5 ms·

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. Rep

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.
- smallnamespace 9y ago
  > they also have very little chance of happening in our economy Not if policymakers are judged based on GDP figures, in which case they will have an incentive to encourage these sorts of transactions to happen.
PeterisP 9y ago
"Replace eat poop with anything" is a good point. Let's suppose A pays B $20 to play a song for them. And then B pays A $20 for a haircut. They have exactly as much money as they began with, but it does increase prosperity, they both are better off, they got something useful that they desired, they each received (and also produced) valuable services worth $20; and thus the total prosperity (and also GDP) grew by $40. If watching someone eat poop isn't worth $20k, then they wouldn't pay each other to do so, and the scenario wouldn't happen; but in general the analogy for exchanging services is quite spot on.
- smallnamespace 9y ago
  I think the danger is that if you then give both A and B an incentive to increase GDP and tell them that the GDP measures wealth, then they will start paying each other $20, then $40, then $100. In and of itself that isn't harmful, but if you conclude from this that you are getting wealthier and wealthier then you might end up lying to yourself and making bad decisions based on this. As a concrete example, women have slowly moved out of the domestic sphere and into the workplace. At the same time, child care and rearing have become booming industries. Both these things increase GDP. But the question is whether all the increase in GDP is real economic value, or whether a significant portion of it is just recording value that used to have $0 attributed to it (e.g. domestic housework, rearing and educating children, home-cooked meals). And a secondary question is whether continuing to push women to work even if they would rather stay at home is the right approach, because if you are a government policymaker, the latter choice will lower your economy's recorded GDP and might make you look bad/incompetent, even if the real value generated by domestic housework is very high. Problems with metrics create problems with incentives, which eventually may lead to skewed or wrong choices.
  - dragonwriter 9y ago
    > I think the danger is that if you then give both A and B an incentive to increase GDP and tell them that the GDP measures wealth, then they will start paying each other $20, then $40, then $100. Prior to the headline of this article, I've never seen the idea that GDP measures wealth as opposed to activity anywhere. And I don't think anyone is going to be convinced that spending more money for no stuff and ending up with no more money in the bank at the end of the day is increasing their wealth, no matter what you tell them about GDP. In fact, I suspect the main outcome of what you suggest would be to convince people that you were wrong that GDP is a wealth measure (although people with a strong pre-existing belief that GDP does measure wealth might incorrectly be convinced that you just don't know what GDP means).
    - smallnamespace 9y ago
      Replace 'wealth' with 'value-generating economic activity'. The basic point is that GDP fails to measure very well whatever it is claimed to measure, whatever language you prefer to use to call it. Economics is fraught with this sort of semantic debate because what one person calls 'wealth' another will disagree with.

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.

smallnamespace 9y ago
> they also have very little chance of happening in our economy Not if policymakers are judged based on GDP figures, in which case they will have an incentive to encourage these sorts of transactions to happen.

PeterisP 9y ago

"Replace eat poop with anything" is a good point. Let's suppose A pays B $20 to play a song for them. And then B pays A $20 for a haircut. They have exactly as much money as they began with, but it does increase prosperity, they both are better off, they got something useful that they desired, they each received (and also produced) valuable services worth $20; and thus the total prosperity (and also GDP) grew by $40. If watching someone eat poop isn't worth $20k, then they wouldn't pay each other to do so, and the scenario wouldn't happen; but in general the analogy for exchanging services is quite spot on.

smallnamespace 9y ago
I think the danger is that if you then give both A and B an incentive to increase GDP and tell them that the GDP measures wealth, then they will start paying each other $20, then $40, then $100. In and of itself that isn't harmful, but if you conclude from this that you are getting wealthier and wealthier then you might end up lying to yourself and making bad decisions based on this. As a concrete example, women have slowly moved out of the domestic sphere and into the workplace. At the same time, child care and rearing have become booming industries. Both these things increase GDP. But the question is whether all the increase in GDP is real economic value, or whether a significant portion of it is just recording value that used to have $0 attributed to it (e.g. domestic housework, rearing and educating children, home-cooked meals). And a secondary question is whether continuing to push women to work even if they would rather stay at home is the right approach, because if you are a government policymaker, the latter choice will lower your economy's recorded GDP and might make you look bad/incompetent, even if the real value generated by domestic housework is very high. Problems with metrics create problems with incentives, which eventually may lead to skewed or wrong choices.
- dragonwriter 9y ago
  > I think the danger is that if you then give both A and B an incentive to increase GDP and tell them that the GDP measures wealth, then they will start paying each other $20, then $40, then $100. Prior to the headline of this article, I've never seen the idea that GDP measures wealth as opposed to activity anywhere. And I don't think anyone is going to be convinced that spending more money for no stuff and ending up with no more money in the bank at the end of the day is increasing their wealth, no matter what you tell them about GDP. In fact, I suspect the main outcome of what you suggest would be to convince people that you were wrong that GDP is a wealth measure (although people with a strong pre-existing belief that GDP does measure wealth might incorrectly be convinced that you just don't know what GDP means).
  - smallnamespace 9y ago
    Replace 'wealth' with 'value-generating economic activity'. The basic point is that GDP fails to measure very well whatever it is claimed to measure, whatever language you prefer to use to call it. Economics is fraught with this sort of semantic debate because what one person calls 'wealth' another will disagree with.