Bitcoin Forum

Lately I've had this feeling, not particularly well articulated yet, that a part of the problem with the way we think of economies is that we measure their growth and decline in currency. It's a feedback loop, isn't it?

GDP is measured in currency, but the value of that currency is dependent on the GDP of the states issuing said currency. From what I can gather, the "proper" thing to do is to take GDP growth and substract the inflation rate from that to arrive at a realistic figure... but what happens when the inflation rate radically changes? What if the inflation rate isn't properly reported?

I'm too much of an economics noob to ask more insightful questions about this, but it bothers me. Hopefully someone here can catch on to what I'm circling around?

edit: From what I can gather, it seems economic policy, in an idealized form, is a balancing act between keeping inflation to a "sustainable" level while achieving GDP growth of a couple of percent a year, but where did the idea that a few percent a year is a sustainable rate of growth come from? If you discard the idea that significant yearly growth is sustainable, doesn't a deflationary currency become preferrable?

GDP is not an accurate measure of growth because apparently GDP has government spending as well, so if the government for instance decides to increase military spending for example and produce all this stuff for a war then the GDP will rise if I understand that correctly. To measure economic growth you should look at the living standards, so things like how much basic necessities cost like milk or food, fuel is a more modern indicator which everyone tends to panic about and I think housing is a good one as well but housing and fuel prices are far affected far more by speculative buying so I'd stick with the basics.

Oh, you of course can't forget taxes as well as historical prices too and gold prices.

If you look at this site I found you'll get a really great idea of what inflation can do to an economy and you'll be able to match up the data on these charts with the various events that happened, so 2002 and upwards the price of gold became incredibly unstable as time passed and started shooting up like crazy as people realised what was going on with the money printing and the economy.

http://www.kitco.com/charts/historicalgold.html

Edit: Scratch that, looks like the craziness with gold was happening even further back than I read, just skimming through all this data.

I don't think there is going to be any one reasonable measure and it's better to think about what you really specifically want to know.

A society full of incredibly productive people working a little bit and developing amazing leisure and gift situations can easily look poorer than a society of long-working life-hating grunts.

Totaling up the currency or currency spent in a GD- like measure is ridiculous imo. Print paper and the 'economy' has grown, amazing. Buy a $78000 toilet, BAM, wealthy society, incredible.

Or suppose 5% more people take their economic activity underground so far as to even abandon 'normal' currency and reporting. Did the society get poorer by that whole amount?

It should include a happiness index.

Um I thought it was common knowledge that GDP numbers are indexed for inflation.  When someone says we project growth to be 3% it is 3% in real (economic use of the word) terms, as in 3% adjusted for inflation/deflation.  Also govt spending is included in GDP however taxes means money the private sector can't spend thus it isn't like you can simply boost GDP by collecting taxes and buying $78,000 toilet seats (as an example).  Without that extra taxes the private sector would have retained the $78,000 and spent it on other goods and services.

The largest contributor to GDP growth is productivity.  GDP measures more than just productivity increases because it also measures efficiency (or inefficiency caused by govt interference) in the economy.  Inefficiency being the economy growing slower than its potential due to as an example high unemployment.  Still productivity is the basis for all wealth and represents the lions share of GDP growth over any large period of time.  We can only do some much labor (both as an individual and collectively as a species) technologies and processes which improve the efficiency of labor produce wealth (collectively).  Everything else merely shifts it around.  Humans are more wealthy (on average) today compared to say 1800 because productivity increases have resulted in the average human being able to produce significantly more from the same amount of labor.

Like Bhutan did? http://en.wikipedia.org/wiki/Gross_national_happiness

That's a start.
http://travel.cnn.com/explorations/life/denmark-ousted-100-latest-worlds-happiest-country-561826

I disagree completely. Do not, at any cost, let a metric really affect your opinions and goals.

$Exports - $Imports = true economic growth

GDP is a propaganda statistic. Youtube "Fuzzy Numbers"
http://www.youtube.com/watch?v=zPkTItOXuN0

Jobs...

So the economic growth of the planet is 0?

No, it is negative since we spewed out all that expensive tech into space.  ::)

Yeah, ET imports might not be so good for the economy. They might take r joobs.

Jobs destroyed?

Honestly you could do worse than a simple count of shit we don't have to do manually anymore.

Let me clarify with a simple example..

China $10,000,000 exports - $4,000,000 imports = +$6,000,000 growth

USA $4,000,000 exports - $10,000,000 imports = -$6,000,000 recession/decay

Real growth is all about the trade balance between countries.

Now, if you want to destroy your export jobs you mandate an ever rising minimum wage and put ever rising taxes on energy.

This means production has to leave the country to seek cheaper labor and energy costs, thus reducing your export capacity and increasing another countries export capacity.

Doesn't it bother you that if all countries were united you would have to say there was no growth no matter how much growth there was?

First you might start by asking,

"Why measure economic growth?"

as sure as day follows night when "economic growth" began to be measured then an army of centralising bureaucrats, politicians and sundry do-gooders were advocating their "solutions" to fix, improve, etc "economic growth", gathering power, influence and favours upon themselves in the process ...... a thing that up until that point, no had even known was broken.

Any social metric, once conjured up, will forever after be used as a pretext for laws to empower the State to interfere in individuals' lives, for their own good of course.

That's an interesting perspective. So you are against civilization in general, I take it?

No.

I have no idea how what I said to lead you to make such a huge, tangential jump ... "some people's minds work in unfathomable ways" is all I can say to that.


On another tangent, measuring the temperature (or other primitive variables) of a complicated thermodynamic system is never the same thing as measuring the energy and you would need to observe much more than just the energy to successfully control such a system (look up control theory, specifically observability, controllability, non-linear and/or multi-variable systems) ....

.... why would measuring economic growth be worth diddly squat? ... let alone pursuing a central-planned, society-wide mad goose chase to "control" it?

Increased consumption is a consequence of economic growth, not the cause of economic growth.

Capitalism is called capitalism because economic growth occurs from an accumulation of capital. To find economic growth you should look at capital accumulation (investment and savings), rather than GDP which includes government and private consumption.

https://mises.org/daily/6306/Government-Bloat-is-Not-Growth

GDP is actually quite useless IMO, even not taking into account arguments that an economy that "produces" less may still be better because it may have much more leisure time or non-monetary activity. Once you think about it, the reason why is quite obvious. Over the very long term, where busts and booms and structural shifts become irrelevant, what does the GDP ultimately track? The answer is simple: inflation. If you take the modern economy, and substitute computers and high-tech biomedical devices and all our other 21st century goodies with all their 18th century equivalents, chances are the GDP will still be something close to the exact same $15 trillion - what is being traded for the money will simply change. But if you keep the modern economy and pass a law that doubles the money supply every year for ten years, by 2023 the GDP is going to be at least $15 quadrillion, if not rapidly approaching infinity.

GDP indexed to CPI is a start, although CPIs tend to be very easy to politicize. Direct quality of life indices (eg. health, happiness, education, leisure, square feet housing per person) also have their weaknesses - failing a direct quality of life index may simply reflect a difference in preferences rather than any actual weakness in the underlying economy. If people don't care about one of the above variables (eg. hard working culture, anti-intellectualism, urbanism vs suburbanism, Achilles' attitude to fame vs longevity), then the score within that group will be quite low even though the wealth may be there to make everything trivially available for anyone who wants it. Ultimately I don't think there is anything close to an index that can say for sure if an economy is doing "well" or not. Targeted statistical measures like money supply inflation, disease mortality rate, etc, are all very useful for those who care about those specific variables, but the more general you get the less valuable the numbers become.

I think the best measurement would be by measuring how much goods/services does a fixed amount of money buy. This of course could be a basket and goods could be divided into categories and assigned point value so you could end up with a sum of points per money unit as an index.

And to determine the basket and point value of categories you'd simply do a large and broad enough survey of the population. The more some type of goods show up the higher point value they'd get, the cheaper it is to buy them the higher the point multiplier.. ect.


Of course I wouldn't trust such an index coming from a centralized involuntary organization like a government either but if it were provided by the market I think it could give us a pretty good indication of economic growth especially since how I define economic growth is being able to afford more goods/services than before.

The trade balance is not GDP, but it helps to export more than you import. Growth has become a meaningless magic buzz word, like "IT".

If the medical profession took it as lightly as politicians defining growth, it would be sufficient to diagnose all deaths as accidents or old age.

Consumer surplus: median income - basic cost of living (adjusting both for family size).

If a new disease treatment is created that is far cheaper and more effective than previous treatments, GDP would fall but consumer surplus would rise (medical expenses portion of basic cost of living would decrease).

+1  Consumer surplus as you define it looks like a winner so far.. 
can you find some more data for us :)

Why would GDP fall?  Unless you think the consumer will not spend the money (i.e. my insulun use to cost $200 per month but now I have this pill for $20 per month which does the same thing so I guess I should burn this $180 left over)?

Because the savings rate has been negative in this country since around 2001 so that $180 left over will go to paying down debt, which causes deflationary pressure.