/stories/2015-03-31/the-growth-delusion/ http://www.resilience.org/stories/2015-03-31/the-growth-delu...
- pteredactyl 9y agoThank you for sharing this. FT is the only print newspaper I’ll give at least benefit of doubt when reading.
- credit_guy 9y agoThe GDP is not invariant to the “Sound of Music” case: a widower marries his children’s governess. Before the wedding, her work was paid, and it counted towards the GDP. After the wedding she puts in the same work, or more, and her implicit pay is probably higher, but she is completely invisible to the GDP. Similarly, when a company aqcuires a supplier, the flow of products and cash between them stops counting towards the GDP. Conversely, if Target creates a real estate company and starts paying rent to it (Bill Ackman’s idea when he was Target’s largest shareholder), a few billion dollars would show up in the GDP from nowhere. The GDP is an accident of the granularity of the economy. All things being equal, a more vertically integrated economy will have a lower GDP than a more granular one.
- jgome 9y agoAFAIU (prolly not much), GDP measures money that comes and goes to/from a country. If, let's say, products/services were exchanged directly, without moving money, that wouldn't be counted; OTOH, if certain country, say the US, gave money to another country only to buy products from US companies, that would count doubly... Which is why it's really bad as a tool for comparing wealth of nations. Please correct me if I'm wrong.