14A016 GDP: A False Measure by Jim Davies, 6/7/2014    


According to Proverbs 11:1, "A false balance is abomination to the Lord: but a just weight is his delight." Take the supernatural out of the matter and consider instead a rational, zero government society (ZGS) and we arrive at the same conclusion: false measuring is fraud, a form of theft. You sell a pound or kilogram or ounce of something, and it turns out to be off by a few percentage points, you're a crook and a liar. You've stolen part of the sales price. It's abominable. In a ZGS, your store would not last long.

But the government "store" will last for as long as anyone will work for it, for it is not subject to such marketplace revulsion; and it gets paid like the Mafia does. Such is government. And, sure enough, it uses false "balances" - its primary measures of success or achievement are deliberately deceptive. Gross Domestic Product (GDP) is one.

Last year I attempted an exposé of GDP on Strike the Root, and this current Blog will try to expand that, prompted by the recent news that during last winter, the US economy allegedly shrank at an annual rate of 1%. This apparently shocked all who trust government statistics, for if GDP growth should be negative in this current quarter also, the country will once again - horrors! - be in a "recession." I never knew it emerged from the last one.

That highly valuable resource, the US Debt Clock, reveals current GDP as $16.3 trillion at this writing. The page reproduces the FedGov's Budget Office definition: GDP is "the basic measure of the market value of all final goods and services made within the borders of the US in a year."

Now, that report of a 1% AR shrinkage is derived from first-quarter figures. The AR means that 2014 might end up with 99% or 0.99 of 2013's GDP. One quarter year's rate must have been 0.99749, for that's the fourth root of 0.99. So in their ineffable wisdom, those macro economists who compile this statistic are claiming the ability to measure a change in GDP of a quarter of one percent. Color me skeptic, but I just don't believe it. Here's why.

The "dollar" is variable, not fixed. Its purchasing power changes, whenever the Feds create new ones; moreover the change is not instant, but takes effect about a year and a half later. So to allege that in February 2014 its value was such and so, one would have to know how the money supply changed in August 2012, relative to production, and then round up or down for luck. It's true that GDP measurers try to discount inflation, but it's not true that they or anyone else can do so accurately, eg to one part in 400 as above.

The product can not be known, but must be estimated. Perhaps Joe Blow took more days off than usual, because the weather was too cold (oops: too warm, I forgot what's PC) but the effect of his non-production will not be known at all for several months.

The value of products is subjective. Suppose you get through computers fast, and buy a new one every year for $1,000. The new one costs the same (identical contribution to GDP) but has 30% more useful power. How does GDP measure that improvement? - it can't. So even if it were "accurate", it wouldn't tell us much.

GDP mixes the unmixable; it counts apples and oranges the same way. What folk choose to buy in the market is added to what is thrust down their throats by government; whether the latter is useful or not or wanted or not. And we pay whatever government demands - there is no market pricing whatever, despite the GDP definition quoted above in para 4. It is impossible to price government services, because choice is excluded. Therefore it is not possible to count their value as part of GDP - yet it's done, anyway. This was explored at greater length in my 2013 article.

Possibly, and provided they are all measured in the same way, comparative GDP figures may tell us a little about the relative prosperity of various countries. Here's a list. The USA is #14, in terms of GDP per capita; I can believe we're twice as well off as Equatorial Guinea and four times richer than Venezuelans, but take the very small differences between the US and neighbors on the list like Hong Kong with a large pinch of salt. The measure is too rough.

What, then, of GDP in the coming ZGS? - if anyone bothers to measure it, there will at least be a single kind of economic activity - the voluntary kind. No government spending will be included. And the basic measuring unit - the currency - will not be variable in value at the whim of a bureaucrat; but still it won't be perfectly fixed, or even uniform, for the market may very well prefer to use several things as money; gold, silver, bitcoin, for examples. So in which units would GDP be expressed?

Even more: after government has been zeroized in the former USA, the same will happen in other countries rather soon. Canada will not be far behind, then much of Europe, then others. What, then, would be the purpose of measuring prosperity on a geographic basis? The old idea of competing "nations" will be history. The whole world will be moving fast towards a completely new plane of wealth and wellbeing for all the human family.

So, while nobody will stop them, I rather doubt that anyone will trouble to calculate GDP. The whole "science" of macroeconomics will wither, as an unwanted appendage of the old idea of a "state." People will be more interested in making money, than in measuring it.


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