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Elon Musk is wrong about GDP

robertlagrant 1y ago
I am not an expert, but this was noted elsewhere as being the reason why Russia's economy looked to be doing relatively well even after years of sanctions: the government was spending as a wartime economy, and so any loans, any sovereign wealth, and other measures to fund that spending all prop up an economy that might in future have many problems. (Not that they're really propping it up, but that GDP is a common proxy for an economy's health, it looks better than it is.) I'd be curious to know if people here with more insight than I would be keen to share.
- mapt 1y ago
  Russia has been selling large amounts of long-term sovereign bonds, going into debt, at an annualized interest rate in the mid 20%'s (!). While under a looming demographic crisis featuring very large numbers of elderly pensioners being supported per young worker. A non-negligible fraction of those young workers are fleeing the country or dying in Ukraine, which further deepens demographic issues. This is destabilizing for a variety of reasons. It's a bet on future growth that does not appear evident. It's also effectively a burden placed on the other oligarchs behind Putin, who would love to control a large chunk of a functional economy rather than controlling a large chunk of a banana republic undergoing stagflation and being heavily taxed for the privilege. What happens when strongman Putin goes away, and occasional defenestration is replaced with factionalism? Or even sooner than that - what happens if the market becomes confident in low oil prices?
  - esafak 1y ago
    Not his problem!
  - arctics 1y ago
    This is done to curb the inflation caused by military spendings and low unemployment rate. Yes, this is net negative for projected economic growth but considering historic record of oligarchs in Russia who would invest in foreign economies instead of Russia during peace time, I would argue for Russia it is net positive development assuming massive western sanctions stay in place.
  - mamonster 1y ago
    >It's also effectively a burden placed on the other oligarchs behind Putin, who would love to control a large chunk of a functional economy rather than controlling a large chunk of a banana republic undergoing stagflation and being heavily taxed for the privilege. Russian oligarchs now have close to 0 political power. Those that do are related to army/secret services anyway and will have more to lose if the system goes away. All those oligarchs just ate massive drops in wealth and didn't do anything. This is by far the biggest misunderstanding that people in the West have: The Russian/Putinist system is now MORE stable than before 24 February 2022, not less.
lotharcable 1y ago
wow, that is kinda dumb. Governments can and do target GDP with their spending, with predictable results. The classic example is "ghost cities" in China. They have ghost cities nobody lives in, ghost roads nobody drives on, and ghost bullet trains that go nowhere useful. All because regional governors are expected, one way or the other, to match GDP targets for their regions. Goodhart's law applies here. "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes." or "When a measure becomes a target, it ceases to be a good measure." GDP is subject to manipulation when it becomes a target. So is lots of other things like "Consumer Price Index", which nowadays doesn't index a whole lot other then what the goverment's target is for inflation (and yes, the Federal Reserve actually counts as part of the "government" here). Which means that GDP, like the CPI, is not particularly useful measurement anymore.
- nabla9 1y ago
  > Which means that GDP, like the CPI, is not particularly useful measurement anymore. This is just nutty extrapolation. Does "Goodhart law means that human height and weight are not accurate anymore, because people target them. We can't trust weights and measures." sound sane?
- seanhunter 1y ago
  GDP has never been that great a measure but it makes absolutely no sense to exclude one of the biggest demand factors (government spending). Most people that I know who are credible on this topic pay much more attention to real GDP growth (ie change in GDP after accounting for inflation) than nominal GDP itself.
- bryanlarsen 1y ago
  Ghost cities like Pudong, which now houses 6 million people? Building in advance of demand seems far more reasonable than places like SF which struggles to build anything at all.
- mapt 1y ago
  Most of the "Ghost Cities" that you read about ten years ago are now normal cities full of people. The Chinese innovation was building the cities before you moved people there, "opening" the city empty and then watching it slowly fill up with residential and commercial over a decade or two. This was always the plan. In the US, our current plan for cities is "Don't build them at all". In the US media we obsessively create headlines over Those Wacky Chinese And Their Weird Things, but we come up well short in this particular comparison. For historical finance-culture reasons (they're reflexive savers, and there aren't many other investments allowed), China does have a lot of real estate investment relative to population, even considering their rapid urbanization, and not all of it is looking to be sustainable; In retrospect there's been a bit of a bubble. But >90% of it? There are hundreds of third/fourth-tier cities housing hundreds of millions of people that might have drawn fire originally under "Ghost City" theory. In a worst-case scenario, what Chinese people get instead of a return on their nest egg investment is inexpensive houses/apartments with more living space, and maybe the option to support themselves without a DINK family.
josefritzishere 1y ago
Elon Musk is wrong about a lot of things. I'm not sure why people keep asking him questions outside his area of expertise...
- aNoob7000 1y ago
  Because once you become super rich, you also become an expert in everything. We no longer need people spending their entire lives researching and learning about a specific topic; we only need more billionaires.
- bamboozled 1y ago
  What is his actual area of expertise ?
  - NickC25 1y ago
    His expertise is in lying, pompousness, fraud, and exemplifying the Dunning-Kruger effect. He's world-class at appearing to be intelligent. He's also resoundingly good at being a nepo-baby who got everything handed to him. I can assure you he's not a good engineer or honest businessman.
    - 9rx 1y ago
      > His expertise is in lying, pompousness, fraud, and exemplifying the Dunning-Kruger effect. Yeah, but that is precisely why he is asked such questions. He gives a more engaging to the Average Joe response than an expert does. It doesn't matter if the response is out to lunch. The question you responded to was trying to figure out where his expertise didn't overlap with the intent of the people questioning him.
  - 7373737373 1y ago
    Making himself richer by overpromising the idea of him (personally, of course) building a great future to tech- and finance bros Dude would live a better life and leave a better legacy if he would focus more on chilling, empathy, and building rockets to get humanity to the stars He's the richest person in the world and wastes his time with political bullshit, while he is one of the very few and privileged who have the resources at their disposal to actually attempt and support grand experiments
chollida1 1y ago
I've talked to a few economists about this and non agree with Elon on this. The biggest issue one person raised is how do you separate out government spending form GDP? If a US town has a big military base, does that mean the entire towns' GDP is just government spending so ignore it? The government essentially pays for everyone's salary in the town. Where do you draw the line at what is government spending and private spending? Cause if the base went away tomorrow then so does the town and about 95% of its spending, so it would be hard to include any of the towns economy in the GDP calculations if you only want private spending as the private spending in this case is almost all first or second order based solely on government spending. Or at a more macro level. Boeing is a legitimate company but more than 50% and more than 75% depending on how you account for it, comes from government spending. So do you just not include 75% of Boeings spending in GDP? How much of the Boeing employees spending do you include in GDP then as if 75% of their salary is government spending and you are trying to exclude government spending. If you allow their spending to be part of GDP then you are saying you are including government spending in GDP just as a second order event. I'm told people still do their Phd in economics on this topic so its clearly a very hard problemm.
- aaronbaugher 1y ago
  Maybe the problem is that it's called Gross Domestic Product but we're talking about spending. Spending isn't producing. Sometimes spending promotes production, but may times it doesn't, and a lot of the stuff that gets counted as GDP is just moving dollars from one entity to another.
  - greenavocado 1y ago
    You are likely looking for Gross Value Added (GVA): https://www.investopedia.com/terms/g/gross-value-added.asp https://www.investopedia.com/terms/g/gross-value-added.asp
  - ajross 1y ago
    > Spending isn't producing. Now you've ruled out lots of other stuff though. Is loaning money "production?" Is spending for services (like, software development!) "production"? Is investing in assets like real estate "production"? All those activities create wealth! Now you've got a definition where only primary production, like farms and construction and mining, have any value. And that's silly too. No, all economic activity creates wealth. The idea of "spending" being separate from "producing" only holds at the microeconomic level where you are playing a zero sum game with a single bank balance.
heisgone 1y ago
There is certainly a usefulness in separating government spending and private spending in our economic health measures. For one, measures like GDP are often used to evaluate the confidence and the general well-being of our economy. High Government spending tend to indicate the opposite, as Keynesian economics would mandate. More so, it invite manupulation of those measures by politicians, who can increase deficits to boost their "success". When it comes to spending like Education, those should be fairly constant relative to the population, in a developed country. We also have other mechanics to discuss their health status since they are largely public funded and subject to political debate. Perhaps a good measure would be the GDP minus public deficit minus credit card debt increase.
- cjoelrun 1y ago
  Given that we print dollars and other countries demand on dollars make that ok for now -> We can make bricks out of the paper money and call that GDP. More money brick factory jobs!
- spwa4 1y ago
  The whole point of using economic metrics like GDP is that they are NOT politicized. You can argue to what extent that succeeded. Probably not 100%. But your suggestion is to increase politicization of GDP: change the figure to push a certain view on economic activity, as opposed to what the theory says, what's practical, and what actually happens in real life (even if the government pays a group of people to dig a hole, and another group to fill the hole back up, that's still economic activity and should be counted). That's moving things entirely in the wrong direction.
rahimnathwani 1y ago
GDP counts government dollars at face value. But is a government dollar really as productive as a private sector dollar? $1b billion for the local school district. Compare that to $1 billion spent by a private operator? Standard GDP might overstate. Maybe you need a 50% haircut on government spending in the calculation.
- ryandrake 1y ago
  Not sure I get that. A dollar spent is a dollar spent. If you're spending it on silly things, it doesn't matter if you're the government or private enterprise (who both sometimes spend their dollars on silly things).
  - AdrianB1 1y ago
    A dollar spent is a dollar spent, but GDP is about production, not spending. If you spend a dollar for 1 iron nail or 1 dollar for 100 iron nails, it is not the same production even if by dollar measure it is the same value. Governments are usually very inefficient. Corporations are also inefficient, but it is not the topic. The point is that we need to look more to the outcome than the money "value" because some governments made-up work has no value, but if you include it in GDP you inflate the GDP falsely.
- ajross 1y ago
  > But is a government dollar really as productive as a private sector dollar? Yes. What? A dollar is a dollar, duh. If you want to claim otherwise, you're the one who needs to show evidence. Why should the government selling a $1000 bond and spending it on a free gadget for a craven bureaucrat behave any differently than me putting a $1000 iPhone on a credit card? Money is money.
  - rahimnathwani 1y ago
    Because when you're spending your own money, you are forced to decide whether something is worth it. When you're spending other people's money, you can spend $2m on a single toilet and think it's fine. (Real example from near where I live.)
axegon_ 1y ago
> "elon is wrong about {X}" People are (very) slowly waking up. The number of X-es is large to say the least.
- ilrwbwrkhv 1y ago
  yeah this can be simplified to just elon is wrong and that covers the majority
  - matwood 1y ago
    ...or is lying covers most of what he says.
    - spwa4 1y ago
      He's a plagiarist, a fraud: he claims other's work as his own, and that goes from extremely petty to very large lies. From Fraudulently claiming he's good at "Path Of Exile" to him being Tesla's designer, to him having designed the SpaceX rocket engines. In all cases research has found: he's lying. He has essentially no technical contributions, not even to his original firm, X (the bank). Him claiming otherwise makes him a fraud, and a plagiarist.
- M3L0NM4N 1y ago
  As one of Elon's ex-fan's (or at least had a generally positive opinion of him) like I suspect many of us here once were, it is astonishing how consistently wrong and ignorant he has been, and it has gotten worse year over year. I think there is a legitimate possibility he fried/is frying his brain on Ketamine.
  - dist-epoch 1y ago
    Yet his net worth and political power keep growing (yes, I know about the TSLA stock price). I wish I had a fried brain like his...
  - alkonaut 1y ago
fuoqi 1y ago
While I can't say that Musk is right, I also can't say he is completely wrong here. The private sector can also spend on dumb and inefficient things and we are fine in counting it in the GDP metric, the difference between private sector and the government is the source of revenue. The private sector has to produce something for the economy before spending (it may be done indirectly through debt, but it's not important here), while the latter forces the economy to share it's productive capacity (using violence if necessary) while not producing anything itself (well, technically it does, but it's usually a tiny amount of the total revenue). It's still fine, since it's just a form of re-distribution from one private entities to others. It can be grossly inefficient, but so can be the private spending. The problem is when a significant portion of the government revenue is fueled by debt which can not be paid by the future economy growth. The government quickly engineers negative real interest rates either by forcing commercial banks and pension funds to buy it with regulations, or by outright money printing, which is easy to do in a fiat system. Such debt-fueled GDP growth is not a sign of strength, but instead a sign of weakness, and ideally it should be heavily discounted.
- braiamp 1y ago
  Nah, it's dumb. He's saying a dumb thing because he doesn't understand the use and importance of it (and also its limitations). We (economist) count everything because excluding an economic agent that has a massive effect on the economy, is such a intellectually foreign concept that we don't even consider it. There's no rational honest argument that would make sense. BTW, government expenditure only appears in the GDP calculations by expenditure. It doesn't appear in the income nor in the production. The later one the one you are actually thinking of.
  - fuoqi 1y ago
    >BTW, government expenditure only appears in the GDP calculations by expenditure. It doesn't appear in the income nor in the production. The later one the one you are actually thinking of. I am not sure against what you argue exactly. My point is that if we use GDP as a metric of economy strength, then it's easy for the government to cheat it by fueling it's spending by printed money (ah, sorry, the reputable economist use the "quantitative easing" euphemism instead) or by unfair debt issuing practices (like forcing banks, pension funds, or even people directly to buy government bonds), then it results in a short term "sugar rush" GDP growth, while consequences are kicked down the road. In the US case we also have an additional masking factor in the form of having control over the world's reserve currency, which significantly dampens the usual inflation reaction. So if we want a better metric, we should somehow discount this factor. Obviously, simply removing the government spending is too simplistic (or you can call it less charitably as "dumb").
hyperpape 1y ago
I don't have any sympathy for Elon's view, but I don't think this article really does anything to explain why it's wrong. No surprise, it appears to be an op-ed, which is not a format that usually teaches you much.
SilverBirch 1y ago
I don't think this post really understands what Elon Musk was saying in the context he was saying it. He was responding to a graph showing the Altanta Fed predicting a recession. There was nothing more to his tweet than "I guess this a plausible reason this obviously bad thing is actually good". It comes from the same vintage as Kathy Wood's "Our massive losses are actually a good thing because we can offset our future taxable gains". Like... obviously this is just self-serving bollocks, why engage with it other than to laugh.
topaz0 1y ago
I'm not sure about the context of that Kennedy quote, but as presented it doesn't read as a case for redefining GD(or N)P, but rather as a reason not to take it as a measure of the success of society. I think that's correct, and the present blog post comes to a similar conclusion at the end.
oceansky 1y ago
Bolsonaro government in Brazil pulled the same private vs public GDP rethoric to justify smallish growth. Mind you the economy was effectively being lead by Paulo Guedes, U of Chicago PhD
smeeth 1y ago
Elon is definitely wrong. The author seems to be advocating running the economy on vibes, however. > The real problem with GDP ... is that it tempts us to view all human progress as an amorphous score, which we can start maximising just as soon as we fix whatever we think is wrong with how that score is calculated. No! The problem with GDP isn't that it's a score, it's that it's a BAD score. We know whats wrong with it. It's fixable, it doesn't ignore very many things! The main issues are totally tractable. In addition to ignoring utility: 1) GDP doesn't account for changes in net wealth. If I take out a loan to buy candy, GDP goes up. After I eat the candy, the loan remains. I'm financially worse off. GDP still went up! Economy is doing well! GDP also ignores depreciation. Machinery/infrastructure decay doesn't affect GDP at all. 2) GDP doesn't account for externalities or zero-cost innovation/value. If I pollute the water supply to make an additional $10, GDP went up. The inverse is also true. If I make Wikipedia freely available, the value provided to humanity does not affect GDP.
- orwin 1y ago
  > GDP also ignores depreciation. Machinery/infrastructure decay doesn't affect GDP at all. This is true, but it used to measure (or at least try to account for) decay in private companies. Changes in accounting techniques make this a challenge nowadays (especially since our beloved MBAs invented 'future accounting', where expected ROI is added to the value of machinery in the books, truly a genius move by true sociopaths)
  - smeeth 1y ago
    I'm not going to argue that accounting is all kinds of messed up (totally is), but your comment isn't factually accurate. > This is true, but it used to measure (or at least try to account for) decay in private companies. No, the "G" in GDP stands for "Gross," which means before depreciation. Depreciation has long been estimated in NIPAs, but that's a separate slate of measures. > (especially since our beloved MBAs invented 'future accounting', where expected ROI is added to the value of machinery in the books, truly a genius move by true sociopaths) This isn't true either. You're describing valuation models, e.g. DCF, but these aren't used for accounting. GAAP doesn't have a concept of adding ROI to asset value. It is very true that games are played with depreciation. For example, you're allowed to depreciate some assets like real estate even if they INCREASE in value over time. All of that depreciation is tax-deductible.
incomingpain 1y ago
GDP = buying/selling things and investment. Government spending is almost always buying something. How could you extract this from GDP? Elon is saying government spending should not be included in GDP. In reality GDP is what it is; find a new metric to use. the quality of using GDP as a metric is low because of this. Also why GDP growth matters so much. Recessions are defined as negative GDP growth by 2 quarters. So government can deficit spend to hide a recession, that's the problem. What you have to look at isnt GDP at all. find a new metric to use to determine recession. Here's mine. Real GDP minus government deficit(all levels of government combined) per capita. When you look at this metric. Canada, Germany, UK, France, Italy, Japan, spain, and estonia are in hidden recessions. Also why they all pretty much need to be negative bank rates and high inflation right now. Obviously this is a WW2 consequences that were put off until now. Other ways to see the problem is 2030 worker shortage or the inverted population pyramids.
AdrianB1 1y ago
The only valid point of concern is government self-spending. Maybe we can look at GDP and GDP excl govt spending as 2 separate metrics, each has its own merits. A relative of mine is working for my country's government for a very long time as a high level economist and leading a government department. One thing that is happening is lots of made-up jobs with made-up work; this is just to keep unemployment low, but most of the money (>60%) return directly to the government as taxes. It artificially increase the GDP. This relative has several hundred of people in the organization that they run, about half are politically appointed (as in "every new minister or state secretary is employing dozens of their friends and relatives") and about 3/4 are not doing any job that results in a positive outcome. Most of the work is paper-pushing "analysis and reporting" that are have no real impact on anything, but are still hired as the number of positions is imposed from very top and hiring is also "influenced" from the top. So what happens with the GDP? It is increasing artificially and it is meaningless in this context.
xnx 1y ago
> Elon Musk is wrong about GDP Elon Musk is wrong about A-to-Z

I am not an expert, but this was noted elsewhere as being the reason why Russia's economy looked to be doing relatively well even after years of sanctions: the government was spending as a wartime economy, and so any loans, any sovereign wealth, and other measures to fund that spending all prop up an economy that might in future have many problems. (Not that they're really propping it up, but that GDP is a common proxy for an economy's health, it looks better than it is.) I'd be curious to know if people here with more insight than I would be keen to share.

mapt 1y ago
Russia has been selling large amounts of long-term sovereign bonds, going into debt, at an annualized interest rate in the mid 20%'s (!). While under a looming demographic crisis featuring very large numbers of elderly pensioners being supported per young worker. A non-negligible fraction of those young workers are fleeing the country or dying in Ukraine, which further deepens demographic issues. This is destabilizing for a variety of reasons. It's a bet on future growth that does not appear evident. It's also effectively a burden placed on the other oligarchs behind Putin, who would love to control a large chunk of a functional economy rather than controlling a large chunk of a banana republic undergoing stagflation and being heavily taxed for the privilege. What happens when strongman Putin goes away, and occasional defenestration is replaced with factionalism? Or even sooner than that - what happens if the market becomes confident in low oil prices?
- esafak 1y ago
  Not his problem!
- arctics 1y ago
  This is done to curb the inflation caused by military spendings and low unemployment rate. Yes, this is net negative for projected economic growth but considering historic record of oligarchs in Russia who would invest in foreign economies instead of Russia during peace time, I would argue for Russia it is net positive development assuming massive western sanctions stay in place.
- mamonster 1y ago
  >It's also effectively a burden placed on the other oligarchs behind Putin, who would love to control a large chunk of a functional economy rather than controlling a large chunk of a banana republic undergoing stagflation and being heavily taxed for the privilege. Russian oligarchs now have close to 0 political power. Those that do are related to army/secret services anyway and will have more to lose if the system goes away. All those oligarchs just ate massive drops in wealth and didn't do anything. This is by far the biggest misunderstanding that people in the West have: The Russian/Putinist system is now MORE stable than before 24 February 2022, not less.

lotharcable 1y ago

wow, that is kinda dumb. Governments can and do target GDP with their spending, with predictable results. The classic example is "ghost cities" in China. They have ghost cities nobody lives in, ghost roads nobody drives on, and ghost bullet trains that go nowhere useful. All because regional governors are expected, one way or the other, to match GDP targets for their regions. Goodhart's law applies here. "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes." or "When a measure becomes a target, it ceases to be a good measure." GDP is subject to manipulation when it becomes a target. So is lots of other things like "Consumer Price Index", which nowadays doesn't index a whole lot other then what the goverment's target is for inflation (and yes, the Federal Reserve actually counts as part of the "government" here). Which means that GDP, like the CPI, is not particularly useful measurement anymore.

nabla9 1y ago
> Which means that GDP, like the CPI, is not particularly useful measurement anymore. This is just nutty extrapolation. Does "Goodhart law means that human height and weight are not accurate anymore, because people target them. We can't trust weights and measures." sound sane?
seanhunter 1y ago
GDP has never been that great a measure but it makes absolutely no sense to exclude one of the biggest demand factors (government spending). Most people that I know who are credible on this topic pay much more attention to real GDP growth (ie change in GDP after accounting for inflation) than nominal GDP itself.
bryanlarsen 1y ago
Ghost cities like Pudong, which now houses 6 million people? Building in advance of demand seems far more reasonable than places like SF which struggles to build anything at all.
mapt 1y ago
Most of the "Ghost Cities" that you read about ten years ago are now normal cities full of people. The Chinese innovation was building the cities before you moved people there, "opening" the city empty and then watching it slowly fill up with residential and commercial over a decade or two. This was always the plan. In the US, our current plan for cities is "Don't build them at all". In the US media we obsessively create headlines over Those Wacky Chinese And Their Weird Things, but we come up well short in this particular comparison. For historical finance-culture reasons (they're reflexive savers, and there aren't many other investments allowed), China does have a lot of real estate investment relative to population, even considering their rapid urbanization, and not all of it is looking to be sustainable; In retrospect there's been a bit of a bubble. But >90% of it? There are hundreds of third/fourth-tier cities housing hundreds of millions of people that might have drawn fire originally under "Ghost City" theory. In a worst-case scenario, what Chinese people get instead of a return on their nest egg investment is inexpensive houses/apartments with more living space, and maybe the option to support themselves without a DINK family.

josefritzishere 1y ago

Elon Musk is wrong about a lot of things. I'm not sure why people keep asking him questions outside his area of expertise...

aNoob7000 1y ago
Because once you become super rich, you also become an expert in everything. We no longer need people spending their entire lives researching and learning about a specific topic; we only need more billionaires.
bamboozled 1y ago
What is his actual area of expertise ?
- NickC25 1y ago
  His expertise is in lying, pompousness, fraud, and exemplifying the Dunning-Kruger effect. He's world-class at appearing to be intelligent. He's also resoundingly good at being a nepo-baby who got everything handed to him. I can assure you he's not a good engineer or honest businessman.
  - 9rx 1y ago
    > His expertise is in lying, pompousness, fraud, and exemplifying the Dunning-Kruger effect. Yeah, but that is precisely why he is asked such questions. He gives a more engaging to the Average Joe response than an expert does. It doesn't matter if the response is out to lunch. The question you responded to was trying to figure out where his expertise didn't overlap with the intent of the people questioning him.
- 7373737373 1y ago
  Making himself richer by overpromising the idea of him (personally, of course) building a great future to tech- and finance bros Dude would live a better life and leave a better legacy if he would focus more on chilling, empathy, and building rockets to get humanity to the stars He's the richest person in the world and wastes his time with political bullshit, while he is one of the very few and privileged who have the resources at their disposal to actually attempt and support grand experiments

chollida1 1y ago

I've talked to a few economists about this and non agree with Elon on this. The biggest issue one person raised is how do you separate out government spending form GDP? If a US town has a big military base, does that mean the entire towns' GDP is just government spending so ignore it? The government essentially pays for everyone's salary in the town. Where do you draw the line at what is government spending and private spending? Cause if the base went away tomorrow then so does the town and about 95% of its spending, so it would be hard to include any of the towns economy in the GDP calculations if you only want private spending as the private spending in this case is almost all first or second order based solely on government spending. Or at a more macro level. Boeing is a legitimate company but more than 50% and more than 75% depending on how you account for it, comes from government spending. So do you just not include 75% of Boeings spending in GDP? How much of the Boeing employees spending do you include in GDP then as if 75% of their salary is government spending and you are trying to exclude government spending. If you allow their spending to be part of GDP then you are saying you are including government spending in GDP just as a second order event. I'm told people still do their Phd in economics on this topic so its clearly a very hard problemm.

aaronbaugher 1y ago
Maybe the problem is that it's called Gross Domestic Product but we're talking about spending. Spending isn't producing. Sometimes spending promotes production, but may times it doesn't, and a lot of the stuff that gets counted as GDP is just moving dollars from one entity to another.
- greenavocado 1y ago
  You are likely looking for Gross Value Added (GVA): https://www.investopedia.com/terms/g/gross-value-added.asp https://www.investopedia.com/terms/g/gross-value-added.asp
- ajross 1y ago
  > Spending isn't producing. Now you've ruled out lots of other stuff though. Is loaning money "production?" Is spending for services (like, software development!) "production"? Is investing in assets like real estate "production"? All those activities create wealth! Now you've got a definition where only primary production, like farms and construction and mining, have any value. And that's silly too. No, all economic activity creates wealth. The idea of "spending" being separate from "producing" only holds at the microeconomic level where you are playing a zero sum game with a single bank balance.

heisgone 1y ago

There is certainly a usefulness in separating government spending and private spending in our economic health measures. For one, measures like GDP are often used to evaluate the confidence and the general well-being of our economy. High Government spending tend to indicate the opposite, as Keynesian economics would mandate. More so, it invite manupulation of those measures by politicians, who can increase deficits to boost their "success". When it comes to spending like Education, those should be fairly constant relative to the population, in a developed country. We also have other mechanics to discuss their health status since they are largely public funded and subject to political debate. Perhaps a good measure would be the GDP minus public deficit minus credit card debt increase.

cjoelrun 1y ago
Given that we print dollars and other countries demand on dollars make that ok for now -> We can make bricks out of the paper money and call that GDP. More money brick factory jobs!
spwa4 1y ago
The whole point of using economic metrics like GDP is that they are NOT politicized. You can argue to what extent that succeeded. Probably not 100%. But your suggestion is to increase politicization of GDP: change the figure to push a certain view on economic activity, as opposed to what the theory says, what's practical, and what actually happens in real life (even if the government pays a group of people to dig a hole, and another group to fill the hole back up, that's still economic activity and should be counted). That's moving things entirely in the wrong direction.

rahimnathwani 1y ago

GDP counts government dollars at face value. But is a government dollar really as productive as a private sector dollar? $1b billion for the local school district. Compare that to $1 billion spent by a private operator? Standard GDP might overstate. Maybe you need a 50% haircut on government spending in the calculation.

ryandrake 1y ago
Not sure I get that. A dollar spent is a dollar spent. If you're spending it on silly things, it doesn't matter if you're the government or private enterprise (who both sometimes spend their dollars on silly things).
- AdrianB1 1y ago
  A dollar spent is a dollar spent, but GDP is about production, not spending. If you spend a dollar for 1 iron nail or 1 dollar for 100 iron nails, it is not the same production even if by dollar measure it is the same value. Governments are usually very inefficient. Corporations are also inefficient, but it is not the topic. The point is that we need to look more to the outcome than the money "value" because some governments made-up work has no value, but if you include it in GDP you inflate the GDP falsely.
ajross 1y ago
> But is a government dollar really as productive as a private sector dollar? Yes. What? A dollar is a dollar, duh. If you want to claim otherwise, you're the one who needs to show evidence. Why should the government selling a $1000 bond and spending it on a free gadget for a craven bureaucrat behave any differently than me putting a $1000 iPhone on a credit card? Money is money.
- rahimnathwani 1y ago
  Because when you're spending your own money, you are forced to decide whether something is worth it. When you're spending other people's money, you can spend $2m on a single toilet and think it's fine. (Real example from near where I live.)

axegon_ 1y ago

> "elon is wrong about {X}" People are (very) slowly waking up. The number of X-es is large to say the least.

ilrwbwrkhv 1y ago
yeah this can be simplified to just elon is wrong and that covers the majority
- matwood 1y ago
  ...or is lying covers most of what he says.
  - spwa4 1y ago
    He's a plagiarist, a fraud: he claims other's work as his own, and that goes from extremely petty to very large lies. From Fraudulently claiming he's good at "Path Of Exile" to him being Tesla's designer, to him having designed the SpaceX rocket engines. In all cases research has found: he's lying. He has essentially no technical contributions, not even to his original firm, X (the bank). Him claiming otherwise makes him a fraud, and a plagiarist.
M3L0NM4N 1y ago
As one of Elon's ex-fan's (or at least had a generally positive opinion of him) like I suspect many of us here once were, it is astonishing how consistently wrong and ignorant he has been, and it has gotten worse year over year. I think there is a legitimate possibility he fried/is frying his brain on Ketamine.
- dist-epoch 1y ago
  Yet his net worth and political power keep growing (yes, I know about the TSLA stock price). I wish I had a fried brain like his...
- alkonaut 1y ago

fuoqi 1y ago

While I can't say that Musk is right, I also can't say he is completely wrong here. The private sector can also spend on dumb and inefficient things and we are fine in counting it in the GDP metric, the difference between private sector and the government is the source of revenue. The private sector has to produce something for the economy before spending (it may be done indirectly through debt, but it's not important here), while the latter forces the economy to share it's productive capacity (using violence if necessary) while not producing anything itself (well, technically it does, but it's usually a tiny amount of the total revenue). It's still fine, since it's just a form of re-distribution from one private entities to others. It can be grossly inefficient, but so can be the private spending. The problem is when a significant portion of the government revenue is fueled by debt which can not be paid by the future economy growth. The government quickly engineers negative real interest rates either by forcing commercial banks and pension funds to buy it with regulations, or by outright money printing, which is easy to do in a fiat system. Such debt-fueled GDP growth is not a sign of strength, but instead a sign of weakness, and ideally it should be heavily discounted.

braiamp 1y ago
Nah, it's dumb. He's saying a dumb thing because he doesn't understand the use and importance of it (and also its limitations). We (economist) count everything because excluding an economic agent that has a massive effect on the economy, is such a intellectually foreign concept that we don't even consider it. There's no rational honest argument that would make sense. BTW, government expenditure only appears in the GDP calculations by expenditure. It doesn't appear in the income nor in the production. The later one the one you are actually thinking of.
- fuoqi 1y ago
  >BTW, government expenditure only appears in the GDP calculations by expenditure. It doesn't appear in the income nor in the production. The later one the one you are actually thinking of. I am not sure against what you argue exactly. My point is that if we use GDP as a metric of economy strength, then it's easy for the government to cheat it by fueling it's spending by printed money (ah, sorry, the reputable economist use the "quantitative easing" euphemism instead) or by unfair debt issuing practices (like forcing banks, pension funds, or even people directly to buy government bonds), then it results in a short term "sugar rush" GDP growth, while consequences are kicked down the road. In the US case we also have an additional masking factor in the form of having control over the world's reserve currency, which significantly dampens the usual inflation reaction. So if we want a better metric, we should somehow discount this factor. Obviously, simply removing the government spending is too simplistic (or you can call it less charitably as "dumb").

hyperpape 1y ago

I don't have any sympathy for Elon's view, but I don't think this article really does anything to explain why it's wrong. No surprise, it appears to be an op-ed, which is not a format that usually teaches you much.

SilverBirch 1y ago

I don't think this post really understands what Elon Musk was saying in the context he was saying it. He was responding to a graph showing the Altanta Fed predicting a recession. There was nothing more to his tweet than "I guess this a plausible reason this obviously bad thing is actually good". It comes from the same vintage as Kathy Wood's "Our massive losses are actually a good thing because we can offset our future taxable gains". Like... obviously this is just self-serving bollocks, why engage with it other than to laugh.

topaz0 1y ago

I'm not sure about the context of that Kennedy quote, but as presented it doesn't read as a case for redefining GD(or N)P, but rather as a reason not to take it as a measure of the success of society. I think that's correct, and the present blog post comes to a similar conclusion at the end.

oceansky 1y ago

Bolsonaro government in Brazil pulled the same private vs public GDP rethoric to justify smallish growth. Mind you the economy was effectively being lead by Paulo Guedes, U of Chicago PhD

smeeth 1y ago

Elon is definitely wrong. The author seems to be advocating running the economy on vibes, however. > The real problem with GDP ... is that it tempts us to view all human progress as an amorphous score, which we can start maximising just as soon as we fix whatever we think is wrong with how that score is calculated. No! The problem with GDP isn't that it's a score, it's that it's a BAD score. We know whats wrong with it. It's fixable, it doesn't ignore very many things! The main issues are totally tractable. In addition to ignoring utility: 1) GDP doesn't account for changes in net wealth. If I take out a loan to buy candy, GDP goes up. After I eat the candy, the loan remains. I'm financially worse off. GDP still went up! Economy is doing well! GDP also ignores depreciation. Machinery/infrastructure decay doesn't affect GDP at all. 2) GDP doesn't account for externalities or zero-cost innovation/value. If I pollute the water supply to make an additional $10, GDP went up. The inverse is also true. If I make Wikipedia freely available, the value provided to humanity does not affect GDP.

orwin 1y ago
> GDP also ignores depreciation. Machinery/infrastructure decay doesn't affect GDP at all. This is true, but it used to measure (or at least try to account for) decay in private companies. Changes in accounting techniques make this a challenge nowadays (especially since our beloved MBAs invented 'future accounting', where expected ROI is added to the value of machinery in the books, truly a genius move by true sociopaths)
- smeeth 1y ago
  I'm not going to argue that accounting is all kinds of messed up (totally is), but your comment isn't factually accurate. > This is true, but it used to measure (or at least try to account for) decay in private companies. No, the "G" in GDP stands for "Gross," which means before depreciation. Depreciation has long been estimated in NIPAs, but that's a separate slate of measures. > (especially since our beloved MBAs invented 'future accounting', where expected ROI is added to the value of machinery in the books, truly a genius move by true sociopaths) This isn't true either. You're describing valuation models, e.g. DCF, but these aren't used for accounting. GAAP doesn't have a concept of adding ROI to asset value. It is very true that games are played with depreciation. For example, you're allowed to depreciate some assets like real estate even if they INCREASE in value over time. All of that depreciation is tax-deductible.

incomingpain 1y ago

GDP = buying/selling things and investment. Government spending is almost always buying something. How could you extract this from GDP? Elon is saying government spending should not be included in GDP. In reality GDP is what it is; find a new metric to use. the quality of using GDP as a metric is low because of this. Also why GDP growth matters so much. Recessions are defined as negative GDP growth by 2 quarters. So government can deficit spend to hide a recession, that's the problem. What you have to look at isnt GDP at all. find a new metric to use to determine recession. Here's mine. Real GDP minus government deficit(all levels of government combined) per capita. When you look at this metric. Canada, Germany, UK, France, Italy, Japan, spain, and estonia are in hidden recessions. Also why they all pretty much need to be negative bank rates and high inflation right now. Obviously this is a WW2 consequences that were put off until now. Other ways to see the problem is 2030 worker shortage or the inverted population pyramids.

AdrianB1 1y ago

The only valid point of concern is government self-spending. Maybe we can look at GDP and GDP excl govt spending as 2 separate metrics, each has its own merits. A relative of mine is working for my country's government for a very long time as a high level economist and leading a government department. One thing that is happening is lots of made-up jobs with made-up work; this is just to keep unemployment low, but most of the money (>60%) return directly to the government as taxes. It artificially increase the GDP. This relative has several hundred of people in the organization that they run, about half are politically appointed (as in "every new minister or state secretary is employing dozens of their friends and relatives") and about 3/4 are not doing any job that results in a positive outcome. Most of the work is paper-pushing "analysis and reporting" that are have no real impact on anything, but are still hired as the number of positions is imposed from very top and hiring is also "influenced" from the top. So what happens with the GDP? It is increasing artificially and it is meaningless in this context.

xnx 1y ago

> Elon Musk is wrong about GDP Elon Musk is wrong about A-to-Z