Timmy elsewhere

At the ASI.

An answer to where that missing growth is.

36 thoughts on “Timmy elsewhere”

  1. But we need to be careful here. Yes, that knowledge and the value of the massive convenience that Google et all provide in accessing it needs to be estimated, but how much of that will already have been so?

    Not very clear, so an example: I am massively more productive in my job because of the internet, google and the information I can access in seconds, instead of the tedious minutes or even hours it used to take to plough through manuals. I can search for specific questions and, fairly often, get solutions to those questions in a few seconds. That increased productivity of my contribution will already have been counted in GDP, won’t it? So would we be double counting it if we estimated it for the provider itself, Google?

  2. I have another theory. Two in fact. We are having stupendous amounts of growth right now. But it all ends up in consumer surplus in record time because much of the growth is finding more efficient ways of doing stuff we do already. The corporates just do not have the ability now to capture enough of that surplus value for it to make much difference to the GDP figures.In fact, poster-child Amazon, it’s destroying a lot of incumbents (basically transferring their surplus to consumers as well), thus actually depressing the GDP number.

    That and the fact that so much wealth-creating stuff these days just isn’t capital intensive. Companies can make great money with the outlay of a lawyer’s office, less need now for expensive machines that drop things on feet. Which is part of the reason there is such poor return on capital compared to wayback.

  3. And taking your facebook example a step further, means that the huge valuations of companies like facebook are stuff and nonsense. They may in fact be worth a lot more than that, on a social level, but are definitely worth far less than that to the shareholders.

    Capitalism, as ever, continues to work itself out of a job.

  4. How do we measure the contribution of roads to GDP? If a new road, for example, reduces transport costs and allows a company to sell more, do we just count the increase by the company or do we also add a bit for the road itself?

  5. @Tim, isn’t the social value of facebook a case for the government rescuing it if it went under? I.e the more distant conclusions of this line of thinking are not all that palatable to small-government liberals?

  6. Rob,

    GDP is only measured in the end-state. Sort of like a very slightly less evil version of VAT.

    Attributing GDP improvements to things such as better roads, or better education is sufficiently hard that it is rarely attempted and, on those rare occasions, usually ideologically driven therefore de jure inaccurate.

  7. I still think the answer is what I said a few weeks ago on a similar thread. Growth started tailing off when government regulation started growing.

  8. @ Rob
    You mayt be massively more productive but *I* am less productrive because the amount of time wasted scanningh/skimming stuff that might be relevant but turns out either to be merel;y repetitious or not to be relevant at all has been vastly increased. In y twenties I read the Ft on the train into work – now I can spend the whole day looking at the internet and be no better off (and a lot older).

  9. Rob is correct, and the article in general shows that GDP is a bit of a farce. Economic growth isn’t a monetary phenomenon- however much the finance sector might like to wish it were.

    The easy way to see that is to imagine if we returned to a sound (non-inflationary) money system, and over some time period, the quantity of goods and services supplied to consumers were to double. The prices would fall by half (on average) and thus the money spent on the double quantity of products would remain the same. And GDP would not change at all.

    What they’re crudely measuring with GDP is the amount of money the gnomes had to print to stabilise the average price of an arbitrary basket of goods, then larding on government spending. Which acts as a crude proxy for growth, though the more the State spends the less useful it is, and the more mangled the market is by things like property bubbling, the less useful it is. But it’s a very crude proxy, and the fetishistic study of points of a per cent up and down is absurd.

  10. Anyhoo, stuff you don’t pay for isn’t part of the cash economy so doesn’t count in economic growth stats. That which has no price cannot be measured in money units. The value of many Google and other free services to particular individuals may well be zero, since they would not pay for them if they were even a trivial cost. This is probably true of the whole of Facebook for instance for nearly all its users. Also, Twitter.

  11. Sitting in my office in the middle of nowhere I can produce as much work as half a dozen secretaries and executives would produce in the 1970’s. No clacking typewriters, no copy machine, no postroom etc etc etc. Agreements are altered and sent back at the click of a mouse.

    Is any of this measured in the statistics?

  12. Why is the value of free stuff zero if you wouldn’t have paid for it in the event of its not being free? Even the ability to be smug about getting something for free is worth something to some people.

    The value of, say, a food bank when you are hungry and have no means to pay a penny for food, is clearly above zero. That tin of beans and day-old bread is arguably worth more than the tin of caviar sitting in the millionaire’s fridge.

  13. John77, how about answering the points?

    GDP is a survey of order books. It is a crude proxy for growth under the right circumstances, but nothing more than that.

  14. Why is the value of free stuff zero if you wouldn’t have paid for it in the event of its not being free?

    Because that’s what economic value is. A good is worth, to an individual, the most that they would pay for it. And if they wouldn’t pay nothing, it ain’t worth nothing. And that is the only measure of value. Which we’ve known since Menger, and the Marginalists.

    A funny cat video on Youtube might make me smile,so you will say, I got something from it. Nonetheless, I would not pay anything to watch it. Its economic value to me is zero. If people had to pay a single penny for most viral videos (for instance), the millions of views would evaporate.

  15. Pete-

    Sitting in my office in the middle of nowhere I can produce as much work as half a dozen secretaries and executives would produce in the 1970’s. No clacking typewriters, no copy machine, no postroom etc etc etc. Agreements are altered and sent back at the click of a mouse.

    Is any of this measured in the statistics?

    If your activity is producing a greater quantity of goods and services to consumers than the 70s equivalent, and if GDP is (reasonably well) measuring the growth of goods and services (which is debatable, but let’s pretend) then yes it is. The same way that mechanisation of a production line is measured by the greater number of goods it produces.

  16. The problem with all this is good old debt financing. All that “under-the-water” consumer surplus does nothing for the actual capital goods cost of producing it.

    Louis C.K. has put out the electronic tip jar for watching his films – pay, don’t pay, up to you – but I suspect his capital is paid for by his television show and live shows. C.K. knows how to run all the equipment, in the way of an 1980s indie rock band. He apparently has a small circle of people working for him in the manner of Clint Eastwood. It’s a “busking” economy at best.

    I don’t know how real it is, but the U.S. PBS ( our faux BBC ) has a series called “Frontline” and one episode is “Generation Like”, about the bizarre interface between Facebook fame and … canonical media as a business model.

  17. By the way, advertising shouldn’t be included either, since it’s paid for already by the sales of the consumer goods it is advertising. So businesses which are funded by adverts (e.g. Facebook, Google) are already taken into account in the sales figures of the businesses whose adverts fund them. Looked at that way, Facebook isn’t creating any economic growth. It’s something we can afford thanks to other economic production. If using it benefits some business, then the other businesses are effectively cross-subsidising that first business.

  18. BiG-

    You can’t measure it, because it doesn’t have a monetary value. It’s like trying to put a price on being in love. It certainly has personal value, but you can’t price it, and can’t price it into economic calculations.

  19. So Much for Subtlety

    Ian B – “A funny cat video on Youtube might make me smile,so you will say, I got something from it. Nonetheless, I would not pay anything to watch it. Its economic value to me is zero.”

    To you. But as TW has said, if it is free, you’re the product. Someone will pay Youtube for your eye balls on that cat video. It may be worth nothing to you, but it is worth something to someone.

    Now I think those valuations are wrong. But advertisers still pay to put adverts on Youtube. And so the economy grows with every little cat video.

  20. SMFS-

    As I said, that economic growth is already measured in the sales of the advertiser’s product. Measuring it again is double accounting.

  21. See this recent Samizdata post for an example of why I think it’s increased regulation that has caused the slowdown in growth:
    samizdata.net/2015/01/why-is-the-national-health-service-in-crisis

  22. What is Hudsonian economics, and what has it to do with the inability to measure the value of that which is unpriced?

    If anyone wants to give me a value for raindrops on roses and whiskers on kittens, I’m all ears. Otherwise those who wish to consider that unpriced things are part of macroeconomic aggregate statistics might want to reconsider their position.

  23. Waiter, champagne!! No, a magnum. Celebration? Why yes, BiG and SMFS have something they agree on!!!

    With the food bank, your monetary value is what it costs to get food to the starving. Those that expropriate the value are the donors (of goods, money) who get to feel good about do-gooding. We don’t calculate the value of the time donated by volunteers, but they also extract value from the transaction (warm fuzzy feelings). And we don’t calculate the value to the beneficiaries, which is obviously immense.

    But where I think Tim’s thing is going is – is this actually a new phenomenon – or rather getting bigger, thus making GDP comparisons across time less meaningful?

  24. With tins of beans in a food bank we are moving stuff from a low-value use (being ladled down my gullet) to a higher value use (being ladled down the gullet of someone who’s actually hungry). But we cannot capture this change in value because no money changes hands.

    I don’t see how this particular transaction is in the “raindrops on roses” category, even if it’s not GDPable. Can someone enlighten me?

  25. What is Hudsonian economics … ?

    Look below Tim’s ASI post. Comments one, three and six, at time of writing.

    and what has it to do with the inability to measure the value of that which is unpriced?

    On the surface, it appears to be something to do with declaring that the most valuable thing (to everybody, with the only exception being to parents with a sick child) is a healthy retirement. Practically, it seems just to be a polite way of saying “utter bollocks”.

  26. “The prices would fall by half (on average) and thus the money spent on the double quantity of products would remain the same. And GDP would not change at all.”
    “Real GDP” would double because it is money GDP corrected for price changes.
    GDP growth is universally (or nearly universally) measured in “Real GDP” terms.
    Order books do not affect GDP one whit – GDP seeks to measure output not orders.
    “What they’re crudely measuring with GDP is the amount of money the gnomes had to print to stabilise the average price of an arbitrary basket of goods, then larding on government spending. Which acts as a crude proxy for growth,” No and No.
    What they are crudely measuring with GDP is the “value” of private sector output for which the price paid is a crude proxy plus government spending. The *change* in GDP, adjusted for price changes, is a crude proxy for growth.
    So you *were* talking rot

  27. And then you realise that you’re not measuring output at all, because all the information is in the price indices.

    Look John, the point of the simplistic inflation-free economy example was to illustrate the problem of trying to measure output by the value of production. I don’t think that that was that hard to recognise.

  28. @ Ian B
    “the point of the simplistic inflation-free economy example was to illustrate the problem of trying to measure output by the value of production.”
    Fair enough but you then got it horrendously, and I do mean horrendously, wrong.

  29. No I didn’t. I was trying in a brief comment to describe the problem with the statistic, and in particular the problem that people believe it’s a fine-detail measure of economic output (hence newspapers with “falls by .1%” type articles) rather than something that acts as a rough proxy when integrated over time, but is not truly measuring the thing itself. Curiously, the rightly derided Soviet Tractor Statistics really did measure output itself, so in that one sense were a better metric than GDP. If they had ever actually reflected reality, which they didn’t of course.

  30. @ Ian B
    Stating that “dGDP/dt” is GDP is dimensionally erroneous and therefore horrendously wrong. So is including orders that may, or may not, materialise as production *in the future* as part of current GDP. So is saying that growtyh is zereo whenm real outpuit doubles. So is saying that the amount of money printed has any relevance whatsoever (the total money stock – not the new printing – multiplied by velocity of circulation is relevant but that is quite different).
    It is absolutely necessary to point out that you werre talking utter rot because if no-one does so you will continue in your ignorance to talk rot until it causes me a heart attack.

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