Monday, December 19, 2005

GPI (Genuine Progress Indicator) Part Four

Although I think it would be beneficial to look at a variety of different measurements including this one, but the raw data and the variables of their study I could not find. I just found a PDF of up to year 2000 for the study, but again no data to verify the results and see what biases are used in the calculations.

Since they have measured GPI as distinct from GDP it does not need to be set even to one date, but I still wonder if having a homemaker is so good then why isn't the GPI higher than GDP in the 50's and 60's. You know, in the good old days.

Specifically, the GPI reveals that much of what economists now consider economic growth, as measured by GDP, is really one of three things: 1) fixing blunders and social decay from the past; 2) borrowing resources from the future; or 3) shifting functions from the community and household realm to that of the monetized economy. The GPI strongly suggests that the costs of the nation's current economic trajectory have begun to outweigh the benefits, leading to growth that is actually uneconomic.

Since free trade is creative destruction it would be natural that some people would see blunders but they are second guessing. Borrowing is just the same as a home loan is a long term investment that you borrow from the future. When tasks are switched to the monetized economy just means that the marginal utility derived from paying for the services is greater than the next best possible use of the money.

If the mood of the public is any barometer at all, then it would seem that the GPI comes much closer than the GDP to the economy that Americans actually experience in their daily lives. It begins to explain why people feel increasingly gloomy despite official claims of economic progress and growth.

Of course no proof of this. And maybe this is the Left Wing Media that constantly bombards us with bad economic news but don't present the possitive news.

It is interesting that in Less Developed Countries since the wage rates are lower, then a lot of services we normally do ourselves in the USA is monetized by even people in what we consider the middle class.

This will be a repeat of most but let me again go over what they consider additions and subtractions for the GPI.
GPI subtracts crime and family breakup. Again these resources would count at present time but in the long run would degrade the GDP. We could also count crime as just a redistribution of wealth and should be counted in GPI. LOL.

If GDP does not count household and volunteer work, how can this not make GPI higher than GDP especially in the 50's and 60's? I would not count housework done by self but I would count the value to society of raising children and caring for enfirmed family members. Because there is more value in a family member doing these services than a stranger doing it. As far as routine house task not counted, I assume that the marginal utility derived from outsourcing is not enough to pay for these consumers and some even derive utility from cleaning their own home.

While severe income inequality is a concern, what degree of inequality makes it a concern? As mentioned in other posts, some inequality is desired, for inspiration to strive for success. A better gage is not equalizing outputs but that people have opportunities to raise obove the demographic they were born into. As we can see most rich people that I read about in the news earned it in their lives and not from inheritance. Just think of the richest man in the world (Bill Gates). What was he born with compared to what he has now?

Resource depletion is not counted in GDP but how is this to be measured. I know that many measures of the pollution level in the USA are much better now than 50 years ago. Does the GPI correctly show improved water and air quality?

GDP does not count leasure time as commutes are increasing and they are eluding to the fact work hours are increasing. But unlike most economists, I believe that work does provide utility and not merely a negative utility when consumed. Some of the free time is tied to the demographic makeup of the work force.

Defensive purchases are the purchases when something bad happens like accidents. While yes this is more or less redistribution of resources in the short term they are a drag on the GDP in the long run. So measured.


The GDP confuses the value provided by major consumer purchases (e.g., home appliances) with the amounts Americans spend to buy them. This hides the loss in well-being that results when products are made to wear out quickly. To overcome this, the GPI treats the money spent on capital items as a cost, and the value of the service they provide year after year as a benefit. This applies both to private capital items and to public infrastructure, such as highways.

More crapola, products are not made to wear out quickly. Selling electronics for years I know that the number of products that last a long time is good. How do the authors propose to measure the value of the services provided by durables and infrastructure? But since a purchase shows that it will provide at least that amount of utility then measuring it that way seems reasonble and no need to adjust this measurement.

Borrowed money in the long run can be a drag on future GDP depending on if the borrowed money was used for investments or consumption. But in one way if the rest of the world wants to provide us with a long term credit card at below world market rates, would we not take advantage to such generosity?

Next will be "The GDP Myth Why "growth" isn't always a good thing".

G.D.P. R.I.P.



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