Is GDP a useless statistic, or what is it useful for? Why?
You might want to read my take on this…
http://irishliberty.wordpress.com/2008/11/09/gdp-a-meaningless-statistic/
Or Bobby Kennedy’s famous speech…
We call what Bobby just said " Economic Development". I believe I once brought the question up and was rediculized because they did not know what Economic Development meant.
Useless because to assume it’s correct defies the economic calculation problem.
No, GDP is a very flawed statistic but used in combination with other statistics can provide a simple approximation of production, depending on your purpose for using it.
No? It’s useless because it’s too indiscriminate. It’s a measure of the total activity in the economy in terms of a currency, but it is misleading as to the actual structure of the economy and the extent to which production is a part of it. The calculation is not of the economic sort, just reporting figures.
As I understand it, the GDP was made to ‘measure the strength of the economy’, which I don’t think it’s far-fetched to say it falls under the category of ‘economic calculation’.
This is a very good point. A country can have a high GDP/capita and yet be an extremely shit place to live. Eg. Saudi Arabia.
Enter measures like Human Development Index.
@ eliot,
Have you checked out measures like PPR: http://mises.org/daily/2231
It’s just financial accounting, i.e. recording transactions.
Alright, I understand your point; but saying that the GDP is an accurate representation of the economy isn’t something agree with for the same reason I’ve been saying.
If I wanted to increase GDP I could do the following:
Say I’m president, GDP growth is lackluster, so I purchase two computers and put them in the oval office. I then declare that I’ve started up “Acme Co.” privately, to be used as a financial holdings company.
I then set up the following loop between the two computers:
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$1 billion is transferred from the government to “Acme” for ‘Psychiatric Services’ (on behalf of this scheme boosting my ego as president).
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$1 billion is then transfered from “Acme” to the government for ‘licensing fees’.
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GOTO 1.
Within an hour, the U.S. economy would be afloat in riches.
This effect would diminish quickly over time. GDP is adjusted for inflation. The total dollar amounts would be high, but once adjusted, it wouldn’t be an increase in GDP compared to the base year. It would probably even be lower due to the real effects of monetary inflation in destabalizing production.
Oh no, I agree, it definitely isn’t. It’s just not related to the calculation problem.
Alright, cool.
I admit I’m arm-chairing this, but from my understand inflation statistics are calculated by year-to-year price increases in the basket of goods, so:
Under psychiatric services prices, there might be a slight blip up the first year, since there’s one firm in the market that’s paying the exorbitant amount of $1 billion per session, but average that over the thousands of firms in the country and it’s not that much. Average that over all prices and it becomes negligible. As far as my knowledge goes, I’m not sure if CPI does any sort of weights certain prices.
Furthermore, these $1 billion transactions don’t leave this system. I’m on paper transferring $1 billion between Acme and the government repeatedly, and to no one else (I guess there might be slight costs like office space for Acme, the computers, maybe a technician, etc.; but nothing that ranges in the billions).