GDP just says how well a country is doing and is a good summarization for how imports and exports are doing. However, it also takes into account military spending and real estate, so you could argue the GDP can be inflated via those two measures (to a degree) to look better.
Consumer Price Index does a better job of showing how well the economy is doing for its citizenry.
CPI is not good either. Inflation can be fine for most citizens, when they have enough negotiating power to raise their wages with it. In that case it wipes out lenders. That happened in Weimar Germany after WW1, as the unions were strong enough to raise wages fast enough.
It doesn’t show how well a country is doing, because GDP is not a direct measure of aggregate utility. For example: GDP can go up, but if it causes the Gini coefficient to rise, a country could be doing much worse than before.
Economists of course know of these flaws and use GDP accordingly. Its for example a great measure how complex the economic flows are.
Of course its known, that countries can easily manipulate the data, for example China, who retrospectively changed their measuring of the economic data of 2022 and increased their GDP growth 2023 that way to 5.2 %. Or Russia, who spent an enormous sum for arms production, financed by debt, which of course led to a higher GDP at the cost of debt.
Nevertheless, if you consider these kind of ‘tricks’, its a good measure for growth year on year. But this growth can mean two things: higher living standards for its population or a more complex economy.
Its the same with the BMI. Its a good measure in general, but looking at a specific individual, its a highly deceptive measurement.
That’s not what they mean. “More complex” means that you start paying for something that you used to do yourself, like paying a cleaner instead of cleaning your place. Or paying for takeout instead of making food. Now there are more transactions happening in the visible economy but you may not be better off.
More complex means that you focus on what you can do best and pay others to do what they can do best. Instead of growing your own wheat and pottery, you and others pay a third person to get a tractor and you can instead focus on doing pottery and sell them and buy wheat. This way more gets produced.
And while the wheat you grow yourself isnt part of the GDP, the wheat the third person grows for you, is. Therefore a more complex economy significantly boosts the GDP more than increased productivity. So if you produce your own wheat and your own pottery and your neighbor does the same, the GDP is 0. If you sell your pottery and your neighbor his wheat, both get added to the GDP.
And that is why GDP is such a badly flawed metric and why we should not use it as the one and only way to measure progress.
GDP just says how well a country is doing and is a good summarization for how imports and exports are doing. However, it also takes into account military spending and real estate, so you could argue the GDP can be inflated via those two measures (to a degree) to look better.
Consumer Price Index does a better job of showing how well the economy is doing for its citizenry.
CPI is not good either. Inflation can be fine for most citizens, when they have enough negotiating power to raise their wages with it. In that case it wipes out lenders. That happened in Weimar Germany after WW1, as the unions were strong enough to raise wages fast enough.
Imho something like Genuine Progress Indicator does a better job at measuring how well an economy is doing.
A measure stops being a good measure when it becomes a target.
It doesn’t show how well a country is doing, because GDP is not a direct measure of aggregate utility. For example: GDP can go up, but if it causes the Gini coefficient to rise, a country could be doing much worse than before.
Economists of course know of these flaws and use GDP accordingly. Its for example a great measure how complex the economic flows are.
Of course its known, that countries can easily manipulate the data, for example China, who retrospectively changed their measuring of the economic data of 2022 and increased their GDP growth 2023 that way to 5.2 %. Or Russia, who spent an enormous sum for arms production, financed by debt, which of course led to a higher GDP at the cost of debt.
Nevertheless, if you consider these kind of ‘tricks’, its a good measure for growth year on year. But this growth can mean two things: higher living standards for its population or a more complex economy.
Its the same with the BMI. Its a good measure in general, but looking at a specific individual, its a highly deceptive measurement.
“A more complex economy” is a great euphemism for the rich getting richer while the masses languish.
That’s not what they mean. “More complex” means that you start paying for something that you used to do yourself, like paying a cleaner instead of cleaning your place. Or paying for takeout instead of making food. Now there are more transactions happening in the visible economy but you may not be better off.
More complex means that you focus on what you can do best and pay others to do what they can do best. Instead of growing your own wheat and pottery, you and others pay a third person to get a tractor and you can instead focus on doing pottery and sell them and buy wheat. This way more gets produced.
And while the wheat you grow yourself isnt part of the GDP, the wheat the third person grows for you, is. Therefore a more complex economy significantly boosts the GDP more than increased productivity. So if you produce your own wheat and your own pottery and your neighbor does the same, the GDP is 0. If you sell your pottery and your neighbor his wheat, both get added to the GDP.
Degrowth babyyyyyyyyy