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>you would need to continuously improve efficiency and that's hard. You can't improve efficiency without creating growth. If you find a way to create widget X

>you would need to continuously improve efficiency and that's hard. You can't improve efficiency without creating growth. If you find a way to create widget X twice as efficiently using less resources, that will show up in GDP growth (or at least idealised GDP; obviously the actual number is subject to approximation error).

dwiel 7y ago
You mean because with cheaper widgets, demand would increase and so monetary value of finished goods and would rise and so GDP as well? Wouldn't GDP actually decrease if the same number of widgets are made, but now for cheaper and so through competition have less "value"?
- vlovich123 7y ago
  What if halving the price now makes it possible to start producing a new product not economically feasible before? Hell the phone you use is only possible because of continued minituarization and cost cutting of previous generations’ computers.
- logicchains 7y ago
  >Wouldn't GDP actually decrease if the same number of widgets are made, but now for cheaper and so through competition have less "value"? Cheaper doesn't mean less "value". If we have inflation, prices go up but value doesn't increase, and if deflation decreases prices, that doesn't mean a decrease in value. GDP calculations try to account for this, to capture the fact that e.g. a $500 phone today contains a lot more "value" than a $500 phone from 1995. GDP would hence (ideally) account for the change in value-per-dollar. It would also include whatever new output was made possible by there being more resources left over now due to less being spent to fulfill people's widget needs (i.e. the money now not being spent on widgets will instead be invested or spent on something else).
  - dwiel 7y ago
    Thanks for answering my honest questions. I didn't realize GDP accounts for perceived value. I had assumed it was restricted to the economic value strictly defined by the dollar. Thanks.
    - logicchains 7y ago
      No worries! And sorry to see you were downvoted for asking an honest question, for the record I didn't downvote you.
Bjartr 7y ago
Why is it a given that this will show up as GDP growth, even accounting for approximation error? If I make widget X twice as efficiently and buy fewer resources, isn't that a GDP loss? Or is there an assumption that I would make twice as many widgets and purchase the same resources AND be able to sell twice as many?
- logicchains 7y ago
  The idea is roughly that the remaining resources (that purchasers save by paying half as much, and you save due to being more efficient) would be used to produce something else that previously didn't exist, so the total amount of "stuff"/"product" produced would be greater. Now, you might wonder if X was saved, but then X was spent on something else, doesn't GDP remain the same? No, because GDP is supposed to capture extra output, so GDP calculations would (try to) factor in the fact that you can now get more widgets per unit money. The is not easy to do, but is attempted, so GDP today for instance tries to capture the fact $1000 of computer buys way more "compute" than $1000 of computer did 30 years ago. Now, what if you did nothing with the extra money saved from being more efficient, and the widget purchasers did nothing with the money saved from it being cheaper (maybe they put it under their bed, or burned it)? This will still (in theory) show up in GDP because it reduces the money supply, hence increases the value of money, essentially transferring purchasing power from the money burner to the other people in the economy, which they could then use to produce more things than previously.
  - Bjartr 7y ago
    Aha, thanks for the explanation, it's just what I was looking for. I thought GDP was more blunt than that.
    - logicchains 7y ago
      No problem, happy to explain. Sorry to see you downvoted for asking a question; for the record I didn't downvote you.

dwiel 7y ago

You mean because with cheaper widgets, demand would increase and so monetary value of finished goods and would rise and so GDP as well? Wouldn't GDP actually decrease if the same number of widgets are made, but now for cheaper and so through competition have less "value"?

vlovich123 7y ago
What if halving the price now makes it possible to start producing a new product not economically feasible before? Hell the phone you use is only possible because of continued minituarization and cost cutting of previous generations’ computers.
logicchains 7y ago
>Wouldn't GDP actually decrease if the same number of widgets are made, but now for cheaper and so through competition have less "value"? Cheaper doesn't mean less "value". If we have inflation, prices go up but value doesn't increase, and if deflation decreases prices, that doesn't mean a decrease in value. GDP calculations try to account for this, to capture the fact that e.g. a $500 phone today contains a lot more "value" than a $500 phone from 1995. GDP would hence (ideally) account for the change in value-per-dollar. It would also include whatever new output was made possible by there being more resources left over now due to less being spent to fulfill people's widget needs (i.e. the money now not being spent on widgets will instead be invested or spent on something else).
- dwiel 7y ago
  Thanks for answering my honest questions. I didn't realize GDP accounts for perceived value. I had assumed it was restricted to the economic value strictly defined by the dollar. Thanks.
  - logicchains 7y ago
    No worries! And sorry to see you were downvoted for asking an honest question, for the record I didn't downvote you.

Bjartr 7y ago

Why is it a given that this will show up as GDP growth, even accounting for approximation error? If I make widget X twice as efficiently and buy fewer resources, isn't that a GDP loss? Or is there an assumption that I would make twice as many widgets and purchase the same resources AND be able to sell twice as many?

logicchains 7y ago
The idea is roughly that the remaining resources (that purchasers save by paying half as much, and you save due to being more efficient) would be used to produce something else that previously didn't exist, so the total amount of "stuff"/"product" produced would be greater. Now, you might wonder if X was saved, but then X was spent on something else, doesn't GDP remain the same? No, because GDP is supposed to capture extra output, so GDP calculations would (try to) factor in the fact that you can now get more widgets per unit money. The is not easy to do, but is attempted, so GDP today for instance tries to capture the fact $1000 of computer buys way more "compute" than $1000 of computer did 30 years ago. Now, what if you did nothing with the extra money saved from being more efficient, and the widget purchasers did nothing with the money saved from it being cheaper (maybe they put it under their bed, or burned it)? This will still (in theory) show up in GDP because it reduces the money supply, hence increases the value of money, essentially transferring purchasing power from the money burner to the other people in the economy, which they could then use to produce more things than previously.
- Bjartr 7y ago
  Aha, thanks for the explanation, it's just what I was looking for. I thought GDP was more blunt than that.
  - logicchains 7y ago
    No problem, happy to explain. Sorry to see you downvoted for asking a question; for the record I didn't downvote you.