to owen:
gpd excludes intermediate goods!

to sort out your confusion, refer to reisman’s article on gdp (http://blog.mises.org/archives/007771.asp). he calls intermediate expenditure productive expenditure. here’s a teaser:

“Productive expenditure is expenditure for the purpose of making subsequent sales. It is the expenditures made by business firms in buying capital goods of all descriptions and in paying wages. Capital goods include machinery, materials, components, supplies, lighting, heating, and advertising. In contrast to productive expenditure, consumption expenditure is expenditure not for the purpose of making subsequent sales, but for any other purpose. In the terminology of contemporary economics, consumption expenditure is described as final expenditure.”

sean corrigan has a dig at gdp in this article (http://rnsa-bs.livejournal.com/76430.html).
a snippet:

“Here, at last, we come to the half-truth hidden in the familiar cliche, for the data with which we are so familiar are compiled, a la Maynard, in such a fashion that consumption is indeed 60 per cent of the aggregate — if only because the supposedly gross product in fact nets out the literally trillions of dollars of intermediate goods and services which are essential to the continued satisfaction of human needs and in whose delivery the majority of the population earn their own daily bread.”

you’ll find the bureau of economic analysis (bea) does include intermediate goods in its calculation of “gross output”, and that’s why it dwarfs gdp.

happy homework, and go easy on the keynes – it’s alice in wonderland stuff!

to owen:
right, so reisman’s crazy, corrigan’s crazy, i’m crazy – have you got anything intelligent to say about the bea? (your beloved government, remember).

to owen:
clearly you’ve not read, or not absorbed what reisman (whose book you can download from mises.org) says. i’ll give you another taste, because hope does spring eternal:

“The truth is that the great bulk of spending and income payments in the economic system is concealed under net investment! Net investment is analogous to an iceberg, nine-tenths of whose volume is concealed beneath the surface. Only in the case of net investment, what is concealed can easily be much more than nine-tenths.”

“Eating weath consists of consumption which is captured by GDP so you just proved my argument not yours.”

Owen, what does this have to do with anything? You’re jumping around pointlessly. The above response was to “you cannot eat wealth”, which is nonsense. You can, if it’s good.

“An increase in consumption is strongly linked to living standards. Wealth less so. Wealth is useless unless it is CONSUMED. and GDP captured this consumption.”

But wealth is the sum of economic goods in one’s command. So this is nonsense.

“You would be right that if there was no disaster there would be different preferences of consumption BUT when a disaster increases GDP (which is the focus of this thread) then the greater economy bebefits through the multiplier effect. They can purchase 1.5 – 2 times the amount of desired goods they would have previously.”

Also nonsense. The statement is of a comparative nature. No real “growth” has occured.

“Unfortunately for you interest rates are controlled by reserve banks and in times of turmoil or disaster they are more likely to lower than raise interest rates so you are wrong there too. Man you are an expert in getting things wrong.”

I am speaking purely in terms of real factors, not the artificial actions of state agents which might in fact worsen things further. Please stick to the topic at hand.

“”We” do nothing? Stalemate, I love it! Almost like you are waving the white flag.”

No, it means I do not associate with cretins.

“That statement is wrong. GDP covers every every purchase made in the economy using money be it primary intermediary or by the final consumer.”

“ACCORDING TO contemporary economics, the value of a “final product,” i.e., a consumer good, such as a loaf of bread, counts not only itself but also the value of all the various “intermediate products,” i.e., the capital goods, that have directly or indirectly contributed to its production, such as flour and wheat. Contemporary economics further holds that because the value of the final product already counts the value of the intermediate products, it is a positive error to attempt to count the value of the so-called intermediate products separately from and in addition to the value of the final product. Such a procedure, it claims, constitutes “the error of double counting.”"

“Intermediate goods, which are used up in producing final goods and
services, such as the sugar in a candy bar or the energy used to
produce steel, are also not counted separately as part of GDP. They
are not counted separately because to do so would be to count them
twice, as the value of the final goods already includes the value of
the intermediate goods.”

“In opposition to this view, I will argue in what follows that the value of final products completely and utterly excludes the value of intermediate products, i.e., that it does not count their value at all, with the result that if GNP/GDP is to consist exclusively of the value of final products, as is held almost universally, then the value of intermediate products is not counted even once. And if that in fact turns out to be the case–as I will show indeed that it does–then GNP/GDP as presently conceived and calculated is not in fact a concept of gross product, but rather is almost entirely a concept of net product. In other words, I will show that what is today called gross national product or gross domestic product is in fact essentially net national product (NNP) or net domestic product (NDP).”

If you have a complaint, take it to Reisman or the various authors of economics textbooks he cites who disagree with you.

*if it’s good = if it’s food

“Eating wealth becoms consumption which is measured by GDP.”

Which contradicts your prior contention.

“Your one-line answers didn’t actually succeed in saying much at all lest of all in opposition to mine. You have a problem with communication.”

You have a problem in comprehension. Remedy it.

“Then you resort to name-calling after it is quite obvious you have had you @#* handed to you on the multiplier issue. Sad.”

Where? When? In your imagination? Sad.

“The point you are sadly missing is that the monetary stimulus from the disaster has increased GDP. Monetary stimulus’ do that – funny huh?”

What “monetary stimulus” is it you’re speaking of? You are full of nonsense. The fallacy is to say a disaster is “good” for the economy because it increases wealth. It doesn’t, not relative to the economic activity that must now be forgone to cope with the disaster.

“Problem was with all your cutting and pasting in your final comment you missed out the amazing magical argument where intermediate goods are actually left out. So your post is meaningless. If anything you confirmed the assertion that GDP does include intermediary goods. Thanks.”

But it doesn’t. Read Reisman’s article. He disproves the assertion that it does therein. If you think he’s wrong, email him.

Wealth = economic goods in one’s command. That is all. They can be consumed, saved away etc. etc. If wealth diminishes, one has fewer goods at their disposal to consume, and conversely if it increases. This is the sense in which the term is used within Austrian economics. Hence to speak of wealth that cannot be eaten, as if it’s some abstract ethereal quantity is to speak nonsense.

“Specifically what your infantile brain cannot comprehend Inquisitor is that once wealth is consumed it BECOMES consumption and the consumption is what it measured.”

If wealth is consumed it is no longer wealth it is consumption.”

And as I said, increased wealth means increased economic goods under one’s control, hence increased consumption possibilities, both present and future. Why individuals should not care about this or why consumption matters independently of the stock of goods that make it possible is beyond me. You said people cannot eat wealth – but if what is wealth at one point is consumed at another, clearly they can. Your contrast was pointless.

“Did you finish K12?”

Did you learn how to count past 3?

What Inquisitor and newson don’t understand is the simple concept that GDP measures consumption NOW and that consumption is the best proxy for standard of living.

Wealth represents POTENTIAL standard of living and is therefore necessarily a future oriented measure and is valid in it’s own right but this does not take away from GDP which measures a different thing – namely actual standard of living as opposed to potential.

People often want to know both – how we are NOW and how we could be in the future.

Seems that all those needless attacks on GDP have come to nothing then…

BTW i read that article on intermediate goods and it wass a hoot, best laugh I have had in ages. It is complete crap and totally wrong – I can’t believe it got published. I noticed it wasn’t published in a major economics journal but just a side one. If his critique actually held any water is would have been published in a much more prestigeous journal.

Ha ha – good laugh though!

OK People. Let’s get off this shouting and name-calling rant and get back to business. No one is learning anything from this.

to owen, from the us bureau of economics:

“Gross Output,” an annual measure of total spending at all stages. GO is defined as Intermediate Input plus GDP.
Intermediate Input represents the sale of all products in the natural resource, manufacturing, and wholesale markets. GDP represents the final retail market.”

note that this gross output series only started in 2001, and that textbooks are written to a keynesian script, in large measure.

to owen:
another point made by skousen is that the retail input into leading indicator indices is minimal. the indices are essentially compiled from production numbers of various types, not retail.

in japan, there is no retail component of the leading indicators index. so gpd is again tacitly acknowledged as an inaccurate compass of the overall economy.

Inquisitor:

Increases in GDp following a natural disaster do not necessarily cause an increase in wealth, I never stated they necessarily do.

What I did say is that wealth as a measure has benefits and LIMITATIONS. One of these limitations being that you cannot eat wealth. Wealth becomes consumption when it is consumed.

Material living standards are related to what we consume not what we have. Therefore GDP is a valid and often superior measure of living standards.

What would you rather have on a deserted island – a bag of gold or a bag of food?

One represents less wealth but more opportunity for consumption and therefore a better lifestyle (you won’t die of starvation). This is why the flurry of activity following a natural disaster can often temporarily raise living standards, because there is more money and good and services flowing around rather than people like inquisitor sitting on bags of gold professing their fabulous ‘wealth’.

So I could sell my house back and forth between myself and my friend a thousand times and the country’s living standards would be better off by $300million?

Pull the other one!! ha ha

As for the state sector purchases not increasing prosperity (living standards measures in GDP) in the economy….so all those people that produced the goods for the state were not paid?

You will find that they were, and that they in turn went out and spend this money on what they wanted. The end result was an economy 50% larger than when the war started which did not shrink from then on.

Terrible result for American prosperity, Terrible.

Here we have the rest of the free world lamenting the late entry by the Americans into the War and the amount of money they made from the whole thing while the other countries were decimated.

And you (probably the only person in the world to do so) go and say the American economy didn’t benefit.

I have not stopped laughing yet!

Sorry newson, not by inference. Well, maybe in your mind though.

In the real world however, the Iraq escapade has significant differences to WW2:

- Before WW2 America did not have much industrial infrastructure, but afterwards this was heavily built up. In 2003 the USA was already a highly industrialised nation.

- Before WW2 the US Economy was in deep recession and had ooodles of excess capacity. Prior to the Iraq was the USA had jsut finished 50 years of almost constant growth and employment in the US Economy was not far below capacity.

These factors combine to mean that a government-fuelled monetary expansion in 1935 had far different outcomes than one conducted in 2003.

Try again.

Education is a final good.

Building construction is a final good.

Both are included in GDP.

GDP is all about usability. To the extent that something is useful to society it should be included in GDP when it becomes useable.

If you believe half a medical education is useful then great – so do mainstream economists who include all education in GDP.

If a building is half-finished then how can it be used productively in the economy. If someone does want to use it as it is it becomes a final good and it thus counted.

You are arguing against a huge weight of convincing argument from 99% of economists…bu keep going, it is fun.

Newson:

I think you better bone up on your history. The US was not tiny before WW2 but due to the recession and other factors was operating at well below capacity.

There was huge economic mismanagement before the war.

It was precisely the production of all those weapons that stimulated the economy.

The production continued after the war with the $US loaned to Europe being spent back in the USA (you cannot spend $US in Europe except in oil).

owen says:
“If a building is half-finished then how can it be used productively in the economy.

it can’t, but it still exists! and it still represents resources that have been committed. how can you argue that the money wasted should not be recorded in national accounts? wastage is a real phenomenon. i don’t need to appeal to 99% arguments to know this. waste happens!

owen says:
“There was huge economic mismanagement before the war.”

which owen are you? the owen that was so enamored of redistributive programmes, first massively introduced by roosevelt? who precisely was behind this mismanagement?

Minimal redistribution has as much to do with big government as libertarianism.

owen says:
“There was huge economic mismanagement before the war.”

you’re being evasive. who exactly was responsible for the mismanagement? think about it – hoover and roosevelt – redistributionists both. how does this square with your logic?

newson:

The argument was never put forward by anyone that wars were good. But that does not preclude them increasing GDP.

Accoring to the Austrian School of Economics: “In their view, the key cause of the Depression was the expansion of the money supply in the 1920s that lead to an unsustainable credit driven boom. In their view, the Federal Reserve, which was created in 1913, shoulders much of the blame.”

So you have your answer straight from the horses mouth. It was monetary expansion.

Other causes were:

1) retaliatory trade tarriffs effectively closing up international trade;

2) huge debt levels that were unsustainable

3) asset bubbles

So in general you are showng up your poor knowledge of economic theory and history.

“no one ever argue war is good”? I wonder what U.S. Libertarians think what would be in place of the U.S.A. if the War of Independence hadn’t been fought?

But I s’pose it does depend on what end of the natural disaster your on as whether natural disaster is beneficial. The storms that appeared at the same time as the Mongols were going to invade Japan was good for the Japanese economy and bad for the Mongols. Construction companies who do repairs after a tornado strikes find them beneficial and, besides, should feel construction companies feel bad about getting work thanks to tornadoes (it’s as if any one can make tornadoes)? And what of a natural disaster that would wipe out bad sections of humanity leaving the good behind? Take the story of Noah’s Flood – if the non-Libertarian parts of the world suddenly died from a natural disaster and all the Libertarian didn’t – wouldn’t it be a boon for human existence what with everyone who is left over not using force&fraud and use a Capitalistic economy to live happily ever after?