Friday, October 30, 2009

Some Final Thought on GDP

While I was personally very happy withe the GDP numbers, perhaps the best source of entertainment was the reaction to them. Reaction fell into a few camps.

1.) "I complain therefore I am". People -- a large percentage of whom argued for the stimulus and in some cases are arguing for more -- are now complaining that government spending was responsible for some of the growth. Here's a news flash: we're in the middle of a pure Keynsean period where the government is supposed to ameliorate the impact of the recession and help us get back to a period of full employment. That is one of the central themes of Keynes arguments. In addition, consider that government spending usually accounts for about 20% of economic growth. Do we now completely discount this part of the GDP equation going forward?

2.) "GDP doesn't matter or is a bad indicator of economic activity." Since when? We've been using this number for a really long time. Here is the basic definition:

The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

It tells us lots of incredibly important information. But now it's flawed? Please. If you want to look at other parts of the economy -- like quality of life etc. -- there are plenty of statistics already available. But don't tell me that because GDP doesn't include quality of life issues or because it doesn't favor certain types of activities over others that it's somehow flawed. That's plain bullshit. What they're really saying is "I know squat about how economic numbers work together. But I really want people to think I do. So to hide my ignorance I'll just say all the numbers are bogus and use a made-up number that can't be empirically verified that also jibes with my point of view."

Here's the basic deal: the government spent money and initiated programs to get the economy moving forward. Guess what? It worked. That's because it was designed to work that way.