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I don't think that proves what you think it proves. You're missing what he would do with that $25k if he marries his maid. Maybe he would spend it on something

I don't think that proves what you think it proves. You're missing what he would do with that $25k if he marries his maid. Maybe he would spend it on something else. Maybe he saves it and the bank loans it to someone else. In either case, it does matter what happens, because it gives us a clue into the velocity of money. GDP measures the value of all the stuff and services we produce. Which shows how much income we earned. So, you're wrong.

aqme28 14y ago
I think you're missing the point. Either way, it's 200k split between the two of them. Unmarried, he has 175k and she has 25k. Married, they both share 200k. He doesn't get to divert that 25k once they marry, because she will consume resources as well.
yummyfajitas 14y ago
In the more detailed version of the hypothetical (i.e., the careful econ textbook version), it's explicitly stated that the wife continues spending the exact same amount as before, and she was already a live-in maid. Welfare has improved - the husband and wife have all the same goods and services as before (a house paid for by the man, which is cleaned by the woman), and they are now having sex (which is presumably welfare improving). Yet GDP has gone down $25k. GDP measures the value of all the stuff and services we produce. No, it doesn't. If you believe it does, I have a great stimulus package: ban joint bank accounts for married couples and require the higher income partner to pay a salary to the lower income partner. This will certainly increase GDP. Could you explain how this would have any effect on anything else?
- mattobrien 14y ago
  GDP is a flow. So is personal income. GDP is the dollar value of the stuff we sell. The flip side of that is that this is how much income we earned. You can dispute this, but it's what it means. http://bit.ly/HYokZe http://bit.ly/HYokZe Your example is flawed for the reasons I mentioned. You have to include the opportunity cost.

aqme28 14y ago

I think you're missing the point. Either way, it's 200k split between the two of them. Unmarried, he has 175k and she has 25k. Married, they both share 200k. He doesn't get to divert that 25k once they marry, because she will consume resources as well.

yummyfajitas 14y ago

In the more detailed version of the hypothetical (i.e., the careful econ textbook version), it's explicitly stated that the wife continues spending the exact same amount as before, and she was already a live-in maid. Welfare has improved - the husband and wife have all the same goods and services as before (a house paid for by the man, which is cleaned by the woman), and they are now having sex (which is presumably welfare improving). Yet GDP has gone down $25k. GDP measures the value of all the stuff and services we produce. No, it doesn't. If you believe it does, I have a great stimulus package: ban joint bank accounts for married couples and require the higher income partner to pay a salary to the lower income partner. This will certainly increase GDP. Could you explain how this would have any effect on anything else?

mattobrien 14y ago
GDP is a flow. So is personal income. GDP is the dollar value of the stuff we sell. The flip side of that is that this is how much income we earned. You can dispute this, but it's what it means. http://bit.ly/HYokZe http://bit.ly/HYokZe Your example is flawed for the reasons I mentioned. You have to include the opportunity cost.