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Elon Musk is wrong about GDP

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Re: Elon Musk is wrong about GDP

#71

Post by 9rx »

mschuster91 wrote: post #66
9rx wrote: post #51

Earlier quoted context omitted.

Presumably for the same reason you hear people say things like "How can inflation only be 2%? I am spending 10% more. We need to redefine inflation!" In other words, people want the data to speak to the government on their behalf so they don't have to. Musk is playing into that same idea.

> Presumably for the same reason you hear people say things like "How can inflation only be 2%? I am spending 10% more. We need to redefine inflation!" The question if the goods basket that is used to define inflation actually reflects reality is valid though! For example, the explosion of rents in urban areas is offset by shockingly low rents in "flyover states" and rural areas, leading to a complete neglect of the…

> The question if the goods basket that is used to define inflation actually reflects reality is valid though!

Why? You're only trying to determine the change in value of the currency. What specific items are in the basket shouldn't matter all that much as long as it is a broad enough sample to be able to separate out the change in value of the goods from the change in value of the currency, along with it being comprised of things consumed frequently enough that you can see any change over a short period of time (e.g. monthly).

> socioeconomic strata and urban/rural differences need to be taken into account

Implying that an urban dollar isn't the same as a rural dollar? I mean, that is similar to what Musk is saying: That a government dollar isn't the same as a private dollar. But how do we quantify that? If we each throw down a $1 bill and shuffle them around, how can you tell which one represents an urban/government dollar and which represents a rural/private dollar?

Re: Elon Musk is wrong about GDP

#72

Post by AdrianB1 »

The only valid point of concern is government self-spending. Maybe we can look at GDP and GDP excl govt spending as 2 separate metrics, each has its own merits.

A relative of mine is working for my country's government for a very long time as a high level economist and leading a government department. One thing that is happening is lots of made-up jobs with made-up work; this is just to keep unemployment low, but most of the money (>60%) return directly to the government as taxes. It artificially increase the GDP. This relative has several hundred of people in the organization that they run, about half are politically appointed (as in "every new minister or state secretary is employing dozens of their friends and relatives") and about 3/4 are not doing any job that results in a positive outcome. Most of the work is paper-pushing "analysis and reporting" that are have no real impact on anything, but are still hired as the number of positions is imposed from very top and hiring is also "influenced" from the top. So what happens with the GDP? It is increasing artificially and it is meaningless in this context.

Re: Elon Musk is wrong about GDP

#73

Post by AdrianB1 »

orwin wrote: post #68
rahimnathwani wrote: post #13

GDP counts government dollars at face value. But is a government dollar really as productive as a private sector dollar? $1b billion for the local school district. Compare that to $1 billion spent by a private operator? Standard GDP might overstate. Maybe you need a 50% haircut on government spending in the calculation.

Yes. Let's compare SwissLife, a private healthcare insurance, to French 'securité sociale' healthcare bit. For every 100€ put in french national healthcare, 89 to 93 (depending on the year) are spent on healthcare. The rest is used for distribution and administrative tasks (and during a short time, debt repayment). What do you think SwissLife give it's insured back for ever 100€ they are paid? Between 12 an 15% are a…

That is not the measure in discussion. If SwissLife brings a better outcome from the 71 Euros than French national healthcare from 93 Euros (best case for French and worst from Swiss), then it is still better with SwissLife. Measure the outcome, not the money spent.

Re: Elon Musk is wrong about GDP

#74

Post by AdrianB1 »

ryandrake wrote: post #19
rahimnathwani wrote: post #13

GDP counts government dollars at face value. But is a government dollar really as productive as a private sector dollar? $1b billion for the local school district. Compare that to $1 billion spent by a private operator? Standard GDP might overstate. Maybe you need a 50% haircut on government spending in the calculation.

Not sure I get that. A dollar spent is a dollar spent. If you're spending it on silly things, it doesn't matter if you're the government or private enterprise (who both sometimes spend their dollars on silly things).

A dollar spent is a dollar spent, but GDP is about production, not spending. If you spend a dollar for 1 iron nail or 1 dollar for 100 iron nails, it is not the same production even if by dollar measure it is the same value.

Governments are usually very inefficient. Corporations are also inefficient, but it is not the topic. The point is that we need to look more to the outcome than the money "value" because some governments made-up work has no value, but if you include it in GDP you inflate the GDP falsely.

Re: Elon Musk is wrong about GDP

#75

Post by ajross »

rahimnathwani wrote: post #70
ajross wrote: post #67

Earlier quoted context omitted.

> Because when you're spending your own money, you are forced to decide whether something is worth it. Define "worth it" macroeconomically. There is no "value" idea at scale with a meaning separate from "money". Every transaction happens, definitionally, because the two parties think it's "worth it". Edit: to focus a bit and extend the metaphor above: if the government buys an iPhone for the notional corrupt IRS agen…

Yes, "worth it" implies a voluntary trade. When the government spends your money, you don't get to decide whether a particular transaction is good value. Do you think government bureaucrats are as careful with taxpayers' money as they are with their personal funds?

> When the government spends your money, you don't get to decide whether a particular transaction is good value.

And here's the root. That is an argument from principles of libertarian morality, not economics. It's fine if you want to claim that it's immoral for the government to tax and spend your hard earned assets. I just won't engage, because that's tiresome.

It's not fine to claim that the government stealing and spending your Lockian Sacred Property is "not productive" in a discussion about economics, because that is a word with meaning in the field and you're using it wrong.

(Edit: as stated, I'm not going to engage in a discussion on libertarianism in an economics thread. I'm merely pointing out that you have the economics wrong.)

Re: Elon Musk is wrong about GDP

#76

Post by AdrianB1 »

vonzepp wrote: post #53
rahimnathwani wrote: post #13

GDP counts government dollars at face value. But is a government dollar really as productive as a private sector dollar? $1b billion for the local school district. Compare that to $1 billion spent by a private operator? Standard GDP might overstate. Maybe you need a 50% haircut on government spending in the calculation.

Another note worth considering is that state and companies have different roles. Take NASA vs SpaceX. SpaceX launches cheaper rockets. But NASA for example does alot of its work in Alabama, which is supporting a poor regions econonmy and its communities. It might be more optimal to do this in Silicon Valley, or even China but as a government organisation this is part of it's remit. Like wise space science for the pur…

"Jobs in Alabama" does not fly anyone to the moon, good engineering does. SpaceX, if we like it or not, does good engineering by making the cost of rockets low, anybody can spend money but not everybody will deliver results and even rarer, people will deliver great results. There is no "social care" in NASA as an acronym.

Re: Elon Musk is wrong about GDP

#77

Post by rahimnathwani »

ajross wrote: post #75
rahimnathwani wrote: post #70

Earlier quoted context omitted.

Yes, "worth it" implies a voluntary trade. When the government spends your money, you don't get to decide whether a particular transaction is good value. Do you think government bureaucrats are as careful with taxpayers' money as they are with their personal funds?

> When the government spends your money, you don't get to decide whether a particular transaction is good value. And here's the root. That is an argument from principles of libertarian morality, not economics. It's fine if you want to claim that it's immoral for the government to tax and spend your hard earned assets. I just won't engage, because that's tiresome. It's not fine to claim that the government stealing an…

I made no claim about the morality of taxation and government spending.

I'm merely observing that, when we attempt to measure economic activity via GDP, we run into a fundamental valuation problem with the government component (G). Private consumption (C) and investment (I) are valued using market prices derived from voluntary exchanges. These prices, imperfect as they are, provide at least some signal about the perceived value placed on those goods and services by willing participants.

Government spending, for the most part, lacks this direct market-based valuation mechanism derived from voluntary choice.

Because there are usually no market prices for government outputs (like defense, regulatory agencies, or infrastructure projects before user fees), GDP accounting defaults to valuing them at cost. So, if the government spends $1 billion, it adds $1 billion to the 'G' component of GDP. This is convenient from an accounting perspective, but it doesn't actually tell us whether that $1 billion expenditure generated $1 billion (or more, or perhaps much less) in genuine economic value or utility *as perceived by the citizens who ultimately fund it*.

Therefore, questioning whether government spending represents "good value" or is truly "productive" in the same sense as market activity is relevant if you're trying to get a useful measure. (This is true irrespective of your opinion about the morality of taxation.)

It's a well-known limitation in how we construct and interpret GDP figures.

Re: Elon Musk is wrong about GDP

#78

Post by lossolo »

chollida1 wrote: post #5

I'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…

The funniest thing is that no one is talking about two trillion dollars of debt a year. Where do they think that money is going?

Re: Elon Musk is wrong about GDP

#80

Post by Zigurd »

mschuster91 wrote: post #66
9rx wrote: post #51

Earlier quoted context omitted.

Presumably for the same reason you hear people say things like "How can inflation only be 2%? I am spending 10% more. We need to redefine inflation!" In other words, people want the data to speak to the government on their behalf so they don't have to. Musk is playing into that same idea.

> Presumably for the same reason you hear people say things like "How can inflation only be 2%? I am spending 10% more. We need to redefine inflation!" The question if the goods basket that is used to define inflation actually reflects reality is valid though! For example, the explosion of rents in urban areas is offset by shockingly low rents in "flyover states" and rural areas, leading to a complete neglect of the…

two things about that: First, employers do take local cost of living into account to set pay, some implicitly due to competition, but many of them explicitly adjust wages based on cost of living data from economists. Secondly your complaint about the wrong KPIs rests in part on conflating cost of living with inflation.

The problem the Democrats face is that wage prospects and social issues are segmented by level of education more than in the past. They should run on higher minimum wage, which will benefit rural workers more, and on making inclusive social views the key to social acceptance. Might be an unpopular opinion, but the Democrats won't get the sports betting crypto Joe Rogan incels anyway, so they might as well make the most stereotypical ones the symbol of how to keep you dick perma-dry.

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