GDP, a (totally) useless indicator?

[Pavel]

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.

 

[JWBooth]

What would you suggest as a gauge to replace the gdp?

 

[Pavel]

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.

 

[boedicca]

No intelligent person trying to understand the economy focuses on only One Metric.

 

[william the wie]

No intelligent person trying to understand the economy focuses on only One Metric.

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.

 

[8537]

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.

 

[pinqy]

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.

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.

 

[Wry Catcher]

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".

 

[psikeyhackr]

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

 

[psikeyhackr]

What would you suggest as a gauge to replace the gdp?

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

The GDP minus depreciation on a country's capital goods.

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

 

[william the wie]

I agree with psik to this extent gaming the numbers always happens. As to his solution I suspect that can and will be gamed too.

 

[rightwinger]

GDP must be up this quarter

Right-wingers are trashing it as an indicator

 

[psikeyhackr]

GDP must be up this quarter

Right-wingers are trashing it as an indicator

Vulcans are always RIGHT!

psik

 

[rightwinger]

GDP must be up this quarter

Right-wingers are trashing it as an indicator

Vulcans are always RIGHT!

psik

Live long and prosper

 

[william the wie]

GDP must be up this quarter

Right-wingers are trashing it as an indicator

The numbers are not out yet and given construction spending lower, no or negative growth numbers for GDP are expected.

 

[Supposn]

Pavel, I too have wondered as to how data is gathered and the aggregate value of all final goods and services sold in the USA is calculated.

The point is not the accuracy of GDPs but rather if they're calculated for each duration in a similar manner. GDP certainly indicates the nation’s dollar volume of commercial activity.

Furthermore when the ratio of GDP and median wage is considered, it’s a rough indication GDP’s distributed throughout the population. I consider the GDP and the median wage to be among, (if not the) most significant of national economic indicators.

You may be familiar with the old joke’s punch line, “Sure I know the (roulette) wheel’s crooked; but it’s the only wheel in town”. I do not know the extent of GDP’s inaccuracy but it’s the best economic indicator available.

You are correct; I too have concluded that GDP’s not expressed in per capita terms are less helpful and to some extent misleading.

For comparison purposes, all monetary statistics should be annually adjusted to reflect the currencies’ buying power.

Comparisons between nations are much more dicey. Aside from currencies’ exchange rates and buying powers, there are some differences of data available and the credibility of each nation’s data. All of this must contribute to different manners of calculating and/or comparing foreign nations' GDPs.

Respectfully, Supposn

 

[rightwinger]

GDP must be up this quarter

Right-wingers are trashing it as an indicator

The numbers are not out yet and given construction spending lower, no or negative growth numbers for GDP are expected.

GDP is up 3.1% in the last quarter.......no wonder we need the right wing, to post threads about how worthless it is. Now, let's see GDP go down for a quarter and see how they view it

News Release: Gross Domestic Product

 

[Toro]

GDP isn't perfect but its a pretty good indicator nonetheless since it is a measure of all the income in the country. It does not measure, nor is intended to measure, the distribution of income in the country. GDP can be measured per capita, but as an absolute, it is a measure of income within a jurisdiction. Jurisdictions are important because they influence political power. For example, the G7 was a group of the largest 7 economies in the world. Luxembourg, Singapore and Qatar may have high per capita GDP, but they are irrelevant in global geopolitics.

 

[editec]

GDP is a useful tool for measuring SOME things,. and a worthless took for measuring others.

Why?

Well as but one xample, tecause the GDP can go up while the people in the nation are getting poorer.

But there's nothing inherently wrong with the STAT, it's just the way its touted as measuring real progress of a society, that is wrong headed.

 

[pinqy]

You know, ever single time I read someone's complaint about an economic indicator, it boils down to the indicator not measuring what someone wants it to measure and not it's validity for what it measures.