I remember reading this post and thinking it is very good and important. I have since pretty much forgot about it and it’s insights, probably because I didn’t think much about GDPs anyway. Rereading the post, I maintain that it is very good and important. Any discussion of GDP should be with the understanding of what this post says, which I summarized to myself like so (It’s mostly a combination of edited excerpts from the post):
Real GDP is usually calculated by adding up the total dollar value of all goods, using prices from some recent year (every few years that year is switched). So when the price of a good falls a lot, that good is downweighted (proportional to its price drop) in real GDP calculations. Real GDP calculated at recent prices is dominated by the things which are expensive today. Things which are cheap today are ignored in hindsight, even if they were a very big deal at the time. The less revolutionized a good is, the more it matters for GDP, the more revolutionized the less it matters. When we see slow, mostly-steady real GDP growth curves, that mostly tells us about the slow and steady increase in production of things which haven’t been revolutionized. It tells us approximately-nothing about the huge revolutions in e.g. electronics. Therefore, GDP as it’s actually calculated is best thought of as a measure of production growth in the least-revolutionized goods.
John’s takeaways from this are
This makes GDP a poor trend for predicting technological progress.
John mentioned that GDP is sometimes computed differently, including by the BEA which uses chain linking. But Bethel says that chain linking is more widespread than it’s made to be, having been adopted by nearly all OECD countries, including the UK, Australia, and Canada. It’s not clear though how much of the problems this post raises are solved by chain linking
maximkazhenkov gives an interesting thought experiment on the effects of a 30-year logevity pill on GDP, and concludes that “GDP is more of a measure of economic activity than value, and growth is only a meaningful proxy for progress under the limited context of gradual adoption and improvement of new technologies. In a way, GDP growth has slow takeoff built in as an assumption.”
I particularly appreciated the roundup of the old comments. I’ve been looking into “give old good comments some attention during the review” and appreciate help on that. I might make that a more explicit “thing you’re encouraged to do in reviews” next year.
I remember reading this post and thinking it is very good and important. I have since pretty much forgot about it and it’s insights, probably because I didn’t think much about GDPs anyway. Rereading the post, I maintain that it is very good and important. Any discussion of GDP should be with the understanding of what this post says, which I summarized to myself like so (It’s mostly a combination of edited excerpts from the post):
John’s takeaways from this are
This makes GDP a poor trend for predicting technological progress.
The slower GDP growth in the last 20 years actually reflects the stagnation in all industries other than information.
My takeaway (and I think an implicit takeaway) is that our need for a better metric than GDP is much greater than you’d think, if you only hear the criticisms that GDP doesn’t measure happiness, or leisure time, or household work, or “the health of our children, the quality of their education or the joy of their play”.
Some comments I thought were worth highlighting:
John mentioned that GDP is sometimes computed differently, including by the BEA which uses chain linking. But Bethel says that chain linking is more widespread than it’s made to be, having been adopted by nearly all OECD countries, including the UK, Australia, and Canada. It’s not clear though how much of the problems this post raises are solved by chain linking
maximkazhenkov gives an interesting thought experiment on the effects of a 30-year logevity pill on GDP, and concludes that “GDP is more of a measure of economic activity than value, and growth is only a meaningful proxy for progress under the limited context of gradual adoption and improvement of new technologies. In a way, GDP growth has slow takeoff built in as an assumption.”
ryan_b mentions Total factor productivity as a potential alternative.
jpsmith digs deeper into which goods are most measured by GDP.
Ege Erdil and gordo commented on the math, which seems worth highlighting, but I don’t understand it so I can’t evaluate their comments.
I hope that after re-reading the post and writing this review the insights from it will stick with me. Good thing we have the yearly review!
I particularly appreciated the roundup of the old comments. I’ve been looking into “give old good comments some attention during the review” and appreciate help on that. I might make that a more explicit “thing you’re encouraged to do in reviews” next year.