tag:blogger.com,1999:blog-8764541874043694159.post2540331286294904038..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: GDP and its criticsFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger30125tag:blogger.com,1999:blog-8764541874043694159.post-69128408151452457072014-05-30T19:54:03.719+01:002014-05-30T19:54:03.719+01:00just want to make a note here that according to re...just want to make a note here that according to revised figures, nominal 1st quarter GDP was at $17,101.3 billion annually, up from the $17,089.6 billion annualized figure of the 4th quarter...<br />see table 3: http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp1q14_2nd.pdf<br /><br />but everyone is reporting it as down at a 1.0% rate, because the measurement they're reporting is inflation adjusted, hence a measure of the change in the actual output of goods and services produced by labor and property in the US...rjshttps://www.blogger.com/profile/15681812432224138582noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-17666795565369729782014-04-27T21:28:16.209+01:002014-04-27T21:28:16.209+01:00Very late - but Larry Elliot today (27th April) gi...Very late - but Larry Elliot today (27th April) gives us a good reminder that many times we use GDP when we should be using GDP per capita...Metatonenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-17524048259708088482014-04-24T19:30:52.987+01:002014-04-24T19:30:52.987+01:00"Producers don't "anticipate needs/w..."Producers don't "anticipate needs/wants". They go and find out what people want."<br /><br />They do nothing of the sort. What anyone wants other than the so-called 'producers' themselves seek to gain is irrelevant. What matters is the ability of a firm to borrow against its own accounts, from its own lenders: the 'producers' borrow until they cannot any more, they put the entire proceeds into their own pockets. At some point they can no longer borrow ... The firm is emptied out of its own credit, it is a husk, bankrupt and is abandoned ... but this does not matter because there is the next firm, and the next firm, and the next firm and the next = Bain Capital, Elliott Management, etc. Wall Street in general. <br /><br />The process has a purpose: someone knows but is not saying there is no such thing as a productive (industrial) enterprise: such things cannot exist, they are thermodynamically impossible. <br /><br />There is no real gain to the public or workers from the self-lending process, nor is there any gain from myriad Wall Street Ponzi schemes whereby finance system losses are forced into the economy! These finance system losses are (mis-) tabulated into GDP as 'investments' = currency traps. Financial misrepresentation/fraud amounts to 70% of GDP; the only real productive enterprise is agriculture (which is also underwater due to mis-tabulated/mis-measured input costs). This leaves out ordinary criminal activity such as drug rackets, robbery, arms trafficking, buying and selling politicians and 'regulators' including multi-trillion-dollar money laundering activities on the part of central banks. <br /><br />Firms borrowing against their customers' accounts -- whereby the customers' banks create deposits in firms' bank accounts with customers being required to retire these loans with their labor that is discounted against the firms' use of (further) discounted machines, so that the human worker is always 'underwater' relative to his mechanical, debt-subsidized competitor ... whose input (capital) costs are purposefully mispriced to include only acquisition: land-lease-royalty (less subsidy) + unit access-extraction expenses (also misrepresented). See Graeber: human workers are fetched with a choice = wage slavery by discounting their own labor to compete w/ robots or unemployment. The surplus gained this way is a 'positive' component of GDP as well, just like slave labor in antebellum Dixie was good for the planters. <br /><br />Honest accounting = thermodynamic whereby a human labor @ btu is equal to the machine potential @ btu, done this way a gallon of gasoline is measured against the btu output of human labor and costs $2,500 ... at this price there is none of the wasting infrastructure because capital (means of production) is too valuable to waste. Now? <br /><br />There are converging adverse trends: the aggregating costs of capital annihilation on one hand, the looming costs of not annihilating our capital on the other. Do you stick the gun barrel up your butt or stick it in your mouth, not much of a choice but this is what we have left for ourselves in our drive to enrich a small handful so that we might live our lives through them vicariously on television. <br /><br />Stupid humans. We deserve what we get. Steve From Virginiahttps://www.blogger.com/profile/04002636865996847926noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-37736439357572971372014-04-17T08:48:22.263+01:002014-04-17T08:48:22.263+01:00"Steve Forbes complains that imports are trea..."Steve Forbes complains that imports are treated as negative for GDP. But this is a no-brainer. If you buy imports, money leaves the country. If you sell exports, money comes into the country. Purchases of imports are therefore correctly a negative for GDP. (But profits from sales of products made with imported goods are positive.)"<br /><br />I don´t understand why imports should be negative for GDP. In GDP = C + I + G + (X-M) , If M goes up, that means there is also a change in C, I or G. So M is balancing item to avoid that for example an increase in C caused by increased consumption of imports is added to GDP.Mysjkinnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-75050910584892004042014-04-10T20:17:23.653+01:002014-04-10T20:17:23.653+01:00Very good summary of different ways to calculate G...Very good summary of different ways to calculate GDP.<br /><br />Except:<br /><br />"But this is a no-brainer. If you buy imports, money leaves the country. If you sell exports, money comes into the country. Purchases of imports are therefore correctly a negative for GDP."<br /><br />But if somebody had said, when they first put these GDP accounts together, that exports subtract from GDP, and imports add to GDP, the whole accounting system would still have been coherent. It is just a convention that we add exports and subtract imports when somebody invented the GDP system, surely,<br /><br />If we export, we have more money, true. But we have less goods. <br /><br />If we import, we have more goods, but less money. <br /><br />As C + I + G is all goods and services, we should add imports (also goods and services) as well. So I would also agree with Forbes that imports add to GDP. That way GDP would be a much better indicator of wealth on the economy, all goods and services used in one year. <br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66520801971128659502014-04-10T00:02:08.613+01:002014-04-10T00:02:08.613+01:00here's the most recent report:
http://www.bea....here's the most recent report:<br />http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp4q13_3rd.pdf<br />in table 3, there are billions of dollars on the left, and billions of chained 2009 dollars on the right..<br />the measurement in billions of dollars is the measurement of the size of your economy in current dollars..(often quarterly at an annual rate)<br />the measurement in billions of chained 2009 dollars is a dolar denominated proxy for units of output..<br />"real GDP", and all the quarterly and annual comparisons throughout the report refer to the later..<br />rjshttps://www.blogger.com/profile/15681812432224138582noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-84707810975601689462014-04-09T23:41:00.004+01:002014-04-09T23:41:00.004+01:00rjs,
I don't agree. Regarding GDP as a measur...rjs,<br /><br />I don't agree. Regarding GDP as a measure of output leads to the mistake that Steve Forbes has made. If all we are measuring is output, then eliminating intermediate outputs is wrong. But GDP is not simply a measure of output. It is an attempt to measure the size of the economy in dollar terms at a point in time, using three different measures which should be equivalent - income, expenditure and output. That's why eliminating intermediate outputs is necessary: if you gross up output, it far exceeds income and expenditure. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-27441235416089882392014-04-09T23:33:52.061+01:002014-04-09T23:33:52.061+01:00i knew you had that caveat in your post, Frances, ...i knew you had that caveat in your post, Frances, but that formula (GDP = W + P + R + I + D+ (T-S) ) had been bothering me since i first saw it two days ago, so i had to come back and make that point...<br /><br />i havent given " income = expenditure" enough thought to know if i agree with it or not, but if that's true, yes, then current dollar GDP and GDI should be identical...<br /><br />the broader point i wanted to make was that real GDP is not a dollar measurement, as is commonly perceived, but a measure of units of output....i struggled with GDP reports for a few years before i realized that's why they were converting each of its components into those chained dollar amounts....that use of dollar amounts to represent units of "product" is part of the reason GDP is so poorly understood...rjshttps://www.blogger.com/profile/15681812432224138582noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-6883841527820654712014-04-09T23:07:26.659+01:002014-04-09T23:07:26.659+01:00Producers don't "anticipate needs/wants&q...Producers don't "anticipate needs/wants". They go and find out what people want. Why do you think they do focus groups, surveys, market research? It's not just to find out what ALREADY sells. It's to find out what MIGHT sell. <br /><br />There are some inventions that do apparently appear "out of the blue" because some genius has dreamt them up and they just happen to be the right product at the right time. But even then it isn't that simple. Do you really think Jethro Tull invented the seed drill because he fancied inventing a seed drill and it happened to be the right product at the right time? Nonsense. He knew how much time and manpower it took to sow crops. He had quite possibly listened to farmers moaning about how long it took and how many men they had to employ to get their crops sown. So he invented something that was a lot more efficient both in time and manpower. <br /><br />Sometimes you have to look beyond mere economic theory. Business practice is much more illuminating. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-77216121853208281032014-04-09T22:18:27.270+01:002014-04-09T22:18:27.270+01:00Thanks rjs, that's interesting.
GDP and GDI ...Thanks rjs, that's interesting. <br /><br />GDP and GDI *should* be the same, since income = expenditure, but measurement errors mean that in practice they are not. I did say that in the piece. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-89760550199555353752014-04-09T22:07:49.609+01:002014-04-09T22:07:49.609+01:00one should not conflate GDP and GDI because they a...one should not conflate GDP and GDI because they are measurements of two different things...one could say they are both ways of measuring the size of the economy and that they usually amount to the same in current dolars, but we cant say that GDP = W + P + R + I + D+ (T-S) because that's the measurement of gross domestic income, and they are calculated separately...<br /><br />here's an interactive graph from FRED showing both over 5 years: <a href="https://research.stlouisfed.org/fred2/graph/?graph_id=171528" rel="nofollow">https://research.stlouisfed.org/fred2/graph/?graph_id=171528</a> <br />run your cursor across the face of the graph to see their differences quarterly...<br /><br />those numbers shown are in current dollars, but for the purpose of measuring the change in GDP, current dollars are pretty useless, because that change could simply be in prices for goods and services being measured....all percentage changes in real GDP are in chained 2009 dollars (or until last year, chained 2005 dollars) to adjust for inflation...what that gives us, in terms of the quarterly reports, is not a measure of the change in dollar value of our goods and services, but <b>a measure of the change in our units of output</b>...that way should the price of milk in your example double when less milk is produced, it does not increase real GDP, but rather decreases it... <br /><br />here's a stub from the BEA showing some of the metrics they use to deflate various components to obtain the change in units of product:<br /><a href="http://www.bea.gov/national/xls/pce_deflators_faq_new_stub.xls" rel="nofollow">http://www.bea.gov/national/xls/pce_deflators_faq_new_stub.xls</a> rjshttps://www.blogger.com/profile/15681812432224138582noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-54295473880079492402014-04-09T15:58:12.155+01:002014-04-09T15:58:12.155+01:00Let me ask you directly: Is there anything wrong w...Let me ask you directly: Is there anything wrong with this bit from above?<br /><br />'Producer anticipates a need/want > Producers Invest in labor/capital needed for production > Production > Goods brought to market > consumption'<br /><br />Producers anticipating a need/want is the same thing as anticipating a future demand for it. But at that EXACT point in time, no money has changed hands, no steps have been taken to satisfy that future demand.<br /><br />Acting as though consumption is the start of the process requires you to believe that those goods materialised from thin air (and even then the only difference is that whatever cosmic force doing the materialising takes the place of the 'conventional' producer as the starting point)<br /><br />I really don't know why this is so contentious, but you're far from alone, it's a standard position in modern economic discourseAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-16543664291766879082014-04-09T00:22:23.048+01:002014-04-09T00:22:23.048+01:00Nope. Future demand, as I explained it, IS a drive...Nope. Future demand, as I explained it, IS a driver of business decisions and therefore of the economy.<br /><br />And it IS possible to distinguish between products that are intermediates and products that go to end consumers. You are thinking far too much about suppliers and nowhere near enough about purchasers. Of course it is possible to find out how much milk is bought by the makers of yoghurt. It's in their accounts. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-81694567519565630052014-04-09T00:09:03.426+01:002014-04-09T00:09:03.426+01:00You're making the common error of taking '...You're making the common error of taking 'desire' as 'demand' as it is defined in economics. What you described is 'desire,' which does comes first, and that is ultimately what spurs action. However, desire on its own gets us nowhere. The very first, recordable, actionable step in attempting to quantify that desire comes through investment, followed by production of a good or service. Then, and only then can economic demand be exercised. <br /><br />Put it another way, I can desire a good all day long until I'm blue in the face. I can have infinite money such that in theory I exercise demand constantly. Yet as long as no one has invested in the required resources to produce the good, I will never, ever be able to consume it. I have never said that 'demand' is a passive response - but it IS a response nonetheless. 'Desire' is the real force here, but there is no sure way to quantify that economically.<br /><br />As for the milk example, it does matter who the milk is sold to and what is done with it. Yes, the milk that went into the yoghurt is reflected in its price, but for what you're saying to hold we'd have to assume that ALL of the milk produced went into yoghurt. We have no way of knowing that, we only know that the milk producer made XYZ milk. A portion of that was used for breakfast, and a portion was used as an intermediate good in other products. Within the context of that one example I can see your point, but as it pertains to the GDP discussion it doesn't fit because the individual producers make goods that have many different ending points.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66363180812617957172014-04-08T16:25:27.371+01:002014-04-08T16:25:27.371+01:00Oh, and on the milk example. It doesn't matter...Oh, and on the milk example. It doesn't matter to whom they sell the milk. The point is that if the milk is used to make yoghurts for sale, rather than simply poured on someone's breakfast cereal, the purchase price of the milk is included in the sale price of the yoghurts. Therefore if you add together the sale price of the milk and the sale price of the yoghurts you are double counting the sale price of the milk (which is also its purchase price). Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-13588124148014457972014-04-08T16:19:51.471+01:002014-04-08T16:19:51.471+01:00I'm sorry but I just don't agree - and I a...I'm sorry but I just don't agree - and I am arguing from a business standpoint, not economics. Businesses don't invest if they don't think there will be sufficient future demand for the product or service to justify the investment. Therefore consumption - or perhaps more accurately the expectation of (future) consumption - DOES drive the economy.Demand is not merely a passive response to supply. <br /><br />Having said that, businesses can create markets for their goods and services by clever marketing, which creates demand. So it is perhaps best to recognise that both investment and consumption drive the economy in different ways. We can regard consumption as the "pull" to business investment's "push", if you like. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-40829802985539552392014-04-08T16:06:00.777+01:002014-04-08T16:06:00.777+01:00FC,
In the milk example, I don't think there ...FC,<br /><br />In the milk example, I don't think there is an issue with double counting, because the whole process, from farmer to supermarket shelf isn't done by the same entity. The farmer, container producer, and supermarket are each separate entities with its own costs and its own, different final product. The milk, container, and the contained milk are all final products in and of themselves. For example, farmer could have sold that milk to anyone, other supermarkets, individuals, bakeries, etc. <br /><br />'In what way is milk bought daily from a farmer "investment spending?"<br /><br />It depends on what is done with it. Individuals using it for their breakfast are consuming the milk. A local bakery is making an investment. Even the supermarket sales of milk don't necessarily constitute the end of the road as that milk sold could be involved in some other productive process. It's the same with all goods, the computer I'm using to write this could have been used to run some internet business, but it was bought by me for surfing the internet and other leisure activities.<br /><br />GDP is not 'wrong,' but what it isn't what it purports to be. It doesn't measure 'economic growth,' but merely how much was spent in the economy in a given year. Any accurate representation of economic growth must include a complete analysis of the entire productive process, from the natural resources to the supermarket shelf. Ignoring everything that happens before the supermarket phase is like pretending that the goods just appear in the supermarket. As was correctly stated in the Forbes article 'consumer spending is largely the effect, not the cause, of prosperity.' <br /><br />'But the sole purpose of business output is consumption. Businesses don't produce products unless there are people willing and able to consume them.'<br /><br />If you want to break it down to a sole purpose, it would be to profit. Yet profit can only happen if people are willing to consume them at a higher price than your costs, as you've said. However, this willingness is anticipated by the producer. There is no way to know for sure if the willingness is genuine until the products are produced and the registers ring, which is where the risk lies. The order of actual, real life events is as followed:<br /><br />Producer anticipates a need/want > Producers Invest in labor/capital needed for production > Production > Goods brought to market > consumption<br /><br />Consumption is the last step in the process, totally reliant on every step that came before, and thus cannot drive anything. Thus any measure of economic output that ignores all but the last step is going to be severely lacking. That's not to say it has no use, but economists have essentially erected monuments to its existence which is a dangerous thing.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-63188083704322900922014-04-08T15:58:26.861+01:002014-04-08T15:58:26.861+01:00GDP does say something but not everything. your ne...GDP does say something but not everything. your need to calculate the GNP by adding the exports and subtracting the imports to get the best view of your countries position.<br /><br />Anonymoushttps://www.blogger.com/profile/03438927079022264014noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-91798046791468065372014-04-08T13:43:30.233+01:002014-04-08T13:43:30.233+01:00Thank you for sharing valuable information. Nice p...Thank you for sharing valuable information. Nice post. I enjoyed reading this post. The whole blog is very nice found some good stuff and good information here Thanks.Also visit my page<a href="http://www.rentalaccountants.co.nz/" rel="nofollow"> Investment Property Accounting </a> Rental Property Accountants New Zealand.Anonymoushttps://www.blogger.com/profile/08307301450488766339noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-14701193153607802732014-04-08T06:19:18.810+01:002014-04-08T06:19:18.810+01:00It's obviously difficult to sum up the state o...It's obviously difficult to sum up the state of an entire economy in one figure alone. But still, GDP gives a pretty good idea of what is going on.Florian Lummerthttps://www.blogger.com/profile/07626133278673372981noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-25626641525058212902014-04-08T01:35:05.986+01:002014-04-08T01:35:05.986+01:00Under the income approach wouldn't it be more ...Under the income approach wouldn't it be more accurate to also include capital gains income? Capital gains is also value added just like on a newly produced good.dannyb2bhttp://cmamonetary.orgnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-49768287144774407342014-04-07T23:23:22.613+01:002014-04-07T23:23:22.613+01:00David and Alex,
Yes, you are correct. My bad. Sho...David and Alex,<br /><br />Yes, you are correct. My bad. Should be sales, not profits. I will correct. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-45656892220538562532014-04-07T23:17:22.131+01:002014-04-07T23:17:22.131+01:00Hi Frances
Your 'milk' example doesn'...Hi Frances<br /><br />Your 'milk' example doesn't ring true to me.<br /><br />You say "The gross output is the profit that all three of these make, i.e. $100 + $50 + $300 = $450." But I thought that output related to sales, not profits.<br /><br />In this case, the gross output would be the sales of all three - $1,100 + $250 + $1,800 = $3,150. But GDP - the total "added value" at each stage - is $1,100 (milk) + $250 (cartons) + $450 (filling & selling cartons) = $1,800.<br /><br />It's easy to see that the end product of all this - what the country is capable of making - is 1,000 filled cartons of milk, and those sold for $1,800.<br /><br />That means that GDP ($1,800) makes sense, and Gross Output ($3,150) is an over-estimate.<br /><br />Sorry if I have the wrong end of the stick!<br /><br />AlexAlexhttps://www.blogger.com/profile/12912173255354626589noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-68106549158673441222014-04-07T21:32:42.123+01:002014-04-07T21:32:42.123+01:00You say "The gross output is the profit that ...You say "The gross output is the profit that all three of these make, i.e. $100 + $50 + $300 = $450" But isn't gross output the sum of the market value of goods and services, not profit? There's no double counting when you sum profit - this sum, after all, is part of the income calculation, isn't it?David Picklesnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-22955803339109663522014-04-07T20:48:11.199+01:002014-04-07T20:48:11.199+01:00Haha. And "butt don't show up in C" ...Haha. And "butt don't show up in C" conjures up some interesting images too.....Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.com