Interesting argument here by Richard Posner on the (f)utility of GDP.

Money shot:

“But it is necessary to emphasize that it [GDP] is just a starting point. I disagree with economists who say the “recession” ended in the third quarter. The depression (as I think we should call it if only because of its enormous potential political consequences) has caused massive unemployment with all the associated anxieties and hardships, has greatly reduced household wealth, has caused private investment to turn negative, has cost the government trillions of dollars in lost tax revenues and recovery expenditures (TARP, the fiscal stimulus, the mortgage-relief programs, the auto bailouts, etc.), has undermined belief in free markets and altered the line between government and business in favor government, and is threatening a future inflation while deepening our dependence on foreign lenders.

To view a change in GDP from negative to positive as signifying the end of a depression (by which criterion the Great Depression ended in 1933 and again in 1938) is to misunderstand the utility of GDP as a measure of economic activity.

Worth a read . . .

Category: Data Analysis, Economy, Finance

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “The (F)utility of GDP?”

  1. Mike in Nola says:

    Correct: GDP is a an artificial measure constructed by economists with penis envy of scientists. Economists thought that be creating various measures they would somewho become scientific.

    They have fallen into the trap of thinking that by juicing certain numbers that have solved a problem, mistaking causes and effect. This thinking often reminds me of the old cartoons where someone manipulates the pointer on an elevator dial in order to move the elevator.

  2. the bohemian says:

    to follow up on wunsacon- an alternative?

  3. Onlooker from Troy says:

    Well on this I can agree wholeheartedly with Posner. He’s one of the few willing to call this what it is, and face up to the magnitude and consequences. Others are deep in denial.

    And GDP is a horrible way to measure our economic well being in a singular way, as it is used. It’s only a part of the picture. Like looking only at an income statement, ignoring the balance sheet. Kind of like what Wall Street’s been doing for a decade, eh?

  4. Onlooker from Troy says:

    And we make horrible economic decisions to try to goose GDP, like Cash for Clunkers. All for political purposes, to say we ended the recession. When all we did was piss away a bunch of money for a momentary bump. Insane.

  5. a lot of people don’t like Posner, for whatever reason..

    I’ve always found him to be a quality thinker.

    Why do people think that they have to agree with someone, to be able to learn from them?

  6. Marc P says:

    @Onlooker: How true, although I think GDP is less like looking at only the income statement and more like looking only at the expenses. “We spent more! Wonderful!”

    This last cycle only highlighted how silly GDP is. The economy was a bubble inflated by debt, and when the debt decreased so did GDP. So the gov’t borrowed money and spent it, and voila! GDP went up and the economy was declared healthy. That’s the logic of a 15 year old.

    People act like that is some sort of amazing economic brilliance. The amazing thing is that the MSM is calling Bernanke a savior for rescuing the economy from ruin based on this logic. Hey, I’ve got an idea. The gov’t will lend every household $50k at 1% interest, balloon in 10 years. Everyone will be happy, pay their mortgages and buy HDTVs. Economic problems solved!