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A 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 pic
by FiatLuxDave 9y ago
A 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.
- neilwilson 9y agoYou can get the same effect by looking at the unemployment queue.