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Right, velocity of money! I think this is the meatier part of the essay and I wish geohot would have skipped the bit about the gold standard - our main measure

Right, velocity of money! I think this is the meatier part of the essay and I wish geohot would have skipped the bit about the gold standard - our main measure of growth is how quickly we hand money back and forth (is there another measure that allows expenditures to cancel out ? Net Domestic Product ?) The graph that shocked me tho was the electricity production, I didn't realize US was so flat but it rings true, I know there's a 2 year wait-list to even have your energy production considered to be hooked up to the grid, but I assumed there was some at least some throughput, now we're taking about onsite mini nukes while China is building.

ryandamm 2y ago
Two quick thoughts… one, because every transaction in theory happens because the purchasing party values the good or service more than the money, every transaction does — in theory — create wealth, velocity of money is sort of measuring a proxy for growth. But I agree it’s weird. Second, “GDP/watt” is absolutely an economic metric, and it captures something about energy efficiency but also the mix of an economy. Software and services scores highly; aluminum smelting does not.
- Terr_ 2y ago
  I know you qualified it as "in theory", yet I find myself thinking of wash-trading as an example where transactional value is neutral or even very slightly negative, because they actually value manipulating the metrics.
  - ryandamm 2y ago
    That's a fair counterexample. In that case, you could argue that "true GDP" didn't change at all, merely our measurement of it had error. But pretty soon you ask 'well, what is the real signal?' And it's turtles all the way down. Again, economics is weird, but perhaps interesting because it's weird. (I'll confess I didn't care about the field at all until it suddenly got very interesting in ~2008.)
- roenxi 2y ago
  Normalising GDP for the amount of money in the system suggests that velocity of money is the is actually the interesting metric. Say the monetary base is $100 and the GDP is $1,000 initially, then the monetary base doubles to $200 and the GDP doubles to $2,000. It looks suspiciously like no real economic activity was generated and that suggests that velocity is the growth measure.
  - AnthonyMouse 2y ago
    You're essentially assuming an increase in the money supply leads to inflation, which it does if nothing else is different either, but if you also have e.g. a larger population then you're looking at something else.
- Rury 2y ago
  I don't buy the argument that every transaction in theory creates wealth. The only way that holds true, is by using a subjective/arbitrary meaning of wealth, which would imply, I can become wealthier/poorer by merely changing my mind. In such a case, I can be the wealthiest man in the world, and the poorest 10 minutes later, when no transaction or anything really even happened. Sure mind over matter, but I'd prefer using a more objective definition for wealth, rather than an arbitrary one. It makes measuring and comparing things much more sensible, otherwise you are free to reason whatever you want and have no culpability, which is very unscientific.
  - ryandamm 2y ago
    If you can truly come up with an objective measure of wealth, I believe there might be a (quasi) Nobel Prize in economics for you. The reason economics is hard, in part, is that there isn't some core firmament you can rest on; there is no fundamental, provable truth. And yet, with fancy statistics and clever experimental design, you can still make intelligent statements and understand the world better. To me, economics is the field with the purest expression of "all models are wrong, some are useful." Which is actually sort of cool, if you let it be.
    - Rury 2y ago
      I think some people need to step back and ponder what's the purpose of economics? Why do we even study it? What are we hoping to achieve in analyzing it? I can only think it began with the philosophy for making better decisions, solving problems, and improving society - particularly in the allocation of its resources. As so, I think a huge part of the problem with economics, including most economists, is that people equate value for wealth. Value certainly is subjective, I mean, do you value having $80k, or a nice car? How about a pool, or a boat? Do you value your time less than the cost of a flight? All very subjective. But I think it's flawed to conflate value for wealth. Wealth is something real, the things you are evaluating in trade. Time is wealth. Money is wealth. Oil is wealth. Land is wealth. Why don't we simply measure these things, and how they're allocated? IMO, it seems more practical and more noble of pursuit to figuring out if someone actually needs food in society, rather than what people with plenty of resources ascribe their values to.
janalsncm 2y ago
Intuitively, if a toaster costs 5x in the US what it would cost in China, GDP says that a sale in the US was more productive when in reality it’s the same thing in both places. My opinion is the money is a means to an end and we’d be served better by focusing on those ends instead: healthcare, housing, education, life expectancy etc.
- ryandamm 2y ago
  That's what PPP is meant to measure.
  - ryandamm 2y ago
    Or even better, The Economist's "Big Mac Index": https://en.wikipedia.org/wiki/Big_Mac_Index https://en.wikipedia.org/wiki/Big_Mac_Index https://worldpopulationreview.com/country-rankings/big-mac-index-by-country https://worldpopulationreview.com/country-rankings/big-mac-i...
    - WJW 2y ago
      The big mac index is quite literally PPP dumbed down to a single product that the general public can understand.
      - deleted 2y ago
        [deleted]
- chii 2y ago
  > in reality it’s the same thing in both places. the utility of a toaster is different in different places. It may also be the case that a toaster costing 5x in the US, because this is including an opportunity cost for that toaster being made (which means a different thing wasn't made).
  - cies 2y ago
    The the benefits the new owner of the toaster derives from it. Maybe toaster is not the best example to illustrate this by, so say we use microwave --and the time saving based off of it-- instead. A 100k/y worker's time savings are 5x the 20k/y workers savings when equal in time. So the microwave is accepted to cost more. Sellers are great in caching in on this.

ryandamm 2y ago

Two quick thoughts… one, because every transaction in theory happens because the purchasing party values the good or service more than the money, every transaction does — in theory — create wealth, velocity of money is sort of measuring a proxy for growth. But I agree it’s weird. Second, “GDP/watt” is absolutely an economic metric, and it captures something about energy efficiency but also the mix of an economy. Software and services scores highly; aluminum smelting does not.

Terr_ 2y ago
I know you qualified it as "in theory", yet I find myself thinking of wash-trading as an example where transactional value is neutral or even very slightly negative, because they actually value manipulating the metrics.
- ryandamm 2y ago
  That's a fair counterexample. In that case, you could argue that "true GDP" didn't change at all, merely our measurement of it had error. But pretty soon you ask 'well, what is the real signal?' And it's turtles all the way down. Again, economics is weird, but perhaps interesting because it's weird. (I'll confess I didn't care about the field at all until it suddenly got very interesting in ~2008.)
roenxi 2y ago
Normalising GDP for the amount of money in the system suggests that velocity of money is the is actually the interesting metric. Say the monetary base is $100 and the GDP is $1,000 initially, then the monetary base doubles to $200 and the GDP doubles to $2,000. It looks suspiciously like no real economic activity was generated and that suggests that velocity is the growth measure.
- AnthonyMouse 2y ago
  You're essentially assuming an increase in the money supply leads to inflation, which it does if nothing else is different either, but if you also have e.g. a larger population then you're looking at something else.
Rury 2y ago
I don't buy the argument that every transaction in theory creates wealth. The only way that holds true, is by using a subjective/arbitrary meaning of wealth, which would imply, I can become wealthier/poorer by merely changing my mind. In such a case, I can be the wealthiest man in the world, and the poorest 10 minutes later, when no transaction or anything really even happened. Sure mind over matter, but I'd prefer using a more objective definition for wealth, rather than an arbitrary one. It makes measuring and comparing things much more sensible, otherwise you are free to reason whatever you want and have no culpability, which is very unscientific.
- ryandamm 2y ago
  If you can truly come up with an objective measure of wealth, I believe there might be a (quasi) Nobel Prize in economics for you. The reason economics is hard, in part, is that there isn't some core firmament you can rest on; there is no fundamental, provable truth. And yet, with fancy statistics and clever experimental design, you can still make intelligent statements and understand the world better. To me, economics is the field with the purest expression of "all models are wrong, some are useful." Which is actually sort of cool, if you let it be.
  - Rury 2y ago
    I think some people need to step back and ponder what's the purpose of economics? Why do we even study it? What are we hoping to achieve in analyzing it? I can only think it began with the philosophy for making better decisions, solving problems, and improving society - particularly in the allocation of its resources. As so, I think a huge part of the problem with economics, including most economists, is that people equate value for wealth. Value certainly is subjective, I mean, do you value having $80k, or a nice car? How about a pool, or a boat? Do you value your time less than the cost of a flight? All very subjective. But I think it's flawed to conflate value for wealth. Wealth is something real, the things you are evaluating in trade. Time is wealth. Money is wealth. Oil is wealth. Land is wealth. Why don't we simply measure these things, and how they're allocated? IMO, it seems more practical and more noble of pursuit to figuring out if someone actually needs food in society, rather than what people with plenty of resources ascribe their values to.

janalsncm 2y ago

Intuitively, if a toaster costs 5x in the US what it would cost in China, GDP says that a sale in the US was more productive when in reality it’s the same thing in both places. My opinion is the money is a means to an end and we’d be served better by focusing on those ends instead: healthcare, housing, education, life expectancy etc.

ryandamm 2y ago
That's what PPP is meant to measure.
- ryandamm 2y ago
  Or even better, The Economist's "Big Mac Index": https://en.wikipedia.org/wiki/Big_Mac_Index https://en.wikipedia.org/wiki/Big_Mac_Index https://worldpopulationreview.com/country-rankings/big-mac-index-by-country https://worldpopulationreview.com/country-rankings/big-mac-i...
  - WJW 2y ago
    The big mac index is quite literally PPP dumbed down to a single product that the general public can understand.
    - deleted 2y ago
      [deleted]
chii 2y ago
> in reality it’s the same thing in both places. the utility of a toaster is different in different places. It may also be the case that a toaster costing 5x in the US, because this is including an opportunity cost for that toaster being made (which means a different thing wasn't made).
- cies 2y ago
  The the benefits the new owner of the toaster derives from it. Maybe toaster is not the best example to illustrate this by, so say we use microwave --and the time saving based off of it-- instead. A 100k/y worker's time savings are 5x the 20k/y workers savings when equal in time. So the microwave is accepted to cost more. Sellers are great in caching in on this.