Governments can and do target GDP with their spending, with predictable results. The classic example is "ghost cities" in China. They have ghost cities nobody lives in, ghost roads nobody drives on, and ghost bullet trains that go nowhere useful. All because regional governors are expected, one way or the other, to match GDP targets for their regions.
Goodhart's law applies here. "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes." or "When a measure becomes a target, it ceases to be a good measure."
GDP is subject to manipulation when it becomes a target. So is lots of other things like "Consumer Price Index", which nowadays doesn't index a whole lot other then what the goverment's target is for inflation (and yes, the Federal Reserve actually counts as part of the "government" here).
Which means that GDP, like the CPI, is not particularly useful measurement anymore.
This is just nutty extrapolation.
Does "Goodhart law means that human height and weight are not accurate anymore, because people target them. We can't trust weights and measures." sound sane?
Most people that I know who are credible on this topic pay much more attention to real GDP growth (ie change in GDP after accounting for inflation) than nominal GDP itself.
For historical finance-culture reasons (they're reflexive savers, and there aren't many other investments allowed), China does have a lot of real estate investment relative to population, even considering their rapid urbanization, and not all of it is looking to be sustainable; In retrospect there's been a bit of a bubble. But >90% of it? There are hundreds of third/fourth-tier cities housing hundreds of millions of people that might have drawn fire originally under "Ghost City" theory.
In a worst-case scenario, what Chinese people get instead of a return on their nest egg investment is inexpensive houses/apartments with more living space, and maybe the option to support themselves without a DINK family.
It’s hard to imagine in the west just how fast china is urbanizing- and the immense scale that the government is preemptively tackling a housing crisis.
GDP is it a useful measure? Maybe? Maybe not? What is your argument and how does the GDP numbers support it?
He's also resoundingly good at being a nepo-baby who got everything handed to him.
I can assure you he's not a good engineer or honest businessman.
Yeah, but that is precisely why he is asked such questions. He gives a more engaging to the Average Joe response than an expert does. It doesn't matter if the response is out to lunch.
The question you responded to was trying to figure out where his expertise didn't overlap with the intent of the people questioning him.
Dude would live a better life and leave a better legacy if he would focus more on chilling, empathy, and building rockets to get humanity to the stars
He's the richest person in the world and wastes his time with political bullshit, while he is one of the very few and privileged who have the resources at their disposal to actually attempt and support grand experiments
Without him his companies wouldn't have gotten the attention they got and the vision of self driving cars and colonizing Mars certainly got to motivation of engineers working there.
So there is some expertise.
The biggest issue one person raised is how do you separate out government spending form GDP?
If a US town has a big military base, does that mean the entire towns' GDP is just government spending so ignore it?
The government essentially pays for everyone's salary in the town.
Where do you draw the line at what is government spending and private spending?
Cause if the base went away tomorrow then so does the town and about 95% of its spending, so it would be hard to include any of the towns economy in the GDP calculations if you only want private spending as the private spending in this case is almost all first or second order based solely on government spending.
Or at a more macro level. Boeing is a legitimate company but more than 50% and more than 75% depending on how you account for it, comes from government spending.
So do you just not include 75% of Boeings spending in GDP?
How much of the Boeing employees spending do you include in GDP then as if 75% of their salary is government spending and you are trying to exclude government spending.
If you allow their spending to be part of GDP then you are saying you are including government spending in GDP just as a second order event.
I'm told people still do their Phd in economics on this topic so its clearly a very hard problemm.
Now you've ruled out lots of other stuff though. Is loaning money "production?" Is spending for services (like, software development!) "production"? Is investing in assets like real estate "production"? All those activities create wealth!
Now you've got a definition where only primary production, like farms and construction and mining, have any value. And that's silly too.
No, all economic activity creates wealth. The idea of "spending" being separate from "producing" only holds at the microeconomic level where you are playing a zero sum game with a single bank balance.
[0]: https://www.economist.com/finance-and-economics/2013/12/21/p...
In other words, people want the data to speak to the government on their behalf so they don't have to. Musk is playing into that same idea.
The question if the goods basket that is used to define inflation actually reflects reality is valid though!
For example, the explosion of rents in urban areas is offset by shockingly low rents in "flyover states" and rural areas, leading to a complete neglect of the problems of urban people because it simply doesn't show up in the statistics. For many poor people, they don't have the money to buy new clothes anyway, much less expensive goods such as new cars or luxury goods - and yet these products are all in goods baskets, offsetting the cost explosion in basic staples (and not just eggs).
IMHO, "inflation" as a simple percentage metric is not a KPI that can be used - at the very least, socioeconomic strata and urban/rural differences need to be taken into account because over the last decades, thanks to rural flight the realities have separated way too hard.
The problem that the Democrats faced in the last election campaign is that they only focused on KPIs useful for rich people: stock market indices, employment counts, GDP. But that mis-focus completely alienated the wide masses who felt they're being fed lies as their reality (exploding expenses but stagnant wages) was markedly different from what the Democrats pushed.
Why? You're only trying to determine the change in value of the currency. What specific items are in the basket shouldn't matter all that much as long as it is a broad enough sample to be able to separate out the change in value of the goods from the change in value of the currency, along with it being comprised of things consumed frequently enough that you can see any change over a short period of time (e.g. monthly).
> socioeconomic strata and urban/rural differences need to be taken into account
Implying that an urban dollar isn't the same as a rural dollar? I mean, that is similar to what Musk is saying: That a government dollar isn't the same as a private dollar. But how do we quantify that? If we each throw down a $1 bill and shuffle them around, how can you tell which one represents an urban/government dollar and which represents a rural/private dollar?
The problem the Democrats face is that wage prospects and social issues are segmented by level of education more than in the past. They should run on higher minimum wage, which will benefit rural workers more, and on making inclusive social views the key to social acceptance. Might be an unpopular opinion, but the Democrats won't get the sports betting crypto Joe Rogan incels anyway, so they might as well make the most stereotypical ones the symbol of how to keep you dick perma-dry.
But that's just because more people typically seek higher levels of educational attainment than in the past, so the more capable people filter upward.
In my grandfather's day, even going to high school was relatively unusual. Back then, the "less than high school" cohort was a healthy mix ranging from those with extreme disabilities to high performing people. Nowadays, there are often even legal mandates that require anyone who is capable to graduate from high school. So, the "less than high school" cohort is now effectively only those with extreme disabilities, with all the life challenges that go along with that. As such, if you only glance at the data you might think that lower levels of education have fallen behind, but in reality they've just lost the people that helped make it look better than it really was for those who struggle.
That doesn't seem like it should be a problem. Only the counting has changed, which isn't materially significant.
I suppose what you are trying to say is that said shift has revealed how bad things have always been for the disabled, and Democrats are called upon to fix the issue making it their problem, whereas it is understood that the Republicans are always of the "fuck the disabled" mind so nobody expects them to deal with it?
(Note that I agree with your larger point)
One discussion of this point can be found in an Indicator podcast[0] from a couple of months ago.
But your suggestion is to increase politicization of GDP: change the figure to push a certain view on economic activity, as opposed to what the theory says, what's practical, and what actually happens in real life (even if the government pays a group of people to dig a hole, and another group to fill the hole back up, that's still economic activity and should be counted).
That's moving things entirely in the wrong direction.
But is a government dollar really as productive as a private sector dollar?
$1b billion for the local school district. Compare that to $1 billion spent by a private operator?
Standard GDP might overstate. Maybe you need a 50% haircut on government spending in the calculation.
Governments are usually very inefficient. Corporations are also inefficient, but it is not the topic. The point is that we need to look more to the outcome than the money "value" because some governments made-up work has no value, but if you include it in GDP you inflate the GDP falsely.
Yes.
What? A dollar is a dollar, duh. If you want to claim otherwise, you're the one who needs to show evidence. Why should the government selling a $1000 bond and spending it on a free gadget for a craven bureaucrat behave any differently than me putting a $1000 iPhone on a credit card? Money is money.
When you're spending other people's money, you can spend $2m on a single toilet and think it's fine. (Real example from near where I live.)
Define "worth it" macroeconomically. There is no "value" idea at scale with a meaning separate from "money". Every transaction happens, definitionally, because the two parties think it's "worth it".
Edit: to focus a bit and extend the metaphor above: if the government buys an iPhone for the notional corrupt IRS agent who doesn't need it, you'd say it's not "worth it". But Apple Computer books that revenue either way. The world you're imagining where "less productive" government spending doesn't happen is a smaller economy. And that's bad, because it means that Apple hires fewer geeks and those of us who can't get those FAANG jobs see less upward wage pressure.
Money is money, at scale. The Economy can't tell what you're using it for, it just cares that you trade it for stuff.
When the government spends your money, you don't get to decide whether a particular transaction is good value.
Do you think government bureaucrats are as careful with taxpayers' money as they are with their personal funds?
And here's the root. That is an argument from principles of libertarian morality, not economics. It's fine if you want to claim that it's immoral for the government to tax and spend your hard earned assets. I just won't engage, because that's tiresome.
It's not fine to claim that the government stealing and spending your Lockian Sacred Property is "not productive" in a discussion about economics, because that is a word with meaning in the field and you're using it wrong.
(Edit: as stated, I'm not going to engage in a discussion on libertarianism in an economics thread. I'm merely pointing out that you have the economics wrong.)
I'm merely observing that, when we attempt to measure economic activity via GDP, we run into a fundamental valuation problem with the government component (G). Private consumption (C) and investment (I) are valued using market prices derived from voluntary exchanges. These prices, imperfect as they are, provide at least some signal about the perceived value placed on those goods and services by willing participants.
Government spending, for the most part, lacks this direct market-based valuation mechanism derived from voluntary choice.
Because there are usually no market prices for government outputs (like defense, regulatory agencies, or infrastructure projects before user fees), GDP accounting defaults to valuing them at cost. So, if the government spends $1 billion, it adds $1 billion to the 'G' component of GDP. This is convenient from an accounting perspective, but it doesn't actually tell us whether that $1 billion expenditure generated $1 billion (or more, or perhaps much less) in genuine economic value or utility *as perceived by the citizens who ultimately fund it*.
Therefore, questioning whether government spending represents "good value" or is truly "productive" in the same sense as market activity is relevant if you're trying to get a useful measure. (This is true irrespective of your opinion about the morality of taxation.)
It's a well-known limitation in how we construct and interpret GDP figures.
Well you have to also see the counter point which is sometimes companies spend a $1B and go bankrupt like pets.com.
And sometimes the government spends money to backstop the financial system like in 2008 and literally save the entire US financial system and on top of that the government makes money off the bail out.
In this case the government spending was infinitely more valuable than the private spending.
I cannot even fathom how hard the economy would crash if large swaths of the workforce were illiterate.
Productivity in what sense?
if large swaths of the workforce were illiterate
Is a gazillion dollars spent on an NFT "productive" in the way that spending money on building a house is productive? What multiple should you be using. Is a dollar spent on medical treatment for somebody on medicaid worth less than a dollar somebody spends on some fireworks to blow up on the 4th? These calculations become impossible.
"I dunno, I bet government spending is only worth half of what they pay so I'll just pick 50%" is not a reasonable approach here.
Also efficiency shouldn't be the goal of everything we do all the time. Sometimes resilience is more important, which comes at the cost of efficiency.
Usually much lower than the equivalent job at a private sector company.
- many government employees would not meet the bar for an equivalent job in the private sector
- the environment and red tape means that even an equally skilled employee would be less productive than they would be in a private sector firm that's subject to competitive pressures
- for many government employees, headline salary is only about a two thirds of total compensation (look up San Francisco employees' total comp on the Transparent California web site).
which I see alot, misses alot of the purpose of the spending
To put a different example of the point. If the cheapest way to launch items into space was for NASA to buy rockets off Russia, would that be what it would do? No, because government policy includes independent launch capacity.
NASA isn't a private company, it is a tool of government and as such it can have have a wider role in society then a compariable private company will have.
For every 100€ put in french national healthcare, 89 to 93 (depending on the year) are spent on healthcare. The rest is used for distribution and administrative tasks (and during a short time, debt repayment).
What do you think SwissLife give it's insured back for ever 100€ they are paid? Between 12 an 15% are administrative costs (they have more expensive lawyers and contest more claims), 2% R&D (??for some reason, probably to claim tax rebates), and between 5 and 12% are dividends. So between 81 and 71 euros are given back. Do that seem more efficient?
But that won't last, each time private companies compete with public one, the EU commission had to create new rules, like ARENH for electricity, or worse, the separation between SNCF, SNCF reseau, SNCF fret/geodis to prevent economies of scale and local optimisation (that killed small train stations and most french fret). Now that SNCF fret managed to come back (under a new name) and outcompete everyone, again (mostly because train fret died), they just broke it again for spurious reasons. Liberalist fuckers just don't want exception to their rules, and since they can't economically bully state companies like they bullied Lip and probably any worker cooperative that became too big or too well-known, they use their political weight to send them to the ground instead.
People are (very) slowly waking up. The number of X-es is large to say the least.
In all cases research has found: he's lying. He has essentially no technical contributions, not even to his original firm, X (the bank).
Him claiming otherwise makes him a fraud, and a plagiarist.
One of the most revealing things about Musk came from Walter Isaacson's biography on him. According to the book, Musk once joined a poker game at a table full of card sharps, odds savants and the kind of people you expect would play a lot of poker and would also eat alive anyone who wasn't on their level. He bulldozed them. His strategy? Bet everything he has on every hand and, when he loses, just buy more chips. Isaacson seems to think this proves Musk to be an outside-the-box-thinking risk-taker but there's another, less generous interpretation: capitalism tends to elevate those who have enough resources that they can get their asses kicked 10 times and still come back for an 11th, but the odds are against you if you're playing with all you have no matter how gifted a player you actually are.
The private sector can also spend on dumb and inefficient things and we are fine in counting it in the GDP metric, the difference between private sector and the government is the source of revenue. The private sector has to produce something for the economy before spending (it may be done indirectly through debt, but it's not important here), while the latter forces the economy to share it's productive capacity (using violence if necessary) while not producing anything itself (well, technically it does, but it's usually a tiny amount of the total revenue). It's still fine, since it's just a form of re-distribution from one private entities to others. It can be grossly inefficient, but so can be the private spending.
The problem is when a significant portion of the government revenue is fueled by debt which can not be paid by the future economy growth. The government quickly engineers negative real interest rates either by forcing commercial banks and pension funds to buy it with regulations, or by outright money printing, which is easy to do in a fiat system. Such debt-fueled GDP growth is not a sign of strength, but instead a sign of weakness, and ideally it should be heavily discounted.
BTW, government expenditure only appears in the GDP calculations by expenditure. It doesn't appear in the income nor in the production. The later one the one you are actually thinking of.
I am not sure against what you argue exactly. My point is that if we use GDP as a metric of economy strength, then it's easy for the government to cheat it by fueling it's spending by printed money (ah, sorry, the reputable economist use the "quantitative easing" euphemism instead) or by unfair debt issuing practices (like forcing banks, pension funds, or even people directly to buy government bonds), then it results in a short term "sugar rush" GDP growth, while consequences are kicked down the road. In the US case we also have an additional masking factor in the form of having control over the world's reserve currency, which significantly dampens the usual inflation reaction.
So if we want a better metric, we should somehow discount this factor. Obviously, simply removing the government spending is too simplistic (or you can call it less charitably as "dumb").
Mind you the economy was effectively being lead by Paulo Guedes, U of Chicago PhD
> The real problem with GDP ... is that it tempts us to view all human progress as an amorphous score, which we can start maximising just as soon as we fix whatever we think is wrong with how that score is calculated.
No! The problem with GDP isn't that it's a score, it's that it's a BAD score. We know whats wrong with it. It's fixable, it doesn't ignore very many things! The main issues are totally tractable. In addition to ignoring utility:
1) GDP doesn't account for changes in net wealth.
If I take out a loan to buy candy, GDP goes up. After I eat the candy, the loan remains. I'm financially worse off. GDP still went up! Economy is doing well!
GDP also ignores depreciation. Machinery/infrastructure decay doesn't affect GDP at all.
2) GDP doesn't account for externalities or zero-cost innovation/value.
If I pollute the water supply to make an additional $10, GDP went up.
The inverse is also true. If I make Wikipedia freely available, the value provided to humanity does not affect GDP.
This is true, but it used to measure (or at least try to account for) decay in private companies. Changes in accounting techniques make this a challenge nowadays (especially since our beloved MBAs invented 'future accounting', where expected ROI is added to the value of machinery in the books, truly a genius move by true sociopaths)
> This is true, but it used to measure (or at least try to account for) decay in private companies.
No, the "G" in GDP stands for "Gross," which means before depreciation. Depreciation has long been estimated in NIPAs, but that's a separate slate of measures.
> (especially since our beloved MBAs invented 'future accounting', where expected ROI is added to the value of machinery in the books, truly a genius move by true sociopaths)
This isn't true either. You're describing valuation models, e.g. DCF, but these aren't used for accounting. GAAP doesn't have a concept of adding ROI to asset value.
It is very true that games are played with depreciation. For example, you're allowed to depreciate some assets like real estate even if they INCREASE in value over time. All of that depreciation is tax-deductible.
It's entirely possible my interpretation of his opinion of GDP is totally off, but that's what I gleaned from this single article. If I'm wrong, it's at least a bit his fault.
Do you have an opinion you'd like to share?
Elon is saying government spending should not be included in GDP. In reality GDP is what it is; find a new metric to use.
the quality of using GDP as a metric is low because of this. Also why GDP growth matters so much. Recessions are defined as negative GDP growth by 2 quarters. So government can deficit spend to hide a recession, that's the problem.
What you have to look at isnt GDP at all. find a new metric to use to determine recession. Here's mine.
Real GDP minus government deficit(all levels of government combined) per capita.
When you look at this metric. Canada, Germany, UK, France, Italy, Japan, spain, and estonia are in hidden recessions. Also why they all pretty much need to be negative bank rates and high inflation right now. Obviously this is a WW2 consequences that were put off until now.
Other ways to see the problem is 2030 worker shortage or the inverted population pyramids.
A relative of mine is working for my country's government for a very long time as a high level economist and leading a government department. One thing that is happening is lots of made-up jobs with made-up work; this is just to keep unemployment low, but most of the money (>60%) return directly to the government as taxes. It artificially increase the GDP. This relative has several hundred of people in the organization that they run, about half are politically appointed (as in "every new minister or state secretary is employing dozens of their friends and relatives") and about 3/4 are not doing any job that results in a positive outcome. Most of the work is paper-pushing "analysis and reporting" that are have no real impact on anything, but are still hired as the number of positions is imposed from very top and hiring is also "influenced" from the top. So what happens with the GDP? It is increasing artificially and it is meaningless in this context.
Elon Musk is wrong about A-to-Z
robertlagrant•5h ago
(Not that they're really propping it up, but that GDP is a common proxy for an economy's health, it looks better than it is.)
I'd be curious to know if people here with more insight than I would be keen to share.
mapt•5h ago
This is destabilizing for a variety of reasons. It's a bet on future growth that does not appear evident. It's also effectively a burden placed on the other oligarchs behind Putin, who would love to control a large chunk of a functional economy rather than controlling a large chunk of a banana republic undergoing stagflation and being heavily taxed for the privilege.
What happens when strongman Putin goes away, and occasional defenestration is replaced with factionalism? Or even sooner than that - what happens if the market becomes confident in low oil prices?
esafak•5h ago
arctics•4h ago
mamonster•4h ago
Russian oligarchs now have close to 0 political power. Those that do are related to army/secret services anyway and will have more to lose if the system goes away. All those oligarchs just ate massive drops in wealth and didn't do anything.
This is by far the biggest misunderstanding that people in the West have: The Russian/Putinist system is now MORE stable than before 24 February 2022, not less.