10A092 The GDP by Jim Davies, 12/5/2010    

Are you worried about the Gross Domestic Product? I am, and I wish you'd join me, for it's so very important and I'm almost losing sleep over it. You'd help by losing some too; for there's comfort in misery.

America is #1, of course, by this vital parameter, we have some 14 trillion dollars of it, and no other country comes close, though China may do soon. We still do pretty well if the GDP is divided by the population - we rank #6, #8 or #9, according to who's counting. Ahead of us come countries like Luxembourg, which most Americans cannot find on a map, and Denmark, and Ireland... hello? Ireland?

What worries me most is that bit about dependency on who's counting. This is an enormously important measure of prosperity, to which almost everything else is compared and keyed and upon which a vast range of economic decisions is based, and yet there are differences of opinion about what it is. That's ludicrous!

To get a quick MBA on the GDP, go here, or for a fuller course dive into Wikipedia - which reveals its awful complexity. There are two separate ways of measuring it (income and expenditure) and both are called "approaches" - meaning, nobody actually gets there and nails it down. Then there are adjustments, especially to reflect changes in the underlying currency in which it's expressed - the dollar. That's like equipping a draftsman with a silly-putty ruler.

It's supposed to measure everything the people of a country produce, in a year, but doesn't count anything that isn't sold, such as the indispensible work of a mother and housewife, while it does include what government provides, even though by definition those services aren't sold, but rather thrust upon us whether wanted or not. Count how many ifs, ands and buts there are - but to my mind the biggest is that one about government stuff. Federal, State and Local ones account for roughly half of US GDP, and yet none of it commands a price, in the sense that bananas, concerts and dump trucks command prices. This is madness! Nobody can tell what those services are worth (if they were offered without compulsion to buy, in competition with other comparable services) and yet the figures are counted as part of the GDP! - by using what government spends to produce them. So if some government agency builds half a bridge for $5 million, that five mill is counted as part of America's product even though nobody can ever use a half bridge. And even though it's been well known for half a century that if some government function is privatized, the job usually gets done for half as much.

All of the fine-tuning so solemnly undertaken by Congress and the Fed, and discussed gravely and endlessly by distinguished economists and politicians, and which vitally affect your wellbeing and mine, depend on getting the GDP right. Yet manifestly, that task is impossible. We have been and are being completely hornswaggled. None of them have more than the vaguest idea what is going on, and the real GDP (if ever it could be counted) would rise substantially when they are all let go to do honest work in a free-market economy. Until then, we are living and working in a wonderland as mad as any Alice encountered.

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