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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

by 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.
drcongo 1y ago
Out of interest, are you familiar with Tim Harford?
- smeeth 1y ago
  No (likely because American). It's entirely possible my interpretation of his opinion of GDP is totally off, but that's what I gleaned from this single article. If I'm wrong, it's at least a bit his fault. Do you have an opinion you'd like to share?
  - drcongo 1y ago
    Sorry, missed your reply. He's quite a well respected economist, and also presenter of the Pushkin podcast Cautionary Tales along with a lot of economics adjacent stuff for BBC radio and TV. Didn't mean for my question to sound snarky but on reflection I think it does, so sorry about that.
    - smeeth 1y ago
      Not at all, even if there was snark intended I think its a fair question. I resisted ranting about it (I hope you'll indulge me now), but in general I don't much like the economics commentariat. As best I can tell, "respectability" seems to mean something like "modal economic views + left of center politics." There are of course some exceptions, e.g. occasionally the economist or WSJ, but it leads to some notable blind spots. For example, Switzerland experienced mild deflation in a good economy 2012-2017, but it wasn't until 2023 or so that articles started coming out that questioned where the 2% inflation target came from [0] and whether deflation could ever be a good thing [1]. This was despite respectable research from at least 2004 that explored the possibility of "good" deflation [2]. Tim, like many in the commentariat, was writing about inflation in 2019 [3]. The title of this essay is "Why inflation is good for us," and discusses the merits of inflation without any real discussion of cases where deflation could be good. At the end, he even raises the idea of a 4% rate target, which is a tad funny knowing the political mood on inflation 2021-24. My point, really, is that I suspect I know most of his opinions without reading much of his work. He's hardly unique in that regard, but it bothers me. When looking for interesting opinions I'd probably look elsewhere. [0] https://www.cfr.org/blog/history-and-future-federal-reserves-2-percent-target-rate-inflation-0 https://www.cfr.org/blog/history-and-future-federal-reserves... [1] https://www.investopedia.com/articles/markets/111715/can-deflation-be-good.asp https://www.investopedia.com/articles/markets/111715/can-def... [2] https://www.nber.org/papers/w10329 https://www.nber.org/papers/w10329 [3] https://timharford.com/2019/03/why-inflation-is-good-for-us/ https://timharford.com/2019/03/why-inflation-is-good-for-us/
davidivadavid 1y ago
Beyond Wikipedia, more generally, it doesn't account for consumer surplus in any exchange, which should be the only quantity that matters if we were to build a metric that means something. Unfortunately, that's much easier said than done.
braiamp 1y ago
> The problem with GDP isn't that it's a score, it's that it's a BAD score And so it is every other score. Economist have known since a good while that looking at a single number to inform policy decisions is bad, but if we try to take our entire paraphernalia of instruments and indicators (Gini index, inflation, velocity of money, consumer sentiment, development index, etc) people would be just as confused. GDP is a bad metric, but it's not worthless. It's a bad metric if you only use it in a vacuum, if you are knowledgeable and combine it with several others you would be more effective into improving the society at large.

by smeeth 1y ago

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.

drcongo 1y ago

Out of interest, are you familiar with Tim Harford?

smeeth 1y ago
No (likely because American). It's entirely possible my interpretation of his opinion of GDP is totally off, but that's what I gleaned from this single article. If I'm wrong, it's at least a bit his fault. Do you have an opinion you'd like to share?
- drcongo 1y ago
  Sorry, missed your reply. He's quite a well respected economist, and also presenter of the Pushkin podcast Cautionary Tales along with a lot of economics adjacent stuff for BBC radio and TV. Didn't mean for my question to sound snarky but on reflection I think it does, so sorry about that.
  - smeeth 1y ago
    Not at all, even if there was snark intended I think its a fair question. I resisted ranting about it (I hope you'll indulge me now), but in general I don't much like the economics commentariat. As best I can tell, "respectability" seems to mean something like "modal economic views + left of center politics." There are of course some exceptions, e.g. occasionally the economist or WSJ, but it leads to some notable blind spots. For example, Switzerland experienced mild deflation in a good economy 2012-2017, but it wasn't until 2023 or so that articles started coming out that questioned where the 2% inflation target came from [0] and whether deflation could ever be a good thing [1]. This was despite respectable research from at least 2004 that explored the possibility of "good" deflation [2]. Tim, like many in the commentariat, was writing about inflation in 2019 [3]. The title of this essay is "Why inflation is good for us," and discusses the merits of inflation without any real discussion of cases where deflation could be good. At the end, he even raises the idea of a 4% rate target, which is a tad funny knowing the political mood on inflation 2021-24. My point, really, is that I suspect I know most of his opinions without reading much of his work. He's hardly unique in that regard, but it bothers me. When looking for interesting opinions I'd probably look elsewhere. [0] https://www.cfr.org/blog/history-and-future-federal-reserves-2-percent-target-rate-inflation-0 https://www.cfr.org/blog/history-and-future-federal-reserves... [1] https://www.investopedia.com/articles/markets/111715/can-deflation-be-good.asp https://www.investopedia.com/articles/markets/111715/can-def... [2] https://www.nber.org/papers/w10329 https://www.nber.org/papers/w10329 [3] https://timharford.com/2019/03/why-inflation-is-good-for-us/ https://timharford.com/2019/03/why-inflation-is-good-for-us/

davidivadavid 1y ago

Beyond Wikipedia, more generally, it doesn't account for consumer surplus in any exchange, which should be the only quantity that matters if we were to build a metric that means something. Unfortunately, that's much easier said than done.

braiamp 1y ago

> The problem with GDP isn't that it's a score, it's that it's a BAD score And so it is every other score. Economist have known since a good while that looking at a single number to inform policy decisions is bad, but if we try to take our entire paraphernalia of instruments and indicators (Gini index, inflation, velocity of money, consumer sentiment, development index, etc) people would be just as confused. GDP is a bad metric, but it's not worthless. It's a bad metric if you only use it in a vacuum, if you are knowledgeable and combine it with several others you would be more effective into improving the society at large.