Tuesday, December 20, 2005

The GDP Myth, Why "growth" isn't always a good thing

This is a continuation of the GPI discussions. The first document (If the GDP is up, Why is America down? (PDF)), by Redefining Progress, is a total summation of what other pages contained, so I am only taking notes on points of interest.
The most remarkable point in the first article is that Clinton sent his Economic Advisors on the road to trumpet how well the economy was doing.
Another random point is that instead of measuring tangible items the use of money to measure utility was used. So by definition the price we pay for an item is at least the amount of utility we will derive from the consumption of such an item or service.
This statement is interesting: "[W]e adjusted the GPI for the extent to which the whole population actually shared in the increase." Which could mean that an estimation of the population that benefited as a percent times the adjusted GDP.
Other documents alluded to natural resources being depleted, but this one spells out that non-renewable resource extraction is also a negative entry for GPI. Oil and other minerals is like money in a mattress that does no one any good.

The title link above talks about how US citizens are fat. But the level of GDP growth does not mean that people will get fat. But this is interesting:
C. Everett Koop, the Surgeon General in the Reagan Administration, has said that some 70 percent of the nation's medical bill stems from preventable illnesses - that is, ones that are mainly lifestyle induced.

This shows me that yes we have some problems with moral hazards and the fact that we are not creating the incentives/responsibility of citizens to manage their own health.

One aspect that I have not talked about is that a growing GDP may mean a changing economy more than an expanding economy. What I mean by that is that just as we transferred to an industrial economy from an agricultural now we will change into economies that will actually use fewer resources per dollar of GDP. Just as people move up the hierarchical needs over time we will move up to self-realization phases. What do gyms produce? In a simple way it is the spending of calories that we have too many of.

The last link is by Thom Hartman at: Democracy - Not "The Free Market" - Will Save America's Middle Class by Thom Hartmann.
In actual fact, there is no such thing as a "free market." Markets are the creation of government.

No completely wrong, there were markets (at least trade) before there was governments and even monetary units. Markets are only the extension of trade between individuals to create a place for trading between consumers and producers or more broadly as sellers and buyers.
Thom tries to say that governments create the markets but they only are the facilitators of the markets. By creating a framework allows the markets to work more efficiently.
He has brought up that the middle class is shrinking but he never mentions what he thinks what the definition of middle class is. If middle class is the people that are in the 40-60% of the population as ranked by income then it never changes except as the whole population increases or decreases. I guess he is refering to manual labor (blue collar). But do we really want to have manual labor as the majority of jobs, wouldn't it be better to get to the next level of human development and expand the use of our minds and leave manual stuff to machines and robots?
When conservatives rail in the media of the dangers of "returning to Smoot Hawley, which created the Great Depression," all they do is reveal their ignorance of economics and history. The Smoot-Hawley tariff legislation, which increased taxes on some imported goods by a third to two-thirds to protect American industries, was signed into law on June 17, 1930, well into the Great Depression. In the following two years, international trade dropped from 6 percent of GNP to roughly 2 percent of GNP (between 1930 and 1932), but most of that was the result of the depression going worldwide, not Smoot-Hawley. The main result of Smoot-Hawley was that American businesses now had strong financial incentives to do business with other American companies, rather than bring in products made with cheaper foreign labor: Americans started trading with other Americans.

Actually this shows that Thom does not know the benefits of free trade and the fact that 99.9 percent of economists disagree with him. The worldwide depression lasted longer and deeper because of the projectionist policies of the time. So every country wanted to expand exports but continued to hurt the import side until no one had the foreign currency to buy for imports.


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