Cotton Candy and GDP
Today I was reading Dr. Tim Morgan's excellent blog, Surplus Energy Economics. Tim Morgan used to work at Tullett Prebon where he was head of research. I get the feeling that means he is really smart or something like that.
His latest post ( no.117 ) is about how inaccurate the established view of economic activity likely is. From 2006 to 2016 USA GDP growth per capita has been a total of 5.8%. No, not per year, but cumulative. That works out to a massive 0.57% of growth per year. Don't blink or you'll miss it. The D in GDP seems to be shifting more and more towards Delusional with each passing year. At what stage to we ditch the economists and hire psychiatrists?
He discusses assorted fudge factors like imputations. For example, in the USA the equivalent cost of renting your own house out to yourself is factored into the GDP. Doesn't that imply real estate bubbles just inflate GDP? How does that help us know where we are headed economically? Or might the goal be to avoid us knowing where we are headed?
Other things he discusses are concepts such as Globally Marketable Output ( GMO ) and Internally Consumed Services ( ICS ). GMO includes things that are priced and traded internationally like oil or new cars, fundamental products that directly build wealth. ICS includes activities that may or may not build much wealth, like mowing someone's lawn or charging for pedicures. Many of these secondary activities are discretionary and may or may not be needed. Either way, the don't add nearly as much wealth to a nation as GMO does.
In any case the serious economic work being doing by GMO activities such as farming and manufacturing have actually shrunk from 2006 to 2016. We are drifting further into the land of fluffy service based economies.
Other examples are things like taxes, which is often moving money around from one person to another. Yes, it may make social or even economic sense, but should it be inflating GDP? Once more we find government spending is one of the activities that has expanded and helped give us the breathtaking per capita growth mentioned above.
On the topic of moving things around, but in ownership title only, this excerpt adds more fuel to the debate:
End of quote.
Other very important issues brought up are Zero Interest Rate Policy or ZIRP, and it's corrosive effect on pension funds. Are we just cannibalizing our savings to fuel cheap short term growth?
To make matters worst, none of this is exclusive to the USA. It is widespread among most developed economies.
Check it all out here:
https://surplusenergyeconomics.wordpress.com/
His latest post ( no.117 ) is about how inaccurate the established view of economic activity likely is. From 2006 to 2016 USA GDP growth per capita has been a total of 5.8%. No, not per year, but cumulative. That works out to a massive 0.57% of growth per year. Don't blink or you'll miss it. The D in GDP seems to be shifting more and more towards Delusional with each passing year. At what stage to we ditch the economists and hire psychiatrists?
He discusses assorted fudge factors like imputations. For example, in the USA the equivalent cost of renting your own house out to yourself is factored into the GDP. Doesn't that imply real estate bubbles just inflate GDP? How does that help us know where we are headed economically? Or might the goal be to avoid us knowing where we are headed?
Other things he discusses are concepts such as Globally Marketable Output ( GMO ) and Internally Consumed Services ( ICS ). GMO includes things that are priced and traded internationally like oil or new cars, fundamental products that directly build wealth. ICS includes activities that may or may not build much wealth, like mowing someone's lawn or charging for pedicures. Many of these secondary activities are discretionary and may or may not be needed. Either way, the don't add nearly as much wealth to a nation as GMO does.
In any case the serious economic work being doing by GMO activities such as farming and manufacturing have actually shrunk from 2006 to 2016. We are drifting further into the land of fluffy service based economies.
Other examples are things like taxes, which is often moving money around from one person to another. Yes, it may make social or even economic sense, but should it be inflating GDP? Once more we find government spending is one of the activities that has expanded and helped give us the breathtaking per capita growth mentioned above.
On the topic of moving things around, but in ownership title only, this excerpt adds more fuel to the debate:
Then there’s the FIRE sector, comprising finance, insurance and real estate. These are worthwhile services, but we are entitled to wonder quite how much value is actually created by selling houses to each other, paying each other rent, or moving money around. This activity looks a lot like “doing each others’ washing”. Yet increases in FIRE sector activity accounted for more than a quarter (27%) of all growth in the American economy between 2006 and 2016, adding $628bn to GDP. As of 2016, FIRE activities accounted for 21% of the American economy, contributing far more than manufacturing (12%) and construction (4%) put together. Of course, a significant proportion of imputations arise in real estate and finance, which means that these sectors overlap.
End of quote.
Other very important issues brought up are Zero Interest Rate Policy or ZIRP, and it's corrosive effect on pension funds. Are we just cannibalizing our savings to fuel cheap short term growth?
To make matters worst, none of this is exclusive to the USA. It is widespread among most developed economies.
Check it all out here:
https://surplusenergyeconomics.wordpress.com/
posted by Yvan Roy at 5:59 PM
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