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PaperclipPerfector  18hr ago (text post)   538 thread views

Small-Scale Question Sunday for December 22, 2024

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

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Can someone who’s good with economics explain to me, as you would a child, is “global GDP” a useful measure of human productivity, or of anything at all for that matter?

My understanding GDP is a measure of productivity (via total value goods/services), but it’s measured in dollars, which are a self-referential measure of people’s willingness to work or pay for a service. All of these goods and services also have differing values to consumers based on their circumstances. If I’m trying to conceptualize a “fundamental unit of productivity” I feel like no matter how I do it I end up in a recursion loop. What am I missing?

Secondarily, I was recently in a fast food place and realized what I thought was a police officer taking a break was actually a full-time security guard employed by the restaurant. This guard is presumably paid some amount X per year, which is rolled into the national GDP. If we compare to another country where low crime rates mean they don’t need a security guard at every McDonald’s, it seems in this instance that GDP has captured a societal drag on productivity and is treating it as a gain. True, the guard is producing a service, but the fact that the service is needed at all when in other countries it is not seems like there should also be some factor captured as a negative that is being missed. Are similar warping effects (e.g., make-work projects or services that are created to compensate for a societal failure) a major contributor to variations in GDP values? And if so, how useful can GDP be really?

You know, I started to write a post but I think my thoughts just boil down to the same old idea I always reach about GDP and economic measures, which is: economic measures have a narrow definition and meaning and are useful when used in a very specific context, but our society overuses them as a measure of societal health and wellbeing because we've lost all moral common ground as a society save for a horror of poverty and physical suffering. And so, because the means to alleviate poverty and physical suffering (wealth) is the only metric we can all agree on, it de facto becomes the sole axis on which to measure the health of a society. Laymen mistakenly think that this is because The Science has proven that GDP is the best metric, but it's really just an accident (or maybe a legacy of Marxist economics, I dunno).

There's no objective definition of "the economy," but people act as though there is. Like many other soft "sciences," (looking at you, social "science"), the common usage of "the economy" smuggles in assumptions about what has value. In a 4x game framework, modern economies would have resources like "oil," "metals," and "information." But in a medieval economy (let's borrow CK2), it might have been "food," "artisanal wares," "piety," and "prestige" or something. If the Duke of Aquitaine's realm produced 9 trillion tapestries a year and had a glut of food, but there were no churches and his family was widely derided, I don't think he would consider his realm fully productive.

Others have given good answers but you seem to be trending in this direction for a question of fundamental assumptions or what productivity or gain really makes. Try this:

https://www.stlouisfed.org/publications/page-one-economics/2020/11/02/examining-the-lump-of-labor-fallacy-using-a-simple-economic-model

Addressing your second point, as someone who knows next to nothing about economics [^1]: your question seems to be answered by the parable of the broken window.

Suppose it cost six francs to repair the damage [to a broken window], and you say that the accident brings six francs to the glazier's trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child [who broke the window]. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Applying this to your question about the security guard: any society in which stores (and in particularly bad cases, individual families) must spend on hiring security guards is a society where this money is not being spent on research and development, or on education, or on infrastructure, or on other investments that generally raise the GDP of that society (and often make life better in that society too). We should thus expect to see this opportunity cost of hiring security guards to be reflected in GDP figures, as societies that hire them are more likely to be beset with lower GDP. This is borne out in reality: there are many developing countries where elites live behind expensive walled compounds staffed by large security details, but no one particularly thinks that they’re major players in the world economy.

[^1] That is to say, don’t put too much stock in what I’ve written here.

similar warping effects

Not an economist, but you can find this lots of places.

My wife is a full-time homemaker. We could increase GDP if she went to work outside the home and then we paid others to care for our children and DoorDashed our meals etc. Our children are still cared for and fed but there would be a countable number to describe the economic activity that is now uncounted.

Goodhart's Law: When a measure becomes a target, it ceases to be a good measure.

Yes, there are all kinds of ways you could distort GDP if you really wanted to, but because nobody is particularly invested in maximizing measured GDP, it's not that big of an issue.

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