Debating GDP Dogma With An Economist

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Re: Debating GDP Dogma With An Economist

Postby Jonathan Nitzan » Fri Apr 05, 2019 11:17 am

AWUGDU

The correct acronym for 'real GDP' should be AWUGDU -- pronounced 'a-woogdoo' -- for 'Arbitrarily Weighed Unquantifiable Gross Domestic Utility'.
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Re: Debating GDP Dogma With An Economist

Postby Ikonoclast » Wed Apr 10, 2019 2:27 am

I like it. One question, should it be "weighted" and not "weighed"? As in;

'Arbitrarily Weighted Unquantifiable Gross Domestic Utility'.

But then I might be wrong. I can see it working both ways as a term.
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Re: Debating GDP Dogma With An Economist

Postby Jonathan Nitzan » Wed Apr 10, 2019 5:00 pm

AWUGDOU

Ikonoclast:
One question, should it be "weighted" and not "weighed"? As in 'Arbitrarily Weighted Unquantifiable Gross Domestic Utility'.

Yes, you are right: it should be 'weighted' rather than 'weighed'.
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Re: Debating GDP Dogma With An Economist

Postby uma » Wed May 29, 2019 3:56 am

Hi, very nice treatment of the topic! In the article (http://bnarchives.yorku.ca/598/) I would change the numbers in the example section to make the point even more explicit. Here are my numbers:

In my economy there are eggs and apples.

Nominal values

Year 1: 400 million (m) eggs sold at 0.1 $/egg = egg income $40m; 30,000 tonnes of apples at 2000 $/t = apple income $60m.
Total nominal egg-and-apple GDP = $40m + $60m = $100m.

Year 2: 250m eggs @ 0.2 $/egg = $50m; 50,000 t apples @ 1000 $/t = $50m.
Total nominal GDP = $50m + $50m = $100m.

So in nominal terms our economy is constant.

Real GDP based on year 1

By definition, real GDP of year 1 based on year 1 = nominal GDP of year 1 = $100m.

Real GDP of year 2 in prices of year 1: 250m eggs @ 0.1 $/egg = $25m; 50,000 t apples @ 2000 $/t = $100m.
Total real GDP year 2 = $25m + $100m = $125m.

So in "real terms" based on year 1 our economy has grown by a whopping 25% instead of remaining constant.

Real GDP based on year 2

Real GDP of year 1 in prices of year 2: 400m eggs @ 0.2 $/egg = $80m; apples 30,000 t @ 1000 $/t = $30m.
Total real GDP of year 1 in prices of year 2 = $80m + $30m = $110m.

By definition, real GDP of year 2 in prices of year 2 = nominal GDP of year 2 = $100m.

Thus our economy went down from $110m to $100m, or shrunk by 9% (relative to year 1) if real GDP is based on year 2.

Discussion

Rather than just showing how numbers differ, I think it is even more illustrative to show how the same set of numbers can indicate a constant, growing, or shrinking economy. Also using "100" makes percentages easier to see. I also think one should make it explicit that, by definition, "real" GDP equals nominal GDP for the base year.

Ulf
Last edited by uma on Wed May 29, 2019 6:42 am, edited 3 times in total.
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Re: Debating GDP Dogma With An Economist

Postby uma » Wed May 29, 2019 4:10 am

The observation that Real GDP is a nonsensical number may create a problem for some of the previous CasP research.

In "The Global Political Economy of Israel" (GPE/IL, which I am currently rereading) Real GDP is used at least in fig. 2.7: 70, 2.11: 79, 2.12: 81, and 4.1: 138. There are other instances where just "GDP" is used without indication if that means "nominal" (which I assume).
GPE/IL @ http://bnarchives.yorku.ca/8/

It would be very bad if the argument in GPE/IL suffers from this because the book is still extremely valuable to show how theory development and empirical research go together. One could check if it is possible to make the argument that use Real GDP with nominal GDP. Nominal prices, which reflect the "state of capital" of a year, should be a better conceptual fit to CasP.

Best, Ulf
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Re: Debating GDP Dogma With An Economist

Postby Jonathan Nitzan » Thu May 30, 2019 1:30 pm

uma wrote:The observation that Real GDP is a nonsensical number may create a problem for some of the previous CasP research.


Our critique of ‘real’ measures and their associated price indices – and of the ‘real-nominal’ bifurcation more generally – was first articulated in ‘Price and Quantity Measurements: Theoretical Biases in Empirical Procedures’ (1989) [1] and Inflation as Restructuring (1992) [2].

One key purpose of The Global Political Economy of Israel (2012) [3] was to debunk conventional explanations of Israel’s development, including those dealing with the country's growth and inflation. This debunking required us to use conventional measures of these processes. Using conventional measures for this purpose does not affect our CasP argument as such.

Now, although The Global Political Economy of Israel mentions the difficulties associated with ‘real’ measures and price indices – for example, pp. 36-37, and fn. 22, p. 179 – it does so only briefly.

The reason for this brevity is a bit twisted. The original manuscript submitted to the publisher dealt with these issues at some length. In addition to the global political economy of Israel, it offered a general critique of political-economic theories, including a discussion of so-called ‘real’ growth and price indices. Pluto Press, though, felt that this general critique diverted attention from the main topic and requested that we omitted it altogether. For most readers, this omission is probably a plus, but for those interested in the foundations of political economy it feels like a minus.

References

[1] Nitzan, Jonathan. 1989. Price and Quantity Measurements: Theoretical Biases in Empirical Procedures. Working Paper 14/1989, Department of Economics, McGill University, Montreal, pp. 1-24. http://bnarchives.yorku.ca/137/

[2[ Nitzan, Jonathan. 1992. Inflation as Restructuring. A Theoretical and Empirical Account of the U.S. Experience. Unpublished PhD Dissertation, Department of Economics, McGill University. http://bnarchives.yorku.ca/207/

[3] Nitzan, Jonathan, and Shimshon Bichler. 2002. The Global Political Economy of Israel. London: Pluto Press. http://bnarchives.yorku.ca/8/
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Re: Debating GDP Dogma With An Economist

Postby uma » Fri May 31, 2019 7:45 am

It would perhaps be interesting to put the removed parts to the BNA page of the book as an addendum if they form a piece of text on their own.
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