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GDP, like many economic metrics, is of course not an absolute indicator of anything significant. You can set up two shell companies and have them buy and sell t
by imoreno 4y ago
GDP, like many economic metrics, is of course not an absolute indicator of anything significant. You can set up two shell companies and have them buy and sell the same paper clip between them thousands of times a second, for a million dollars each. It will boost GDP by quite a lot.
Of course historically, such deception has not always dominated, and the apparent GDP has been a good proxy for total genuine economic activity. Economic activity is in turn a proxy for confidence: If everyone is spending more money, it means they're confident they see value being produced that they want to capture. Consumers presumably feel they'll be comfortable for years to come. Businesses think it's time to hire staff, increase production and focus on growth. These things by themselves can be seen as positive effects, but also it means GDP is effectively a crowdsourced predictor of future economic outlook. So GDP by itself isn't that interesting, but it correlates with many economic phenomena that are of interest, which is why it's been a popular measure.
I'm sure the article's authors are well aware of this. If you look at the title closely, there's a bit of sleight of hand: It is not common to claim (save perhaps for uneducated laypeople) that GDP is a measure of national success. It is commonly understood as a measure of economic health. Most people will readily grant that economic health does not necessarily mean national success, since they can decouple in crucial ways. For example, if your previously poor country suddenly becomes colonized by major imperialist powers, the GDP will certainly be bolstered, but the social and geopolitical effects may be detrimental. But when you attack the idea that GDP measures economic success, of course it sounds insightful, since it's the kind of misapprehension that is tempting to ascribe to others and not yourself. "Everyone has made a mistake- but not me!"
- tuatoru 4y ago> You can set up two shell companies and have them buy and sell the same paper clip between them thousands of times a second, for a million dollars each. In the case of used goods, the only effect on GDP comes from the transaction fees paid to the broker. Same with buying an already existing house: the GDP contribution is the real estate and legal fees. And with the stock and bond markets: a trillion dollars' worth of stock changing hands only affects GDP to the extent of the brokerage fees, maybe a billion, maybe less.
- boole1854 4y agoAnd in the case of new goods, only the final product sold to consumers or held in inventory at the end of the accounting period counts towards GDP. Intermediate inputs do not count. So one paper clip sold one million times counts as one paper clip.