GDP-to-gold doesn’t really mean anything. If e.g. the average person wanted to hold 2% of their wealth in gold, and there is no way to get more gold, then (value of all assets) / (price of gold) is going to stay stable, regardless of how rich we are actually getting. The graph tells you something about the popularity of gold, and maybe the interest rate (which very directly affects (total wealth) / (GDP)), but nothing about growth.
I think GDP-to-oil also seems pretty silly, though less obviously so (gold is quite silly). As an analogy, if you measure GDP-to-land, you won’t see a long-run increase. That doesn’t mean that we aren’t getting richer—in fact it doesn’t tell you much of anything, because it’s basically what you’d observe in every possible world where you can’t increase the total supply of land. “Things we pull out of the ground” is a bit more elastic than the ground itself, but it’s still pretty inelastic.
The basket of commodities looks like it’s 75% fuel and metal, so I think the same basic criticism applies to that graph.
GDP-to-corn seems more real. The growth rate in your graph seems to be 1.7%/year. That’s compared to 2.7%/year if we use CPI. So there is a real gap there. This could be explained either by noise (the rate of corn-denominated GDP growth depends hugely on which years you pick, which lower bounds the noise, with some periods being smaller than CPI and some periods being larger). It could also be explained by pretty mundane stories like “technology improves productivity faster areas and slower in others; from 1985-2015 agriculture has been a low-tech area.”
It seems like it would be more useful to talk about why you object to CPI.
I agree it’s been a really bad 50 years, it’s been a very rare period of slowing growth, but I don’t think those data really show that. (And I think you are overstating how bad it is.)
Independently, I’m pretty unconvinced on monopoly as the explanation for the great stagnation. Most of your graphs on “how monopolistic are we” show pretty small or zero differences between now and the early 20th century. In general the effect seems too large to be naturally explained by increasing concentration, without some more convincing causal story.
Ok, this is a counterargument I want to make sure I understand.
Is the following a good representation of what you believe?
When you divide GDP by a commodity price, when the commodity has a nearly-fixed supply (like gold or land) we’d expect the price of the commodity to go up over time in a society that’s getting richer—in other words, if you have better tech and better and more abundant goods, but not more gold or land, you’d expect that other goods would become cheaper relative to gold or land. Thus, a GDP/gold or GDP/land value that doesn’t increase over time is totally consistent with a society with increasing “true” wealth, and thus doesn’t indicate stagnation.
Yes. The detailed dynamics depend a lot on the particular commodity, and how elastic we expect demand to be; for example, over the long run I expect GDP/oil to go way up as we move to better substitutes, but over a short period where there aren’t good substitutes it could stay flat.
I appreciated the GDP-to-gold graph exactly because it’s not doing the thing the OP thinks it is doing, but rather showing the extent to which gold is a favored store of value slash the growth rate of wealth as opposed to income/production (GDP), and what that implies about the value of gold as an investment and the forward interest rate. It’s much cleaner than how I’d been thinking about it before, and the logic likely extends (amusing graph: GDP-to-Bitcoin, world is clearly ending).
Same with the hypothetical GDP-to-land, here, since that seems to have important implications worth thinking about, as well.
GDP-to-oil is going to have a lot of idiosyncratic movement as oil supply changes and our energy sources evolve.
GDP-to-corn is going to capture some idiosyncratic movement from agriculture, as Paul notes, and also for corn in particular—I’m guessing its subsidies make it a special case? So it’s kind of like we’re multiplying GDP-to-CPI by CPI-to-corn for some smart thing in the CPI slot, but the question of how much food our stuff is worth does seem like a good sanity check. How much food a worker can buy with their labor, better still.
showing the extent to which gold is a favored store of value slash the growth rate of wealth as opposed to income/production (GDP), and what that implies about the value of gold as an investment and the forward interest rate. It’s much cleaner than how I’d been thinking about it before, and the logic likely extends (amusing graph: GDP-to-Bitcoin, world is clearly ending).
Sure, but we don’t expect a long-term positive trend in GDP/gold. If it’s roughly constant over the long term, the conclusion is “people’s attitude towards gold isn’t changing too much,” not “we aren’t getting richer after all.”
Why is GDP-to-oil silly? It seems less like GDP-to-land and more like GDP in energy-backed currency. If I wanted to measure the output of an alien civilization, I’d use a measure like that.
I think GDP/(price of energy) is going up, as is total energy output.
ETA: in fact the price of electricity seems to be rising slower than inflation (residential and commercial electricity prices are falling by >0.5%/year here, industrial prices are flat), so your intuitive measure would suggest that CPI-adjusted GDP growth understates rather than overstates real growth.
I agree oil isn’t as bad as GDP-to-land, even if oil supply is perfectly inelastic, because there are better substitutes—if you get richer, you can replace oil with gas or with electric cars and so on. But it’s not too surprising to have a 30 year period where oil is significantly better than the next best alternative, and during that period the substitutes don’t take much pressure off the price and it’s almost as bad a measure as GDP-to-land.
I don’t understand, if everyone gets richer while the amount of gold stays fixed, wouldn’t we expect people to choose to hold a smaller proportion of their wealth in gold?
Why would they want to hold a smaller proportion of their wealth in gold?
(It’s not like I have a desire to hold a certain volume of gold, or a certain total amount of money in gold. I think most people view it as an investment, and I don’t see why the “fraction of your portfolio you want in gold” would change that much as gold becomes more valuable.)
I desire to physically posses a limited amount of gold coins, not as investment, but as hedge against the unlikely case where civilization collapses enough that more fictional assets (gummint scrip and electronic “investments”) are worthless but not so much that more traditional value stores are (widely realized to be) worthless.
Even if most people view it as an investment, presumably the price of gold is at least somewhat tied to how much people want it for non-investment purposes (otherwise you seem to be saying that its price is a pure Keynesian beauty contest). If you are richer, the non-investment value of gold seems to be less relative to your total resources (since gold is still just gold).
GDP-to-gold doesn’t really mean anything. If e.g. the average person wanted to hold 2% of their wealth in gold, and there is no way to get more gold, then (value of all assets) / (price of gold) is going to stay stable, regardless of how rich we are actually getting. The graph tells you something about the popularity of gold, and maybe the interest rate (which very directly affects (total wealth) / (GDP)), but nothing about growth.
I think GDP-to-oil also seems pretty silly, though less obviously so (gold is quite silly). As an analogy, if you measure GDP-to-land, you won’t see a long-run increase. That doesn’t mean that we aren’t getting richer—in fact it doesn’t tell you much of anything, because it’s basically what you’d observe in every possible world where you can’t increase the total supply of land. “Things we pull out of the ground” is a bit more elastic than the ground itself, but it’s still pretty inelastic.
The basket of commodities looks like it’s 75% fuel and metal, so I think the same basic criticism applies to that graph.
GDP-to-corn seems more real. The growth rate in your graph seems to be 1.7%/year. That’s compared to 2.7%/year if we use CPI. So there is a real gap there. This could be explained either by noise (the rate of corn-denominated GDP growth depends hugely on which years you pick, which lower bounds the noise, with some periods being smaller than CPI and some periods being larger). It could also be explained by pretty mundane stories like “technology improves productivity faster areas and slower in others; from 1985-2015 agriculture has been a low-tech area.”
It seems like it would be more useful to talk about why you object to CPI.
I agree it’s been a really bad 50 years, it’s been a very rare period of slowing growth, but I don’t think those data really show that. (And I think you are overstating how bad it is.)
Independently, I’m pretty unconvinced on monopoly as the explanation for the great stagnation. Most of your graphs on “how monopolistic are we” show pretty small or zero differences between now and the early 20th century. In general the effect seems too large to be naturally explained by increasing concentration, without some more convincing causal story.
Ok, this is a counterargument I want to make sure I understand.
Is the following a good representation of what you believe?
Yes. The detailed dynamics depend a lot on the particular commodity, and how elastic we expect demand to be; for example, over the long run I expect GDP/oil to go way up as we move to better substitutes, but over a short period where there aren’t good substitutes it could stay flat.
I appreciated the GDP-to-gold graph exactly because it’s not doing the thing the OP thinks it is doing, but rather showing the extent to which gold is a favored store of value slash the growth rate of wealth as opposed to income/production (GDP), and what that implies about the value of gold as an investment and the forward interest rate. It’s much cleaner than how I’d been thinking about it before, and the logic likely extends (amusing graph: GDP-to-Bitcoin, world is clearly ending).
Same with the hypothetical GDP-to-land, here, since that seems to have important implications worth thinking about, as well.
GDP-to-oil is going to have a lot of idiosyncratic movement as oil supply changes and our energy sources evolve.
GDP-to-corn is going to capture some idiosyncratic movement from agriculture, as Paul notes, and also for corn in particular—I’m guessing its subsidies make it a special case? So it’s kind of like we’re multiplying GDP-to-CPI by CPI-to-corn for some smart thing in the CPI slot, but the question of how much food our stuff is worth does seem like a good sanity check. How much food a worker can buy with their labor, better still.
Sure, but we don’t expect a long-term positive trend in GDP/gold. If it’s roughly constant over the long term, the conclusion is “people’s attitude towards gold isn’t changing too much,” not “we aren’t getting richer after all.”
Why is GDP-to-oil silly? It seems less like GDP-to-land and more like GDP in energy-backed currency. If I wanted to measure the output of an alien civilization, I’d use a measure like that.
I think GDP/(price of energy) is going up, as is total energy output.
ETA: in fact the price of electricity seems to be rising slower than inflation (residential and commercial electricity prices are falling by >0.5%/year here, industrial prices are flat), so your intuitive measure would suggest that CPI-adjusted GDP growth understates rather than overstates real growth.
I agree oil isn’t as bad as GDP-to-land, even if oil supply is perfectly inelastic, because there are better substitutes—if you get richer, you can replace oil with gas or with electric cars and so on. But it’s not too surprising to have a 30 year period where oil is significantly better than the next best alternative, and during that period the substitutes don’t take much pressure off the price and it’s almost as bad a measure as GDP-to-land.
I don’t understand, if everyone gets richer while the amount of gold stays fixed, wouldn’t we expect people to choose to hold a smaller proportion of their wealth in gold?
Why would they want to hold a smaller proportion of their wealth in gold?
(It’s not like I have a desire to hold a certain volume of gold, or a certain total amount of money in gold. I think most people view it as an investment, and I don’t see why the “fraction of your portfolio you want in gold” would change that much as gold becomes more valuable.)
I desire to physically posses a limited amount of gold coins, not as investment, but as hedge against the unlikely case where civilization collapses enough that more fictional assets (gummint scrip and electronic “investments”) are worthless but not so much that more traditional value stores are (widely realized to be) worthless.
Even if most people view it as an investment, presumably the price of gold is at least somewhat tied to how much people want it for non-investment purposes (otherwise you seem to be saying that its price is a pure Keynesian beauty contest). If you are richer, the non-investment value of gold seems to be less relative to your total resources (since gold is still just gold).