GDP, a (totally) useless indicator?

Discussion in 'Economy' started by Pavel, Mar 23, 2011.

  1. Pavel
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    Pavel Rookie

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    Hi everybody,


    I wonder why everybody is always using that indicator which is absolutely non-sense, when we think about it?
    Let me explain:

    1) It doesn't take into account THE NUMBER OF PEOPLE living in a country...
    I mean, that totally doesn't make sense right? The more there are people, the more they have the chance to create value and produce things (if they a smart enough).

    If you pick a country with 5 habitants, and a country with 20 habitants, and if you need at least 5 people to build a car, then the next happens:
    In country 1 everybody is working to produce one car,while in country 2 everybody is working to produce either 4 cars or 1 car and 1 plane.

    How can you possible compare these 2 countries?

    Then you understand how unproductive are the Chinese, when everybody is saying "OMG China they're sooo good"... Man, come on, China is 1,3 Billion people. US is 250 million. There are 5 times more people in China than in US. And US still has a GDP 3 times higher.
    So that's the opposite, actually. Chinese suck.

    People are like "Damn, China became the 2nd economy in the world... wow..." Yeah. They've done a little bit more than Japan, with a population 7 times bigger.

    And what about EU? Do we count EU as one signle area, or country by country? Etc. etc.

    This is why I think every GDP indicator should be brought down to a base denominator of population.

    2) It doesn't take into account where the production comes from:
    Take for example Saoudi Arabia, Russia, and Libya... of course you've all understood what they have in common: oil.
    And that's all what they have and what they can do: pump oil. They are unable to build something from scratch and sell it. They have the chance to have such a resource on their lands but we all know that it will soon be over, firstly because of the green energies, and secondly because by 2050 the oil resources will end anyway.

    Then what will these countries do? Their GDP will sink and the whole countries with it.

    This brings us to the 3rd point.

    3) In doesn't take into account the distribution of this value among the population.
    Taking the same examples as in point 2, those who pump oil and possess the lands have looooots of money, while the populations are still in mid-misery.
     
    Last edited: Mar 23, 2011
  2. JWBooth
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    JWBooth Gold Member

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    What would you suggest as a gauge to replace the gdp?
     
  3. Pavel
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    Pavel Rookie

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    Well it depends if we really need to replace it or not.

    It can remain an indicator as it is, but we can't use it to compare countries between them.

    I think a good indicator would be GDP brought down to a common denominator.

    For example,

    US GDP: 14 624 184 millions of $
    China GPD: 5 745 133 millions of $

    US Population: 250 000 000
    China Population: 1 300 000 000

    Therefore, if we want to compare the actual real performance of a population, then :
    US GDP/Pop: 58,49
    China GDP/Pop: 4,41

    Therefore, US is 13 times more productive than China.

    Too many people tend to view GDP as a universal comparison tool while it's not the case.

    Then, what concerns the resources, it should be more difficult and accurate and calculated country by country by taking into account the productivity generated by, let's say, oil sector (resources), and other industries to determine the percentage of natural resources in the GDP.

    Finally, the population benefit from that GDP is more harder to consider, but we can do it by taking into account the average salary amount, for example, or the purchasing power, etc.
     
  4. boedicca
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    boedicca Uppity Water Nymph Supporting Member

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    No intelligent person trying to understand the economy focuses on only One Metric.
     
  5. william the wie
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    william the wie Gold Member

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    True and even per capita GDP varies inversely with product quality. Also gaming the numbers, storming the plan and other means of cooking the books will also crop up no matter what measures are used or how many.
     
  6. 8537
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    8537 Senior Member

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    It's an indicator of exactly what it's supposed to measure: The total value of market goods and services produced in a country or, conversely, the total income in a country.

    Trying to use it as anything more is just abusing the whole purpose.
     
  7. pinqy
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    pinqy Gold Member

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    ummm, yeah, that's called the GDP per capita, and it's been published for a long time.

    And it's 47,763 for the US, 4th quarter 2010. China is around 7,400.

    Oh, and you failed to take currency differences into account. You can compare nominal GDP, but it's more useful to use Purchasing Power Parity to adjust (especially with countries like China, where currency values are manipulated).

    As for distribution of the economy, that's why we look at the GINI index which notes the income distribution of a country.
     
  8. Wry Catcher
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    Wry Catcher Platinum Member

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    All of which proves Economics is a soft science. Those who continually post one statistic or another as "proof" of one thing or another prove one thing only. Mark Twain was spot on when he wrote, "there are liars, damn liars and statistics".
     
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  9. psikeyhackr
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    psikeyhackr VIP Member

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    GDP == Grossly Distorted Propaganda

    Example:

    Suppose a man makes $20/hour but only for the time spent working.

    Say he drives 30 mph to work every morning in a reasonably decent used car. Say his car breaks down on the way to work one morning. He pays $50 for the two and $300 to get the car fixed.

    He spent $350 and failed to make his $160 so from his perspective he is $510 behind where he expected to be when he got out of bed that morning. But according to GDP figures the economy GREW by $190 more than it would have if he had made it to work. The people that made money off him are supposedly better off. So cars breaking down more often may create more economic growth, assuming of course that people can afford to pay to have them fixed.

    GDP is a measure of CASH FLOW resulting from economic activity, not wealth. But then the economists don't talk about NET Domestic Product. Isn't a business man that doesn't know the difference between GROSS and NET a pretty dumb businessman.

    There is the matter of DEPRECIATION.

    But economists only subtract the depreciation of CAPITAL GOODS. What about all of the cars that consumers buy and wear out. The economics profession ignores DEMAND SIDE DEPRECIATION but when we buy replacements for the junk it gets added to GDP. So according to economists Planned Obsolescence is GOOD FOR GDP. But then the economists don't talk about planned obsolescence either.

    The economy depends on the worker/consumers BEING DUMBER than economists. We are running a world of 7,000,000,000 people on defective grade school algebra.

    Economic Wargames

    This is definitely and education problem.

    Double-entry accounting should have been mandatory in our schools for the last 50 years.

    http://www.bsu.edu/news/article/0,1370,-1019-11714,00.html

    When have economists suggested anything so simple? Double-entry accounting is 500 to 800 years old depending on your source. Why is Shakespeare more important? Oh yeah, it keeps kids appropriately ignorant while providing an illusion of education.

    http://www.canhamrogers.com/HDEB.htm

    psik
     
    Last edited: Mar 25, 2011
  10. psikeyhackr
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    psikeyhackr VIP Member

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    Net Domestic Product while taking Demand Side Depreciation into account also.

    What is Net Domestic Product? Definition and Meaning

    Notice that cars and TVs and computers purchased by consumers get added to GDP but their depreciation does not get subtracted. Also notice that the economics book do not point out this strangely defective grades school algebra.

    psik
     

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