Elon Musk is wrong about GDP
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Elon Musk is wrong about GDP
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Re: Elon Musk is wrong about GDP
#2I am not an expert, but this was noted elsewhere as being the reason why Russia's economy looked to be doing relatively well even after years of sanctions: the government was spending as a wartime economy, and so any loans, any sovereign wealth, and other measures to fund that spending all prop up an economy that might in future have many problems.
(Not that they're really propping it up, but that GDP is a common proxy for an economy's health, it looks better than it is.)
I'd be curious to know if people here with more insight than I would be keen to share.
Re: Elon Musk is wrong about GDP
#3wow, that is kinda dumb.
Governments can and do target GDP with their spending, with predictable results. The classic example is "ghost cities" in China. They have ghost cities nobody lives in, ghost roads nobody drives on, and ghost bullet trains that go nowhere useful. All because regional governors are expected, one way or the other, to match GDP targets for their regions.
Goodhart's law applies here. "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes." or "When a measure becomes a target, it ceases to be a good measure."
GDP is subject to manipulation when it becomes a target. So is lots of other things like "Consumer Price Index", which nowadays doesn't index a whole lot other then what the goverment's target is for inflation (and yes, the Federal Reserve actually counts as part of the "government" here).
Which means that GDP, like the CPI, is not particularly useful measurement anymore.
Re: Elon Musk is wrong about GDP
#4Elon Musk is wrong about a lot of things. I'm not sure why people keep asking him questions outside his area of expertise...
Re: Elon Musk is wrong about GDP
#5I've talked to a few economists about this and non agree with Elon on this.
The biggest issue one person raised is how do you separate out government spending form GDP?
If a US town has a big military base, does that mean the entire towns' GDP is just government spending so ignore it?
The government essentially pays for everyone's salary in the town.
Where do you draw the line at what is government spending and private spending?
Cause if the base went away tomorrow then so does the town and about 95% of its spending, so it would be hard to include any of the towns economy in the GDP calculations if you only want private spending as the private spending in this case is almost all first or second order based solely on government spending.
Or at a more macro level. Boeing is a legitimate company but more than 50% and more than 75% depending on how you account for it, comes from government spending.
So do you just not include 75% of Boeings spending in GDP?
How much of the Boeing employees spending do you include in GDP then as if 75% of their salary is government spending and you are trying to exclude government spending.
If you allow their spending to be part of GDP then you are saying you are including government spending in GDP just as a second order event.
I'm told people still do their Phd in economics on this topic so its clearly a very hard problemm.
Re: Elon Musk is wrong about GDP
#6wow, that is kinda dumb. Governments can and do target GDP with their spending, with predictable results. The classic example is "ghost cities" in China. They have ghost cities nobody lives in, ghost roads nobody drives on, and ghost bullet trains that go nowhere useful. All because regional governors are expected, one way or the other, to match GDP targets for their regions. Goodhart's law applies here. "Any observe…
> Which means that GDP, like the CPI, is not particularly useful measurement anymore.
This is just nutty extrapolation.
Does "Goodhart law means that human height and weight are not accurate anymore, because people target them. We can't trust weights and measures." sound sane?
Re: Elon Musk is wrong about GDP
#7wow, that is kinda dumb. Governments can and do target GDP with their spending, with predictable results. The classic example is "ghost cities" in China. They have ghost cities nobody lives in, ghost roads nobody drives on, and ghost bullet trains that go nowhere useful. All because regional governors are expected, one way or the other, to match GDP targets for their regions. Goodhart's law applies here. "Any observe…
GDP has never been that great a measure but it makes absolutely no sense to exclude one of the biggest demand factors (government spending).
Most people that I know who are credible on this topic pay much more attention to real GDP growth (ie change in GDP after accounting for inflation) than nominal GDP itself.
Re: Elon Musk is wrong about GDP
#8I am not an expert, but this was noted elsewhere as being the reason why Russia's economy looked to be doing relatively well even after years of sanctions: the government was spending as a wartime economy, and so any loans, any sovereign wealth, and other measures to fund that spending all prop up an economy that might in future have many problems. (Not that they're really propping it up, but that GDP is a common pro…
Russia has been selling large amounts of long-term sovereign bonds, going into debt, at an annualized interest rate in the mid 20%'s (!). While under a looming demographic crisis featuring very large numbers of elderly pensioners being supported per young worker. A non-negligible fraction of those young workers are fleeing the country or dying in Ukraine, which further deepens demographic issues.
This is destabilizing for a variety of reasons. It's a bet on future growth that does not appear evident. It's also effectively a burden placed on the other oligarchs behind Putin, who would love to control a large chunk of a functional economy rather than controlling a large chunk of a banana republic undergoing stagflation and being heavily taxed for the privilege.
What happens when strongman Putin goes away, and occasional defenestration is replaced with factionalism? Or even sooner than that - what happens if the market becomes confident in low oil prices?
Re: Elon Musk is wrong about GDP
#9I've talked to a few economists about this and non agree with Elon on this. The biggest issue one person raised is how do you separate out government spending form GDP? If a US town has a big military base, does that mean the entire towns' GDP is just government spending so ignore it? The government essentially pays for everyone's salary in the town. Where do you draw the line at what is government spending and priva…
Maybe the problem is that it's called Gross Domestic Product but we're talking about spending. Spending isn't producing. Sometimes spending promotes production, but may times it doesn't, and a lot of the stuff that gets counted as GDP is just moving dollars from one entity to another.
Re: Elon Musk is wrong about GDP
#10There is certainly a usefulness in separating government spending and private spending in our economic health measures. For one, measures like GDP are often used to evaluate the confidence and the general well-being of our economy. High Government spending tend to indicate the opposite, as Keynesian economics would mandate. More so, it invite manupulation of those measures by politicians, who can increase deficits to boost their "success". When it comes to spending like Education, those should be fairly constant relative to the population, in a developed country. We also have other mechanics to discuss their health status since they are largely public funded and subject to political debate. Perhaps a good measure would be the GDP minus public deficit minus credit card debt increase.