Does GDP Matter Anymore?

Dear Mr. GDP,
In the new economy, your job is no longer relevant or necessary. You are being let go. Please check with your local community college about retraining for a new career. While the pay cut from $13 trillion per year to... oh... $8/hr might initially come as a shock, I'm sure you will adjust accordingly.

I'm not a pessimistic leftist, so....

I think this is finally the thinking that captures the gains of the infomation age into real prosperity.

For example, let us take a hypothetical American worker (all figures are in current dollars, not adjusted for inflation).

In 2003 :
He earned $80,000
A 42-inch Plasma cost $8000
An 802.11g Wireless Router cost $150.

In 2007 :
He earned $100,000 (same job, 5-6% annual raises)
A 42-inch Plasma cost $1200
An 802.11g Wireless Router cost $40.

Thus, his purchasing power of TVs and Wireless Routers increased dramatically. By 5X to 8X actually.

Now these Moore's Law driven products (like PCs, DVD Players, etc.) are only a small percentage of the goods and services he spends money on. But are a growing percentage. As they grow to increasingly larger shares (as cars become more electronics-heavy, as biotech proliferates more greatly through healthcare, and as new Internet options compress Real-Estate agent fees, etc.), his purchasing power rises, so his real income rises.

I personally feel much wealthier than just a few years ago, as all the gadgets that I like cost a fraction of what they did then. This will continue, and thus my real income is rising in terms of this purchasing power.

Last time I checked, the CPI was supposed to measure what a typical household buys. And even with all these cheap imports, the CPI hasn't fallen. And combine that with the fact that real wages have been stagnant for the past decade. You would think that an increase in productivity and GDP would increase wages, but that hasn't happened, and it seems likely that phantom gdp is a good explanation for this. So does GPD matter anymore? not if we can't properly measure it

Yes, changes in real income determine changes in our standard of living. That does not make GDP irrelevant. It is often instructive to look at extremes. If GDP were zero, it wouldn't matter how low the price level were. As long as it was above zero, we could command no consumption. More income is better and lower prices are better. More income together with lower prices is best. Historically, pre-globalization, change in real GDP probably adequately captured the change in real income. Things are more complicated now. You need to ask for a raise to compensate you for the need to look at both sides of the coin!

Especially those really cheap imports like oil.

Kartik, when prices fall dramatically, the item in question becomes a smaller portion of the economy unless the volume increases by a greater factor. I haven't looked at the recent data, but it is unlikely technology has even reached where it was last decade.

Kartik, my Bat-belt wearing, gadget-addict friend... You've no sense of humour.

CPI does not take into account that a Wireless Router for $100 today is 5X more powerful than the $100 router of 2003. It just notes that the price is the same.

CPI does not tell you that a $1000 PC is 10X more powerful than the $1000 PC of 2002.

CPI does not tell you that doing your banking online eliminates a trip to the bank, saving you the automobile costs you would have otherwise incurred.

I would like to break the GDP and the NDP issue in shreds. Here it goes.
I read the book "The Death of Economics " The Death of Economics: Books: Paul Ormerod who really has explained that we are not in line with the cannons of Malthusians or the Samuelson or any Keynes or any new cannons that are coming out. Then I have the book “The Global Village" by Thomas Friedman that states we are a small village.
With is in mind who wants to know if the GDP agrees or not. The GREAT8 is a farce so ids the World Trade. It is for the elite only.Firozali A.Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa

"Posted by: Lord at June 21

Kartik, when prices fall dramatically, the item in question becomes a smaller portion of the economy unless the volume increases by a greater factor."

If a products utility is turned to have an economic impact that was not present in a primary use it then gains domestic economic value. When prices fall dramatically, the item or service in question should becomes a greater portion of the economy. What you invest in or buy should have that extended impact beyond the primary use it was purchased for, if you work it a cell phone connection to your family should reduce the costs of family connection and gain some value related to gas prices. As a the macro economic effect simple consumption of incredible cheap products and services should gain new forms of business activity or return that expand there economic impact. Supporting that re-investment to gain employment is the name of the game. Sustainable corporation will need these extended expanded relationships that gain these returns. I recently started e-selling on a common web platform, I'm retired so my goal was to pay for the cost of my internet access and replce my present computer. Gandhi could have seen that simple exchange as something any Indian villager should strive for.

Looks like the domestic productivity would still matter. Accepted, if the productivity of all other countries increase then all these goods are going to be cheaper.
But remember the domestic country needs to generate income to pay for these goods however lowly-priced they are. If this country cannot improve its' productivity then it cannot compete internationally because of high costs implying higher prices. No one would want to buy a highly priced item anyways!!!! This implies that domestic productivity DOES matter primarily for generating income, with which this country could buy "cheaply-priced" goods.

Lord, oil import is now made cheaper because we buy lots of petroleum based products from China, whose government makes oil available to manufacturers and the public at a much lower price then the open market. They also subsidize exports. We're getting cheaper oil this way but it's not reflected in our GDP or CPI.

Also, China and other emerging countries pollute their environment by making those products and sending them to America so we can have the cake and eat it, too. The money saved from the effects of pollution and a higher quality of life (just try breathing the air in many parts of Asia) are also not measured or measurable by the GDP or CPI.

We have claims of vast contributions being made to our welfare that escape measurement. I suggest someone offer proof, or it is equally positable that there are vast costs being made that also escape measurement. Until then, I remain reality based.

I just wanted to say “Thank You” for this work. An individual on the ground does not have much chance to investigate what seems suspect. I am not surprised by your findings, which I find credible.

I would suggest that the new measurements for the global economy would involve setting trade expectations, monitoring performance against them, and triggering corrective actions as required from well-defined contingencies (like any good business manager would do). For example, falling real wages for the majority of a nation’s consumers in the context of a significant rise in major and essentially unavoidable household expenses does not exactly equate to marketplace health (I guess you can tell that this individual on the ground sees little evidence of the relatively low inflation that is regularly reported).

In any case, keep the unvarnished facts flowing as that is what business depends upon. Those who seem to feel that there is nothing valuable in recognizing the misstatement of gross DOMESTIC product are, in my opinion, missing the point that the premium marketplace of the world is relentlessly being squeezed dry, the domestic productivity pump is not being primed, reduced retirement security (i.e. buying power) is a likely scenario, etc. Voters don’t necessarily respond to the published numbers, either, and if we can recognize the reality that is making them restless, then we can better anticipate what pressures they will put on policy makers. If, on the other hand, the vision is for tomorrow’s ambitious U.S. youth to simply leave the country to seek upward mobility in a thriving economy, then, yes, evidence of a shriveling market is uninteresting.

Now you're getting somewhere. Have to say I didn't realize the GDP deflator ignores the price of imports, but that totally makes sense, doesn't it. It's a measure of domestic production (duh), not a direct measure of ability-to-buy-stuff.

That's a big piece of the puzzle. Another piece is to account for those things imported from the land of imagination -- new stuff that didn't use to exist.

It's worth noting that Americans live very expensive inefficient lifestyles today compared to 20 or 40 years ago and compared to many other parts of the world. When I was a child I could walk to school for classes or for sport. Today we have coined the term soccer mom. She gets this title because she dedicates a great deal of her time and money to driving her children around the suburbs to events that they could have walked to just 20 years ago. Today suburban neighborhoods are so far removed from commerce by zoning laws and have roads that are a tangled mess that should make us jealous of the lab rat in the maze--you couldn't even think of sending your child up to the store for a gallon of milk. It's two miles of twisted streets away.

We spend many hours of our lives commuting to visit family and friends, to take our kids to the game or to buy milk. We unnessisarily spend billions on extra new roads and on the extra miles we drive on them.

I was about to say that for all of this expense, we get nothing but then I remembered something. We do this so we can live on a culdisac street that has a few less cars driving down it than the street I grew up on. I think if we took into account the expense of it all, we'd change our minds. I wonder how much of our increased inefficiency at work has been consumed by our increased inefficiency at home. I should concede that the invention of the supercenter store has improved the efficiency of day to day life by allowing us to buy almost everything we need in one store.

'Maximize the present value of real incomes.' Hmmm.

Real income is a basic measure of the ability to buy things, and measured between nations as purchasing power parity. The Big Mac Index comes to mind. Maximizing it means increasing the size of it - or - increasing the purchasing power of it. And in the process of increasing the purchasing power of it in a global economy, one of the surest ways is to reduce the drags on its purchasing power. Tarrifs represent such a drag, and free-trade zones represent the effort to reduce those drags, which leads of course to greater globalization. Which is to say that comparative advantages are still important.

The question becomes how to measure such an increase, especially in a rapidly changing marketplace. The GDP is easily measured - at least the legal part of it - as it is mostly income-based. And we all report our incomes honestly, right? The CPI suffers from the reporting problem. These two indices, with all their flaws, are relatively easily calculated compared to 'the present value of real income'.

When I was studying economics, way back in the late '70s, when Keynesian theory was still dominant, a study came out about the British economy in 1970. Official statistics had held that the economy had contracted in that period of very high marginal tax rates. Someone had factored in the black market economy, and concluded that the British GNP (we called it that, way back then) had actually grown in that year, the growth being underground.

Something to think about. If you are making major purchases such as PC's or DVD's, plasma screens etc, it makes sense that you could potentially spend less money than if the product was made in Ames Iowa. But if you are buying a product of less consequence sometimes the inferiority of the product demands that you purchase the product again when the first one doesn't function properly. For instance I purchased a small pump for a backyard fountain project. While installing the plastic tube that they included in the kit it was immediately apparent that the tube was not exactly the correct size. If you forced the product to "fit" it cracks rendering the whole unit unuseable. So back to Home Depot, or Walmart, does it really matter,? to find a fix for the now problematic Chinese made pump assembly. So I open several pump assemblies to find the correct tube to fit on my pump. Finally, I find the correct one. Of course, you cannot purchase just the tube you must purchase this other pump assembly at a higher price.......this type of situation has occured many times to me. The products made today are not near what they were even 10 years ago. Products that my parents purchased in their early marriage (1950)that I have in my possesion today are still useable and are built out of materials that last a lot longer than products do today. Where does this
statistic show up in your GDP? It shows as more sales, even though if I had found a better built product I would only have had to purchase one and not piece together two. Why can't we hold China, and other governments, accountable for the products that they put out for consumers. Who is watching out for me and my pocketbook? Uncle Sam? Not hardly. I feel this is an epidemic that Uncle Sam is ignoring at all of our citizens expense.

Does GDP Matter Anymore?
The oil has shot up to 90 but this should not worry the consumers. The reason is simple. We are talking of the CPI. This means what one commentator has said, American can spend a lot. The purchasing power therefore denotes the GDP or NDP. Oil at 100 also is cheap( although at this time all eyes are on Iraq and turkey borders, I guess this is a political maneuver too), and the fires in California have shifted all eyes not on oil but the growing China and India and the Iran shaking hands with Putin who agrees that Iran can have the nuke facilities.
This put the GDP off the scoreboard for now. WE are looking at the CPI and the money I have to spend at this time. Do I have enough, then why do I to worry about the GDP. What is more the globalization state we are a small village. Therefore, I can safely look at the other places not particularly mine and leave the GDP totally off my life

I thank you
Firozali A.Mulla MBA PHD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa