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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 resource
by 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 agoThe 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 agoAha, thanks for the explanation, it's just what I was looking for. I thought GDP was more blunt than that.
- logicchains 7y agoNo problem, happy to explain. Sorry to see you downvoted for asking a question; for the record I didn't downvote you.