When government authorities try to estimate the GDP of their respective nations, they try to include all goods and services by oneself for oneself.
If you own a piece of land from which you produce your own food and live in your own constructed housing, you are essentially considered to be "paying" for those things by your own services to provide yourself with those means i.e. paying rent for living in your own house, paying for food by producing it, paying for land by developing it, and so on. Apparently, they must determine the value of what you produce for yourself, and the assumed expenditure of what you consume from what you create.
How do you attach an arbitrary monetary value for which no money was ever exchanged in the first place?
A price becomes only a reality when two parties agree to that monetary price on their own respective terms and exchange their expected consideration. There is no illusionary price of anything which hasn't been exchanged, as far as I know. Goods may have offers and bids for themselves, but they may be arbitrarily any value and might not become a realised price.
It is, however, argued that since producing it himself and consuming it himself implies foregoing the opportunity cost of buying it from someone else, the monetary value of his self-consumed output must be estimated at the price he would have otherwise paid.
So what does one do? Go to the nearest marketplace and see how much his goods would fetch? And then accordingly determine what price it should be? Despite the obvious fact that prices change from second to second and from person to person?
Since there can be no accuracy here, do they expect to be "roughly right instead of precisely wrong"? They can then either be conservative or optimistic about their estimations. If they try to be conservative, then they can only arrive to a figure of none, since no money exchanged hands for self-produced consumption. If they want to be optimistic, they can arbitrarily choose any high value, and hence infinity.
What exactly is the purpose of doing all this?
Prateek Sanjay: What exactly is the purpose of doing all this?
Stupidity, nothing else.
Suppose that there are two hundred eggs produced by households for personal consumption. And we have a GDP calculator who counts 200 eggs and multiplies them with the market price and adds it to the GDP. There is every reason for the estimate to be wrong, simply because flushing in of these 200 eggs into the market could cause price changes. So there is no point in assuming the present market price to calculate the value of personal consumption which isn't actually traded in the market.
But wait, GDP fans could have a point if they argue that personal producers don't sell their produce in the market because they value their personal produce above the market price, and hence they are justified in tagging the market rate to these goods.
GDP = C + I + G + Xnet
GDP is just government propaganda. It makes the economy look good because if they inflate, nominal GDP goes up and everyone just reports that. Also, if government spends 40 million dollars on a hamburger, GDP goes up 40 million. Also, broken window fallacy. So the GDP doesnt tell you whether the $$$ being spent are good, it just counts them.You can also see in the equation that consumption of free time would be impossible to measure; something which certainly has monetary value.
but yayy GDP is up 3.5% according to the administration! Too bad pre clinton CPI reports 10% inflation!!
"It has always been the prerogative of children and half-wits to point out that the emperor has no clothes. But the half-wit remains a half-wit and the emperor remains an emperor." ~Dream
Oh yeah, and CPI is another thing I wonder about.
You can't compare rise in prices between periods when consumers have a lot more goods available to consume than before - we didn't have iPods, dual core processor desktop computers, or hybrid cars in the 1980s.
Nor can you sufficiently keep track on what's a luxury good and what's a consumer good as time goes by - automobiles weren't luxury goods by the time Henry Ford was done with them. Cosmetic products also were once considered luxury goods in Third World countries, and yet now are among the most basic consumer goods out there even in such countries.
Nor can anyone say that a certain price necessarilly corresponds to a particular year, when prices keep changing day to day and between person to person.
Apart from which, rising food prices are hardly an issue when now food forms a smaller portion of people's incomes, while increasingly cheaper luxury goods come in to consumer use, and increase the range of goods and services he can consume.
Macroeconomics is just a stupid subject as a whole. There is no macroeconomics, because you can't replace the laws of economics simply when they are seen on a large scale. It's all because of macroeconomics that phrases like "the state of the economy" have come in; there is no singular economy - there's only millions of people making millions of independent decisions.
GDP: A Meaningless Statistic
If you find something evil that wobbles, push it. - Gary North
Prateek Sanjay: When government authorities try to estimate the GDP of their respective nations, they try to include all goods and services by oneself for oneself.
"So if you shave each morning you are adding to the GDP, but if you decide to grow a beard then you`re not."
Growing your beard is a form of savings, and in In ZZ Top's case, it's hoarding. You are abstaining from shaving now to have the greater pleasure of shaving a large beard later.
Up till now, the popularity of beards has been carelessly left up to the subjective time preferences and beard preferences of market participants. But we're all beardless in the long run. I vote to outlaw beards and to make shaving mandatory to help stimulate the economy. The GDP increase from shaving is that which is seen.
There will also be a boon for razor manufacturers. Think of all the people that help feed the razor manufacturers, maintain their equipment, and mine the raw materials that go into the razors. I recommend you read "I, Razor". Also, wearing a fake beard will still be allowed, which means there will be increased business for disguise manufacturers. This is that which is not seen.
It's a win-win situation!
Note that Karl Marx didn't shave his beard, whereas Ludwig von Mises did. You're not a socialist are you?
Ludwig von Mises Institute | 518 West Magnolia Avenue | Auburn, Alabama 36832-4528
Phone: 334.321.2100 · Fax: 334.321.2119
contact@Mises.org | webmaster | AOL-IM MainMises
Mises.org sitemap