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It's hard to take this seriously when the author mixes up the basic meaning of GDP. > For example, when economists think about how “the economy” is doing, they
by jstx1 4y ago
It's hard to take this seriously when the author mixes up the basic meaning of GDP.
> For example, when economists think about how “the economy” is doing, they have traditionally focused on total income (GDP) or per-capita income (mean GDP) as the most important measure.
No, they don't. GDP isn't income at all, they're completely different metrics.
And in fact the article never mentions "median GDP" like the posted title suggests, it switches to "median income" because median GDP isn't even a thing that you can calculate since it's not a metric that exists for each individual person (therefore no median).
How did this get to the front page?
- targ65 4y ago> How did this get to the front page? It’s Sunday.
- adam_arthur 4y agoTo elaborate further, nominal GDP is the number of dollars spent in the economy. Nothing to do with income
- missedthecue 4y agoDoesn't income equal expenditure? They are one and the same.
- adam_arthur 4y agoThey're not the same. Velocity of money affects GDP. e.g. you spend a dollar, how quickly does that other person spend that same dollar. Business to business spending is in GDP. Leveraged buying such as real estate is in GDP. Government spending is in GDP. Trade imbalances affect GDP. People can save rather than spend their income, etc. Pretty clear
- missedthecue 4y agoBut the velocity of money doesn't change that. $1 spent is $1 of income no matter how or where it's spent. Every transaction necessarily has a buyer and a seller
- adam_arthur 4y agoIncome has nothing to do with GDP. Maybe do some research before littering the comments with uneducated takes. And real income/GDP is what matters more in the end anyway. E.g. nominal wage increases aren't beneficial to people if their spending power is in decline
- missedthecue 4y agoAre you confusing the economic term "income" with wages?
- adam_arthur 4y agoWe're taking about the colloquial definition of income as per the author's mistake with wages. And yes even income of producers is not GDP, because you have to factor in imports/exports
- tremon 4y agoThe same dollar changing hands every day for a week contributes $7 to the national GDP. A dollar changing hands only once contributes $1 to the national GDP.
- reactspa 4y agoI too am interested in the difference between GDP and Income, and my usual sources (e.g. Wikipedia) don't satisfy. 1) Regarding velocity: if the other person quickly spends that same dollar, unless they spend it abroad, wouldn't it end up as someone else's income, domestically? So why should velocity matter? 2) Request you to elaborate your explanation using the example of a real country whose per capita GDP and per capita Income differ substantially.
- adam_arthur 4y agoIf people in the US buy things from China, the income they earn does not contribute to US GDP. One example. These are basic concepts with clear definitions. Why so many argumentative comments trying to dispute a textbook definition? Look it up first and stop spreading false information
- jltsiren 4y ago> If people in the US buy things from China, the income they earn does not contribute to US GDP. The income has already contributed to US GDP, by definition. The person has already produced goods or services and someone else has spent money on them, which becomes the income of the person in question. If the US person then buys Chinese goods, their expenditure does not contribute to US GDP.
- adam_arthur 4y agoYes, thank you for proving my point. How people elect to spend their income affects GDP, thus income does not equal GDP. Have you figured it out yet?
- jltsiren 4y agoYou are looking at this the wrong way, from an individual perspective. National economy is about production, not consumption. Income is something that has already been earned, not something you choose to spend. Production comes first, and then expenditure gives it value and turns it into income. The way GDP is defined, the sum of domestic production in a time period is always the same as the sum of domestic expenditure and the sum of domestic income. If someone buys Chinese goods, they contribute to Chinese production, expenditure, and income.
- gruez 4y ago>Leveraged buying such as real estate is in GDP Not really. Building new houses contributes to GDP, as does renovating it, but if you're buying an existing house the only part that contributes to GDP is the realtor/lawyer fees. https://www.nahb.org/news-and-economics/housing-economics/housings-economic-impact/housings-contribution-to-gross-domestic-product https://www.nahb.org/news-and-economics/housing-economics/ho...
- adam_arthur 4y agoHow do you think new construction is financed? What do you think has been the biggest contributor to Chinese GDP growth? Yet you say "not really", which is obviously wrong. Leverage impacts GDP, yes, and in a big way.
- tedsanders 4y agoYes, they are the same. Economists consider GDP and GDI as two measurements of the same thing: https://www.stlouisfed.org/on-the-economy/2016/march/better-measurement-output-gdp-gdi https://www.stlouisfed.org/on-the-economy/2016/march/better-...
- adam_arthur 4y agoGDI is not people's wages which is what the author mistakes. And GDI is not GDP because trade factors need to be netted out. Directly from your link: "Because the two series are measured differently" I forgot that two correlated series means they're the same thing. Huh
- gizmo686 4y ago> In principle, these two series measure the same object. Measurements have errors, particularly with something as complicated as the economy. The series are correlated because they are different measurements of the same underlying quantity. The correlation is not perfect because they measure that quantity differently, and so have different errors. There being 3 different ways of measuring GDP (income, expendeture, and production) is not controversial. I am struggling to find any source on GDP measuring methodologies that does not acknowledge all 3. Put another way, what produced value does not end up as income on someone's balance sheet; and an expense on someone else's? Yes, a nation's economy is not a closed system, so you need to account for imports and exports, and this accounting manifests differently depending on which methedology you use.
- jltsiren 4y agoGDP is the sum of the market values of all final goods and services produced. It can be determined equivalently by measuring production (or added value), income, or expenditure. "Final" is the key word: middlemen and other intermediate steps don't affect the GDP. Then there is GNI, or gross national income, which is basically GDP with some adjustments for international situations. In most cases, GDP and GNI are within a few percent of each other.
- adam_arthur 4y agoIncome is not GDP. A US citizen buying a Chinese good does not contribute to US GDP. Can all these uneducated commenters please stop misleading people about very clear economic concepts. Lookup how the velocity of money is calculated in relation to GDP and it will be more clear to you and others
- jltsiren 4y agoIf a US resident (citizenship is irrelevant) buys Chinese goods, the money spent does not contribute to US domestic production, income, or expediture. The income they use to pay for the goods is based on domestic production / expenditure. The velocity of money is the ratio of GNI to money supply. I don't see how it's relevant here.
- adam_arthur 4y ago
- dang 4y agoCan you please not post like this, or like the comment upthread? If you know more than others, that's great, but in that case, please share some of what you know so the rest of us can learn, and definitely please don't put down those who know less, even if you find them annoying sometimes. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sort=byDate&type=comment&query=share%20know%20learn%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...
- JumpCrisscross 4y ago> nominal GDP is the number of dollars spent in the economy. Nothing to do with income Dollars spent by one are earned by another. This is captured in the twin calculations of GDP: the expenditure approach and the income approach [1]. (NX and NFI being the border adjustment variables.) [1] https://corporatefinanceinstitute.com/resources/knowledge/economics/gdp-formula/ https://corporatefinanceinstitute.com/resources/knowledge/ec...
- adam_arthur 4y agoThis is producers income, not wages as is obviously what is being referenced in this thread, and the layman's definition of income And dollars spent on imports do not increase local GDP
- JumpCrisscross 4y ago> producers income, not wages TNI is the sum of all "sum of all wages, rent, interest, and profits." Wages are in GDP because the purchase and sale of labour is a transaction. Even in the expenditure approach, G includes government employees' wages. Did you click the CFI link? The "What is the GDP Formula?" section is less than 200 words. > dollars spent on imports do not increase local GDP No. Hence the NX/NFI border adjustment. (In the income approach we count foreigners' domestic incomes and citizens' foreign incomes instead of exports and imports.)
- adam_arthur 4y agoWages being included as a component in GDP calculation does not make wages equal to GDP.
- HFguy 4y agoYa...good question.
- nohuck13 4y ago> GDP isn't income at all, they're completely different metrics. Please explain where income comes from if not from the sum of goods and services produced?
- ACow_Adonis 4y agowell, for a start, flows and holdings on foreign investments, interest and monetary flows, international trade, consumption of existing stock (depending on your particular definition of income). but either way, he's fundamentally right.
- nohuck13 4y agoNo, it's just wrong to say they're completely different metrics. The Venn diagram between the economic activity measured by GNI (national income) and the economic activity measured by GDP is almost a circle. US GDP in 2021 was $23 trillion. US GNI (national income) im 2021: was $23.3 trillion. "monetary flows" You're right, remittances and foreign aid are income but not GDP.
- AlbertCory 4y agoFrom the title, I thought it was going to be a ranking of countries GDP per capita. Never mind :) Since I implemented a median estimate while at Packeteer, I'm always amused by how many "educated" people don't even know the difference between mean and median. Anyhow, "median income" and "median net worth" figures are quoted in the press all the time. There is not some conspiracy to suppress the median.
- bobthepanda 4y agoAgreed. Usually the issue is collecting accurate income data. There are plenty of places where people do not necessarily report accurate pictures of their income, and so comparison is generally harder.
- roflyear 4y ago[flagged]
- EdwardDiego 4y ago> GDP isn't income at all, they're completely different metrics. Not exactly, according to the OECD. https://stats.oecd.org/glossary/detail.asp?ID=1163 https://stats.oecd.org/glossary/detail.asp?ID=1163 > Gross domestic product is an aggregate measure of production equal to the sum of the gross values ... or the sum of primary incomes distributed by resident producer units. I guess it's more nuanced, but I don't have a PhD in economics like the author.
- shric 4y ago> I guess it's more nuanced, but I don't have a PhD in economics like the author. English is funny. I knew exactly what you meant and I'm not saying it's wrong, but it would be read completely the opposite if you had said: I guess it's more nuanced but, like the author, I don't have an PhD in economics.
- sdenton4 4y agoPer the 'about' page, the author of the blog post does in fact have a PhD in economics.
- shric 4y agoYes, that's why I said "I knew exactly what you meant and I'm not saying it's wrong"
- cornstalks 4y ago
- notacoward 4y agoGDP is atrocious, "velocity of money" is worse, but really any attempt to measure "economic well being of most people" (direct quote from OP) based on dollars moving through the financial system is problematic. Finance-industry circle jerks? Counted - often over and over again. Domestic labor (especially child care) by a stay-at-home spouse? Not counted. Made-up increases in asset value? Counted. Barter or charity? Not counted. When GDP is the basis, mean vs. median hardly even makes a difference. Many countries have worked toward better measures of human prosperity, but again the US is falling behind. https://www.scientificamerican.com/article/gdp-is-the-wrong-tool-for-measuring-what-matters/ https://www.scientificamerican.com/article/gdp-is-the-wrong-...
- indymike 4y agoGDP is a blunt force measurement. A country with a high GDP per capita USUALLY (not always) has a higher standard of living that one with a low GDP per capita. Taxation figures heavily into GDP - most taxes end up being measured as a share GDP (and why "financial circle jerks" and "made up increases in asset value" are counted as they eventually... but not always... end up being taxed). That is why "economic growth" is so good for the public sector. More GDP generally means more money to work with. Output that is out of reach of taxation (i.e. domestic labor, barters, charity) is also USUALLY not counted in GDP. Finally, the Scientific American article is a really good read. GDP is not a measure of quality of life, and really never has been. It's just a measure of economic output.
- zeroonetwothree 4y agoOne of the methods of computing GDP is total income. So I would hardly say they are unrelated.
- eru 4y agoYes, gross domestic income and gross domestic product _should_ be exactly the same, if accounting was 100% accurate. That they are different in practice is sort-of a measurement error.
- PeterisP 4y agoWouldn't there be a difference in cases where due to foreign ownership and capital extraction some money would get counted as GDP in one country but GDI in another?
- eru 4y agoThat's not really a problem as far as I can tell. The standard definitions take care of this. Maybe you are confused about gross domestic product vs gross national product?
- aetherson 4y agoGDP has something to do with income, certainly. But I think that the article's author suffers a fundamental failing of understanding of why people look at GDP per capita. It's not because they're trying to understand the experience of individuals within the country at all -- it's because they're trying to understand how rich the country is, normalized to its size.
- awhitby 4y agoTrue as far as it goes, but the fair response to this is: who really cares how rich a country is, normalized to its size? In the If you care about the country as people, then median is better as you point out. But if you care about the country as country, then total is generally more interesting (to understand, say, military power). China's a big deal despite not being particularly rich per capita. On the other hand, the leaders in per capita GDP, outliers like Macau and Luxembourg, are not usually countries people are interested in.
- grog454 4y agoA per capita metric might have a lot more influence on where someone chooses to live, at least for those privileged enough to have a choice.
- aetherson 4y agoFor example, you are trying to figure out which country has a good pro-growth policy regime. You don't want to imagine that India, let's say, has done better at economic development than South Korea, despite India's higher GDP. As one of many examples.
- junofan 4y agoGDP per capita is a yardstick for labor productivity. I’m generally interested in the cost of doing business in various places. GDP per capita is a good metric.
- Aperocky 4y ago> GDP per capita is a yardstick for labor productivity. Or how much oil will gush out of the ground if you drill a hole in the right place.
- scythe 4y agoThis could be fixed by just changing the punctuation: > Look at median and not mean (GDP per capita) [to understand the way people live] [brackets mine, of course]
- theknocker 4y ago
- skywal_l 4y agoI think the article is onto something. It might benefits from a little rewording here and there but I believe you're arguing with a strawman here. I might suggest this: https://news.ycombinator.com/item?id=31940277 https://news.ycombinator.com/item?id=31940277
- uwuemu 4y ago> How did this get to the front page? Because it contains the magic words (tax the rich).
- iso1631 4y agoFirst define the rich. many people think it's someone earning $500k through productive work for 30 years, not someone with no income who just happens to be sitting on $20m of cash
- oli5679 4y agoThere is an accounting identity linking income and GDP http://www.library.snls.org.sz/boundless/boundless/economics/definition/income-approach/index.html http://www.library.snls.org.sz/boundless/boundless/economics...
- oxfordmale 4y agoGDP in itself is a faulty measure. One easy way to increase it to ask everyone to throw a brick through their neighbours window. The spend on window repair will increase the GDP, although there is no value add to the economy, other than the glass fitters of course.
- zerr 4y agoIt would show that there are enough resources to fix the windows.
- HenriTEL 4y agoYes, and that's likeky to have an impact on later GDP values, as all that has not been spent on better investments than repairing windows. Except for the UK that has terrible windows and a proper upgrade would lead to serious reductions of gaz imports, that are likely to sting this winter.
- derriz 4y agoOnly if you assume everyone is sitting around doing nothing waiting for window repair work to arrive. More likely is that the effort and resources required to fix the windows will displace other economic activity which would have contributed positively to GDP numbers.
- JumpCrisscross 4y agoGDP is a flow measure. If you drain a dam the flow will increase for a while before you deplete your stock. There are stock measures of the economy, though they're difficult to estimate because an asset's value is only truly known when it is transacted. (And even then in a highly particular way.) One way to think about our capital markets is as an ongoing value-of-the-economy machine (or at least a subset thereof).
- alickz 4y agoWikipedia link if anyone wants to read more on broken window economics. https://en.wikipedia.org/wiki/Parable_of_the_broken_window https://en.wikipedia.org/wiki/Parable_of_the_broken_window
- deleted 4y ago[deleted]
- bryanrasmussen 4y ago>How did this get to the front page? I've noticed sometimes things get to the front page evidently because everyone hates it and wants to talk about how much it sucks.
- notahacker 4y agoAnother HN trend applies here: the most upvoted comment being a middlebrow dismissal based on a wrong argument, which is still popular with HNers despite most of the replies to it politely pointing out why it's wrong... (GDP is calculable via an "income method", differs from Gross National Income only in excluding net transfers of incomes overseas, and per capita GDP is routinely used as a yardstick for income comparisons)
- sokoloff 4y agoYou can calculate the total GDP and divide it by the total population. You cannot (as far as I know), assign an individualized share of GDP to each person, which when summed would equal the total GDP of the country, and then find the median of that distribution.
- notahacker 4y agoFortunately, the author isn't proposing to do this, instead stating pretty clearly that he proposes to use an estimate of the median income, not the median contribution to GDP. So it's not really relevant, except perhaps as a critique of the HN headline. (He also doesn't specifically say that median income = median salary, although taking sales tax revenues and profit incomes and depreciation of capital outcomes into account probably doesn't actually make much if any difference to the median income vs median salary) though FWIW I don't think it would be impossible to estimate some measure of an individual's "income measure contribution to GDP" based on that individuals' earned income plus imputed contribution to company profits plus sales tax paid; I just don't think it'd be that useful
- park777 4y agoThere are several ways to measure gdp, one of them is income-based.
- i_am_proteus 4y agoSince each country only has one GDP, mean GDP per capita equals median GDP per capita.
- yobbo 4y agoFrom the economics perspective, GDP = sum of all production = sum of all income = sum of all costs. Theoretically, it should give the same result when measured in these different ways.
- tremon 4y agoThat's only true inside a closed spherical cow.
- spaceman_2020 4y agoGDP is also only one metric used to measure the health of an economy. No serious economist will look at it in isolation. They’ll look at everything from unemployment rate and inflation to budget deficits and even sociological indicators. The author is confusing actual economists with armchair “economists” on Twitter.
- nine_k 4y agoComparing medium income with GDP may be a moderately interesting measure of income inequality. Pretty moderately, because GDP is not income: see the famous example of a gentleman marrying his maid and decreasing GDP by that.