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If 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 permane

If 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 ago
  Yes, 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.
  - stretchwithme 9y ago
    I should say that the housework we do ourselves is not captured in GDP.
    - wahern 9y ago
      Sure it is. It's captured by its effect on our overall productivity. A significant share of the growth in U.S. GDP since the 1970s can be attributed to women leaving the home and entering the workforce. It's not that they were doing any less work beforehand, but a woman who sucked at housework but excelled at piloting an aircraft could work more productively, improving overall efficiency of the economy. GDP didn't grow simply because her work was now measurable in dollars and cents. People lament that to have a similar standard of living today as 60 years ago, a family needs two wage earners. Yes, and part of the reason is because women entering the workforce _depressed_ wages. In other words, as women earned more money men began earning less. (Except it happened slow enough that men's absolute earnings never declined, they just grew more slowly.) Nonetheless, we're all better off when a woman can make better use of her unique skills. Our economy became more efficient overall, so overall GDP went up commensurately. Many of the criticisms in that article aren't pertinent to a large, diverse economy like the United States. No economist believes that the GDP figures for a natural-resource intensive economy are as meaningful as for the U.S. They can absolutely be meaningful in some contexts, but are obviously less meaningful in others. Kudos to the journalist for admitting his young naivety, but he's assuming that the his elder contemporaries at the time were similarly naive about the limitations of GDP. The better assumption is that economists in the 1990s that had the same amount of experience as he enjoys today were similarly wise to the limitations of GDP. Analogies about personal GDP don't work very well. GDP is a macroscopic view that is predicated on various behaviors averaging out. If you had an economy of a single person who only did housework, GDP is obviously useless. But so what? That doesn't say much of anything about it's utility for measuring the overall productive capacity of a huge, diverse economy. Regarding the relevancy of GDP to Japan... that's why we have metrics like per capita GDP and metrics like the Gini coefficient. Japan is shrinking thus their rate of growth in GDP will slow if not shrink. As a population grows you can asymptotically approach a more efficient allocation of labour and resources, but if its not growing or shrinking you lose out on that avenue for improved productivity. If your entire economy is a single, two-person household, someone will invariably have to specialize in doing housework all day while the other works outdoors. If you have an economy of 300 million, you can out-source both mundane housework and mundane outdoor work and everybody gets more work done overall; certainly more so than an economy of two, but also more so than an economy of 200 million. But population growth isn't the only opportunity to improve productivity. Japan has a high quality of life partly because of low inequality and thus a low Gini coefficient. Higher inequality tends to signal a more inefficient allocation of labor and resources. Which isn't to say that Japan doesn't have room to improve efficiency (sex inequality is still a big thing), but in many respects they're in a better place than the U.S. to begin with. Like the the case with natural-resource intensive economies, the Gini coefficient tells us something about the accuracy and meaning of GDP, except in a quantified way. (And if you can't quantify something, you can't easily apply that knowledge.) A high Gini coefficient (and high inequality) suggests that we should be more careful about the conclusions we draw from GDP. In particular it suggests that our presumptions about things "averaging out" are more questionable. Inferences about particular details of the economy will be less accurate, and predictions more volatile. So it's not so much the case that GDP is a poorer way to measure quality of life in Japan, it's that because of our higher Gini coefficient it's a poorer way to measure quality of life in the U.S. OTOH, it also follows that over the period where GDP growth in Japan has slowed relative to U.S. GDP growth, quality of life in the U.S. has probably in many ways improved faster. The effects mitigated, of course, by our inequality. Likewise, we can find all sorts of fault in how accurately GDP reflects particular details about China, but in relative terms if quite obviously reflects (as expected) a rapidly improving quality of life.
lordnacho 9y ago
I think a more apt example is this. It's definitely bad to live in a society where violence and robbery are common. We'd rather be without those things. But if everyone spends money on bodyguards, that ends up in GDP. In a comparable society where violence and robbery was not common, you would use the money for other things that are definitely preferred over giving it to bodyguards, security camera shops, locksmiths, and so on. So measuring GDP in the way we do is defective; it gives near equal figures for both societies when clearly one is better than the other.
- dragonwriter 9y ago
  Everyone knows GDP (and all other existing economic measures) are imperfect, limited tools that don't capture all meaningful variations. That's not a meaningful criticism of using GDP at all, or of using it as the headline measure of economic performance. To validly criticize using GDP as the headline measure, you need to show not merely that GDP is flawed, but that there is an alternative measure that can be practically calculated that is on-balance better at capturing the overall picture. To validly criticize using GDP at all, you need to go further and make the case that there is no purpose for which there is not a better measure available. “GDP doesn't capture the whole picture” is an easy but meaningless criticism.
  - naravara 9y ago
    >To validly criticize using GDP as the headline measure, you need to show not merely that GDP is flawed, but that there is an alternative measure that can be practically calculated that is on-balance better at capturing the overall picture. Why? Maybe we should be more humble about what metrics can and can’t do for us. Maybe we should admit that many of the things that matter to us are subjective rather than avoiding the difficult questions by fixating only on things that appeal to positivists?
    - dragonwriter 9y ago
      > Why? Because if it's the best tool we have for a purpose, then it's the right tool for that purpose even if it's not the platonic ideal of a tool for that purpose. > Maybe we should be more humble about what metrics can and can’t do for us. Not only do I agree with that, I've made the same point elsewhere in this thread: https://news.ycombinator.com/item?id=16082943 https://news.ycombinator.com/item?id=16082943
mhh__ 9y ago
> If I invented a cheap machine that did all your housework and fixed your car for free, GDP would fall. If we take "free" to mean something along the lines of [Negligible compared to current cost] - i.e. no free lunch: Is it not the case that this has already happened, at least in terms of technological advance (of a similar magnitude), and overall GDP has not fallen. Or, by GDP falling, do you mean in ideal conditions where nothing else changes (i.e. All other variables held constant)?
InclinedPlane 9y ago
If I invented an expensive machine that destroyed your house then GDP would increase because manufacturing the machine (and rebuilding the house) count as economic activity. This is a big problem with military spending as reflected in GDP. GDP isn't a measure of wealth or quality of life it's a measure of economic activity that is mostly relevant in regards to trade and almost nothing else.
- dragonwriter 9y ago
  > If I invented an expensive machine that destroyed your house then GDP would increase because manufacturing the machine (and rebuilding the house) count as economic activity. This is again a faulty assumption; while they would count as economic activity, it likely wouldn't be additional economic activity, but displacing economic activity that would otherwise take place, especially the house rebuilding. Also, destroying someone’s house doesn't guarantee it gets rebuilt, anyway.
  - InclinedPlane 9y ago
    Sure it would. Why are you building a house destroying machine (let's say tank) in the first place? Let's say it's because your nation is going to war, and has gone into deep deficit spending to finance high levels of production of war materiel. That's a lot of economic activity that wouldn't have happened otherwise. Similarly another nation going to war and paying you to build them tanks might be a similar situation. This isn't hypothetical. In the US GDP and military spending went way, way up during WWII though overall quality of life remained stagnant or went down (due to rationing). Only after the war when production capacity was re-allocated toward consumer goods did quality of life and wealth start to increase. The same is true for houses. Not having a house (or lots of people being recently deprived of houses) is great motivation for building houses. Lots of resources get leveraged that would not normally have been leveraged. The economy isn't a zero sum game, even in regards to production capacity. You notice this all the time when there's a recession or a boom. Total capacity (manufacturing, home building) is elastic, it responds to demand, and that can vary a great deal on a huge number of factors. Destroying a house doesn't guarantee it gets rebuilt, but destroying lots of houses will typically be associated with a lot of home building in response.
james1071 9y ago
That's not correct. In general, the effect of new technology is to increase the output of the economy - we get more stuff. This translates into a higher GDP. Now, consider your specific example. The effect of the machine would be to free up time for people to do other things. Some of this might be increased leisure (not capured by GDP) , while some of it will be increased output in the economy, which will show up as increased GDP. Your comment about individuals striving to increase GDP is silly - GDP is an aggregate statistic and the result of people trying to maximise their own personal welfare.
- maxander 9y ago
  If someone invents a machine that does some necessary consumer-level work (say, a washing machine) and the result is not increased leisure, something is Very Wrong. Sure, we could spend the time we save doing dishes on productive labor, but this wasn't time we owed to the workforce in the first place. "Increased activity occupies surplus generated by increased efficiency" works for corporations, which is why economists like it, but not for humans, which is GP's point. In fact, GDP is only of practical utility at all insofar as that equation does not hold, since leisure and autonomy and generally not-being-beholden-to-work is the economic end of "human welfare." There's other points, which I think GP was referencing in a less clear way, about how GDP measures all sorts of economic "activity" that is useless altogether- financial speculation in bubbles, competing advertisement campaigns, etc. But the main point is that GDP is a measure of output, not welfare, and for humans (all else being equal) we're better off the less that we're required to do.
  - naravara 9y ago
    >someone invents a machine that does some necessary consumer-level work (say, a washing machine) and the result is not increased leisure, something is Very Wrong. Leisure isn’t free though. Increased leisure time is going to create work/spending in other areas. So you save time on household chores due to the cheap machine, that means you probably end up spending more money on your leisure activities. You buy more books, video games, hiking boots, sports gear, etc.
jabl 9y ago
> If I invented a cheap machine that did all your housework and fixed your car for free, GDP would fall. This experiment has (partly) been made, not that many decades ago, actually. The introduction of many household appliances like the washing machine, the dishwasher, and the vacuum cleaner reduced the amount (mostly women) spent doing house chores, and allowed women to enter the workforce.
cryptonector 9y ago
GDP wouldn't necessarily go up nor down due to such an invention. However, a useful invention that increases productivity (as yours undoubtedly would!)... frees up resources (capital and labor) for other uses, which, if they're actually put to such other uses, may well lead to additional production. Don't fall for the ATM fallacy (that ATMs killed the bank teller job, therefore made people poorer -- they did not do the latter!). It's true that malinvestment initially shows up as growth, but later turns into a destructive, recessionary force. Maximizing current GDP is not the same thing as maximizing future GDP. The latter is a much better activity, while the former can lead to ruin. Exactly as you say. But, at the end of the day, with all economic activity aggregated, measures like GDP are actually useful and meaningful. Of course, context helps. Growing GDP in a context of massive malinvestment is definitely not a good thing!
GreeniFi 9y ago
The biggest beef I have with GDP is that it does not capture how we run down natural capital to create financial capital. Pollute our seas, cut down our forests, poison our air: this is all a capital loss, but reflected as a financial gain in GDP statistics, even though finance is a human abstraction and our natural capital is real. In Swahili, the word for nauture is maliasili, also translated as ‘genuine wealth’. We have something to learn from that.
- beiller 9y ago
  Something I always find interesting is the word Eco-Nomics which is a greek and latin mashup for "study of the home", but still the Eco prefix seems to have a similar meaning here.

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 ago
Yes, 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.
- stretchwithme 9y ago
  I should say that the housework we do ourselves is not captured in GDP.
  - wahern 9y ago
    Sure it is. It's captured by its effect on our overall productivity. A significant share of the growth in U.S. GDP since the 1970s can be attributed to women leaving the home and entering the workforce. It's not that they were doing any less work beforehand, but a woman who sucked at housework but excelled at piloting an aircraft could work more productively, improving overall efficiency of the economy. GDP didn't grow simply because her work was now measurable in dollars and cents. People lament that to have a similar standard of living today as 60 years ago, a family needs two wage earners. Yes, and part of the reason is because women entering the workforce _depressed_ wages. In other words, as women earned more money men began earning less. (Except it happened slow enough that men's absolute earnings never declined, they just grew more slowly.) Nonetheless, we're all better off when a woman can make better use of her unique skills. Our economy became more efficient overall, so overall GDP went up commensurately. Many of the criticisms in that article aren't pertinent to a large, diverse economy like the United States. No economist believes that the GDP figures for a natural-resource intensive economy are as meaningful as for the U.S. They can absolutely be meaningful in some contexts, but are obviously less meaningful in others. Kudos to the journalist for admitting his young naivety, but he's assuming that the his elder contemporaries at the time were similarly naive about the limitations of GDP. The better assumption is that economists in the 1990s that had the same amount of experience as he enjoys today were similarly wise to the limitations of GDP. Analogies about personal GDP don't work very well. GDP is a macroscopic view that is predicated on various behaviors averaging out. If you had an economy of a single person who only did housework, GDP is obviously useless. But so what? That doesn't say much of anything about it's utility for measuring the overall productive capacity of a huge, diverse economy. Regarding the relevancy of GDP to Japan... that's why we have metrics like per capita GDP and metrics like the Gini coefficient. Japan is shrinking thus their rate of growth in GDP will slow if not shrink. As a population grows you can asymptotically approach a more efficient allocation of labour and resources, but if its not growing or shrinking you lose out on that avenue for improved productivity. If your entire economy is a single, two-person household, someone will invariably have to specialize in doing housework all day while the other works outdoors. If you have an economy of 300 million, you can out-source both mundane housework and mundane outdoor work and everybody gets more work done overall; certainly more so than an economy of two, but also more so than an economy of 200 million. But population growth isn't the only opportunity to improve productivity. Japan has a high quality of life partly because of low inequality and thus a low Gini coefficient. Higher inequality tends to signal a more inefficient allocation of labor and resources. Which isn't to say that Japan doesn't have room to improve efficiency (sex inequality is still a big thing), but in many respects they're in a better place than the U.S. to begin with. Like the the case with natural-resource intensive economies, the Gini coefficient tells us something about the accuracy and meaning of GDP, except in a quantified way. (And if you can't quantify something, you can't easily apply that knowledge.) A high Gini coefficient (and high inequality) suggests that we should be more careful about the conclusions we draw from GDP. In particular it suggests that our presumptions about things "averaging out" are more questionable. Inferences about particular details of the economy will be less accurate, and predictions more volatile. So it's not so much the case that GDP is a poorer way to measure quality of life in Japan, it's that because of our higher Gini coefficient it's a poorer way to measure quality of life in the U.S. OTOH, it also follows that over the period where GDP growth in Japan has slowed relative to U.S. GDP growth, quality of life in the U.S. has probably in many ways improved faster. The effects mitigated, of course, by our inequality. Likewise, we can find all sorts of fault in how accurately GDP reflects particular details about China, but in relative terms if quite obviously reflects (as expected) a rapidly improving quality of life.

lordnacho 9y ago

I think a more apt example is this. It's definitely bad to live in a society where violence and robbery are common. We'd rather be without those things. But if everyone spends money on bodyguards, that ends up in GDP. In a comparable society where violence and robbery was not common, you would use the money for other things that are definitely preferred over giving it to bodyguards, security camera shops, locksmiths, and so on. So measuring GDP in the way we do is defective; it gives near equal figures for both societies when clearly one is better than the other.

dragonwriter 9y ago
Everyone knows GDP (and all other existing economic measures) are imperfect, limited tools that don't capture all meaningful variations. That's not a meaningful criticism of using GDP at all, or of using it as the headline measure of economic performance. To validly criticize using GDP as the headline measure, you need to show not merely that GDP is flawed, but that there is an alternative measure that can be practically calculated that is on-balance better at capturing the overall picture. To validly criticize using GDP at all, you need to go further and make the case that there is no purpose for which there is not a better measure available. “GDP doesn't capture the whole picture” is an easy but meaningless criticism.
- naravara 9y ago
  >To validly criticize using GDP as the headline measure, you need to show not merely that GDP is flawed, but that there is an alternative measure that can be practically calculated that is on-balance better at capturing the overall picture. Why? Maybe we should be more humble about what metrics can and can’t do for us. Maybe we should admit that many of the things that matter to us are subjective rather than avoiding the difficult questions by fixating only on things that appeal to positivists?
  - dragonwriter 9y ago
    > Why? Because if it's the best tool we have for a purpose, then it's the right tool for that purpose even if it's not the platonic ideal of a tool for that purpose. > Maybe we should be more humble about what metrics can and can’t do for us. Not only do I agree with that, I've made the same point elsewhere in this thread: https://news.ycombinator.com/item?id=16082943 https://news.ycombinator.com/item?id=16082943

mhh__ 9y ago

> If I invented a cheap machine that did all your housework and fixed your car for free, GDP would fall. If we take "free" to mean something along the lines of [Negligible compared to current cost] - i.e. no free lunch: Is it not the case that this has already happened, at least in terms of technological advance (of a similar magnitude), and overall GDP has not fallen. Or, by GDP falling, do you mean in ideal conditions where nothing else changes (i.e. All other variables held constant)?

InclinedPlane 9y ago

If I invented an expensive machine that destroyed your house then GDP would increase because manufacturing the machine (and rebuilding the house) count as economic activity. This is a big problem with military spending as reflected in GDP. GDP isn't a measure of wealth or quality of life it's a measure of economic activity that is mostly relevant in regards to trade and almost nothing else.

dragonwriter 9y ago
> If I invented an expensive machine that destroyed your house then GDP would increase because manufacturing the machine (and rebuilding the house) count as economic activity. This is again a faulty assumption; while they would count as economic activity, it likely wouldn't be additional economic activity, but displacing economic activity that would otherwise take place, especially the house rebuilding. Also, destroying someone’s house doesn't guarantee it gets rebuilt, anyway.
- InclinedPlane 9y ago
  Sure it would. Why are you building a house destroying machine (let's say tank) in the first place? Let's say it's because your nation is going to war, and has gone into deep deficit spending to finance high levels of production of war materiel. That's a lot of economic activity that wouldn't have happened otherwise. Similarly another nation going to war and paying you to build them tanks might be a similar situation. This isn't hypothetical. In the US GDP and military spending went way, way up during WWII though overall quality of life remained stagnant or went down (due to rationing). Only after the war when production capacity was re-allocated toward consumer goods did quality of life and wealth start to increase. The same is true for houses. Not having a house (or lots of people being recently deprived of houses) is great motivation for building houses. Lots of resources get leveraged that would not normally have been leveraged. The economy isn't a zero sum game, even in regards to production capacity. You notice this all the time when there's a recession or a boom. Total capacity (manufacturing, home building) is elastic, it responds to demand, and that can vary a great deal on a huge number of factors. Destroying a house doesn't guarantee it gets rebuilt, but destroying lots of houses will typically be associated with a lot of home building in response.

james1071 9y ago

That's not correct. In general, the effect of new technology is to increase the output of the economy - we get more stuff. This translates into a higher GDP. Now, consider your specific example. The effect of the machine would be to free up time for people to do other things. Some of this might be increased leisure (not capured by GDP) , while some of it will be increased output in the economy, which will show up as increased GDP. Your comment about individuals striving to increase GDP is silly - GDP is an aggregate statistic and the result of people trying to maximise their own personal welfare.

maxander 9y ago
If someone invents a machine that does some necessary consumer-level work (say, a washing machine) and the result is not increased leisure, something is Very Wrong. Sure, we could spend the time we save doing dishes on productive labor, but this wasn't time we owed to the workforce in the first place. "Increased activity occupies surplus generated by increased efficiency" works for corporations, which is why economists like it, but not for humans, which is GP's point. In fact, GDP is only of practical utility at all insofar as that equation does not hold, since leisure and autonomy and generally not-being-beholden-to-work is the economic end of "human welfare." There's other points, which I think GP was referencing in a less clear way, about how GDP measures all sorts of economic "activity" that is useless altogether- financial speculation in bubbles, competing advertisement campaigns, etc. But the main point is that GDP is a measure of output, not welfare, and for humans (all else being equal) we're better off the less that we're required to do.
- naravara 9y ago
  >someone invents a machine that does some necessary consumer-level work (say, a washing machine) and the result is not increased leisure, something is Very Wrong. Leisure isn’t free though. Increased leisure time is going to create work/spending in other areas. So you save time on household chores due to the cheap machine, that means you probably end up spending more money on your leisure activities. You buy more books, video games, hiking boots, sports gear, etc.

jabl 9y ago

> If I invented a cheap machine that did all your housework and fixed your car for free, GDP would fall. This experiment has (partly) been made, not that many decades ago, actually. The introduction of many household appliances like the washing machine, the dishwasher, and the vacuum cleaner reduced the amount (mostly women) spent doing house chores, and allowed women to enter the workforce.

cryptonector 9y ago

GDP wouldn't necessarily go up nor down due to such an invention. However, a useful invention that increases productivity (as yours undoubtedly would!)... frees up resources (capital and labor) for other uses, which, if they're actually put to such other uses, may well lead to additional production. Don't fall for the ATM fallacy (that ATMs killed the bank teller job, therefore made people poorer -- they did not do the latter!). It's true that malinvestment initially shows up as growth, but later turns into a destructive, recessionary force. Maximizing current GDP is not the same thing as maximizing future GDP. The latter is a much better activity, while the former can lead to ruin. Exactly as you say. But, at the end of the day, with all economic activity aggregated, measures like GDP are actually useful and meaningful. Of course, context helps. Growing GDP in a context of massive malinvestment is definitely not a good thing!

GreeniFi 9y ago

The biggest beef I have with GDP is that it does not capture how we run down natural capital to create financial capital. Pollute our seas, cut down our forests, poison our air: this is all a capital loss, but reflected as a financial gain in GDP statistics, even though finance is a human abstraction and our natural capital is real. In Swahili, the word for nauture is maliasili, also translated as ‘genuine wealth’. We have something to learn from that.

beiller 9y ago
Something I always find interesting is the word Eco-Nomics which is a greek and latin mashup for "study of the home", but still the Eco prefix seems to have a similar meaning here.