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The 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 in

The 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 ago
Who 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 ago
  GDB increased yet still A and B at the end have both $20k same as when they started.
  - skj 9y ago
    Ah, the little-known poop-eating income tax loophole...
    - zo1 9y ago
      That'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 ago
    Yes, 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.
    - TheCoelacanth 9y ago
      But there is also presumably value lost by the people performing, otherwise they probably wouldn't have had to be paid so much for the performance. Let's say that the two people absolutely wouldn't have done the performance for less than $15k and absolutely wouldn't have paid more than $25k to see the other performance. Then one person is giving up $15k of value to get $20k of value for a net of +$5k and the other giving up $20k of value to get $25k of value for a net of +$5k, so it is really only a creation of $10k of value per performance while the GDP increase is $20k.
  - ewjordan 9y ago
    If you live paycheck to paycheck, then you have the same amount of money at the end of the year as you did at the beginning. Does that mean you didn't participate in the economy?
  - tedsanders 9y ago
    This is a common misconception that I think is worth highlighting. Economic production does not increase the money supply. No matter how much economic value you create in a transaction, the amount of money in the economy is constant (putting aside the activities of the Fed, Mint, and banks).
epistasis 9y ago
(I can't access this article, so I hope people will excuse this comment that is not informed by the article.) That all depends on how much Person A and Person B enjoy watching coprophagia performances, doesn't it? If either Person A or B wanted something more with that $20k, they could have gotten that instead. The $2k I spend at the opera each year doesn't increase "wealth, prosperity, or productivity" from the view of people that don't enjoy opera, but I certainly feel that it increases my prosperity. The bigger problem with the GDP is it not counting serious economic activity that does not have an exchange of dollars, such as child care in a family. A stay-at-home parent does not get compensated for their work, but that work definitely has value as evidenced by the cost of day care.
- ecshafer 9y ago
  The GP example was more to show that a paid b, and b paid a. So despite the transaction neither are wealthier. They have exactly as much as they began with. Replace eat poop with anything.
  - bcheung 9y ago
    I think it also serves to illustrate that there are things that can be paid for that don't increase quality of life. Likewise, if person A and B buy from each other at the same monetary value, but the subjective value of what they "traded" is valued more by the other party, then each party is wealthier despite no change in pure monetary wealth.
  - epistasis 9y ago
    So let's say A pays B and B pays A for "nothing," i.e. there's no transaction except for the payment of goods, and neither derives any pleasure out of such a transaction. Such transactions would be meaningless, but they also have very little chance of happening in our economy, don't they? Presumably each would pay some sort of tax on this, and if not, the only way that it would be recorded by GDP is if the Persons are business entities that do not make profit, and don't pay sales tax. If such transactions do happen, they must be used in order to exploit tax loopholes, I would suppose? I wonder what percentage of GDP could be attributed to such transactions.
scarygliders 9y ago
Bit of a strawman argument though is it not? And a highly unlikely and simplistic one at that. Here's a counter-example: Person A says he'll pay Person B $20K to spread poop on B's farm. Person A does it. Person B says he'll pay Person A $210 for a unit of Person B's produce. Person B buys it. So does another 99 Persons. Both Person A and Person B are wealthier. Not only that, another 99 Persons are fed for a while (or they sell sub-units of the produce on). Moral of the story: strawmen arguments /can/ be fun! :)
- marcosdumay 9y ago
  It's not a strawman argument. It's an example of GDP failure. There are many actual examples on the real wold, but they are complex and not funny.
  - scarygliders 9y ago
    Is not my counter-example one of GDP success?
    - smallnamespace 9y ago
      Nobody is arguing that GDP always fails.
- bllguo 9y ago
  what? What use is a "counter-example"? This is simply a bizarre response. The claim is that GDP is only an approximate measure. Why? It fails in certain cases. A humorous example of such a case is provided. I don't see how your comment provides any value in this context.
hammock 9y ago
Is eating poop supposed to be the analog of government expenditures? Something that is not really wanted by the market but bought and paid for anyway? Many critiques of GDP I've seen lament the fact that (taxes) government spending is included. *Note to the downvoters, I'm ignoring the more obvious interpretation that three other commenters have already mentioned, that someone actually wanted to watch someone else eat poop. For the sake of interestingness I'm proposing a different meaning.
- tdb7893 9y ago
  Wouldn't not including government expenditures make GDP a worse metric? They are the largest spender in every country and I don't see why it should matter who is buying something for GDP purposes
  - hammock 9y ago
    The argument typically goes that "because most government services are not sold in markets, they have no market-determined prices to be used in calculating their total value to those who benefit from them." In fact "some government services have negative value: given a choice, the people victimized by these 'services' would be willing to pay to be rid of them." Read more: http://www.independent.org/pdf/tir/tir_18_01_10_higgs.pdf http://www.independent.org/pdf/tir/tir_18_01_10_higgs.pdf
    - deleted 9y ago
      [deleted]
    - tdb7893 9y ago
      Wouldn't the value be calculated as whatever the government payed for them just like the rest of GDP? Maybe I'm misunderstanding how government spending is added to GDP but the fact that the amount spent on something doesn't always correlate to the value doesn't seem to be a problem unique to the government and hardly seems a reason to ignore what is in the US up to a few trillion in spending

rlanday 9y ago

Who 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 ago
GDB increased yet still A and B at the end have both $20k same as when they started.
- skj 9y ago
  Ah, the little-known poop-eating income tax loophole...
  - zo1 9y ago
    That'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 ago
  Yes, 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.
  - TheCoelacanth 9y ago
    But there is also presumably value lost by the people performing, otherwise they probably wouldn't have had to be paid so much for the performance. Let's say that the two people absolutely wouldn't have done the performance for less than $15k and absolutely wouldn't have paid more than $25k to see the other performance. Then one person is giving up $15k of value to get $20k of value for a net of +$5k and the other giving up $20k of value to get $25k of value for a net of +$5k, so it is really only a creation of $10k of value per performance while the GDP increase is $20k.
- ewjordan 9y ago
  If you live paycheck to paycheck, then you have the same amount of money at the end of the year as you did at the beginning. Does that mean you didn't participate in the economy?
- tedsanders 9y ago
  This is a common misconception that I think is worth highlighting. Economic production does not increase the money supply. No matter how much economic value you create in a transaction, the amount of money in the economy is constant (putting aside the activities of the Fed, Mint, and banks).

epistasis 9y ago

(I can't access this article, so I hope people will excuse this comment that is not informed by the article.) That all depends on how much Person A and Person B enjoy watching coprophagia performances, doesn't it? If either Person A or B wanted something more with that $20k, they could have gotten that instead. The $2k I spend at the opera each year doesn't increase "wealth, prosperity, or productivity" from the view of people that don't enjoy opera, but I certainly feel that it increases my prosperity. The bigger problem with the GDP is it not counting serious economic activity that does not have an exchange of dollars, such as child care in a family. A stay-at-home parent does not get compensated for their work, but that work definitely has value as evidenced by the cost of day care.

ecshafer 9y ago
The GP example was more to show that a paid b, and b paid a. So despite the transaction neither are wealthier. They have exactly as much as they began with. Replace eat poop with anything.
- bcheung 9y ago
  I think it also serves to illustrate that there are things that can be paid for that don't increase quality of life. Likewise, if person A and B buy from each other at the same monetary value, but the subjective value of what they "traded" is valued more by the other party, then each party is wealthier despite no change in pure monetary wealth.
- epistasis 9y ago
  So let's say A pays B and B pays A for "nothing," i.e. there's no transaction except for the payment of goods, and neither derives any pleasure out of such a transaction. Such transactions would be meaningless, but they also have very little chance of happening in our economy, don't they? Presumably each would pay some sort of tax on this, and if not, the only way that it would be recorded by GDP is if the Persons are business entities that do not make profit, and don't pay sales tax. If such transactions do happen, they must be used in order to exploit tax loopholes, I would suppose? I wonder what percentage of GDP could be attributed to such transactions.

scarygliders 9y ago

Bit of a strawman argument though is it not? And a highly unlikely and simplistic one at that. Here's a counter-example: Person A says he'll pay Person B $20K to spread poop on B's farm. Person A does it. Person B says he'll pay Person A $210 for a unit of Person B's produce. Person B buys it. So does another 99 Persons. Both Person A and Person B are wealthier. Not only that, another 99 Persons are fed for a while (or they sell sub-units of the produce on). Moral of the story: strawmen arguments /can/ be fun! :)

marcosdumay 9y ago
It's not a strawman argument. It's an example of GDP failure. There are many actual examples on the real wold, but they are complex and not funny.
- scarygliders 9y ago
  Is not my counter-example one of GDP success?
  - smallnamespace 9y ago
    Nobody is arguing that GDP always fails.
bllguo 9y ago
what? What use is a "counter-example"? This is simply a bizarre response. The claim is that GDP is only an approximate measure. Why? It fails in certain cases. A humorous example of such a case is provided. I don't see how your comment provides any value in this context.

hammock 9y ago

Is eating poop supposed to be the analog of government expenditures? Something that is not really wanted by the market but bought and paid for anyway? Many critiques of GDP I've seen lament the fact that (taxes) government spending is included. *Note to the downvoters, I'm ignoring the more obvious interpretation that three other commenters have already mentioned, that someone actually wanted to watch someone else eat poop. For the sake of interestingness I'm proposing a different meaning.

tdb7893 9y ago
Wouldn't not including government expenditures make GDP a worse metric? They are the largest spender in every country and I don't see why it should matter who is buying something for GDP purposes
- hammock 9y ago
  The argument typically goes that "because most government services are not sold in markets, they have no market-determined prices to be used in calculating their total value to those who benefit from them." In fact "some government services have negative value: given a choice, the people victimized by these 'services' would be willing to pay to be rid of them." Read more: http://www.independent.org/pdf/tir/tir_18_01_10_higgs.pdf http://www.independent.org/pdf/tir/tir_18_01_10_higgs.pdf
  - deleted 9y ago
    [deleted]
  - tdb7893 9y ago
    Wouldn't the value be calculated as whatever the government payed for them just like the rest of GDP? Maybe I'm misunderstanding how government spending is added to GDP but the fact that the amount spent on something doesn't always correlate to the value doesn't seem to be a problem unique to the government and hardly seems a reason to ignore what is in the US up to a few trillion in spending