GDP and Unemployment Statistics are Meaningless

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The GDP is a completely meaningless statistic - at least in so far as being able to determine the health of a given economy. The notion that the fate of the economy rests in boosting GDP is completely absurd. What is really needed is a system of qualitative analysis, which is by its nature subjective.

Take the situation where you have two programs of equal cost. In one situation, a bridge is built that goes absolutely nowhere, in another situation money is used to fund research which successfully develops a cure for cancer. Obviously these two situations have dramatically different consequences to the general economy, but this figure - the GDP - equates the two because the spending is the same.

Still more perverse is the notion that two functions are unequal when what is actually being done is the exact same.

Suppose you have a situation in which you have two identical plumbers one in China and one in the United States, they get called to fix an identical sink, they drive identical distances to the client and fix the sink in the exact same time, using the same tools, and the same parts, etc.

However because one plumber lives in China, the cost to the client was much less - say 1/5 of the American one - and so, due to our current understanding of economics, the amount of production conducted by the American plumber was 5 times that of the Chinese plumber! Even though what they did was the exact same thing!

Employment is the same way, there is no qualitative information in 9% unemployment - a very dubious figure I might add - but the real question is, what are people are doing when they are employed?

You can have 100% employment in an economy where one half are digging holes, and the other half are filling them back up - in the end, it's obvious this economy produces nothing, but with the Keynesian model, this disaster - which should be apparent to everyone - is lost in aggregation.
The notion that full employment is something the government should impose on it's people is so perverse. Because the offsetting of labor is the best thing capitalism provides.

If we extend this idea to it's inevitable end, the fallacy becomes clear.

With this idea of job maximization, a politician could look at a power turbine and ask; "Why do we have a power turbine do the work which could easily employ a million people running on hamster wheels for the rest of their lives?"

Obviously this is absurd, instead we should all look at the power turbine and exclaim what a wonderful thing this power turbine is! it allows us to enjoy all this wonderful electricity without having to have a million people running on hamster wheels for the rest of their lives!
I think many Keynsian economists miss that.

You're absolutely right.

There is a difference between flawed and meaningless. GDP and unemployment statistics are flawed, but they are not meaningless.

"The notion that the fate of the economy rests in boosting GDP is completely absurd."

The STRICT notion of this is completely absurd. However, GDP is not without value.

Ok? But does this change the practical uses? I mean, GDP isn't EVERYTHING and nobody will say it literally is everything. However, that it isn't everything doesn't mean it isn't something. In any case, it is possible that the cancer cure will boost GDP in the long-run.



That's a byproduct of how the labor market is set up. It's the fact that all of the other markets AREN'T the same that matters here. If we had a perfect ability to exchange plumbing across borders, the values would equalize, BUT the Chinese GDP would not have a general rise across all sectors because of that.



There is given a few assumptions about how labor markets work in the given nation. For instance, if the unemployment rate of the economy during normal times is 5%, then we know that the times are abnormal, either in that labor markets have changed with nothing else changing so much, or in that aggregate demand has changed.


Ok? And if all we ever looked at was a vague statistic, that'd be a valid concern. However, Keynesian models look at short-run aggregate demand, not microeconomic efficiency, so, I think you might as well be complaining that unemployment rates will not tell you how to find your car in a parking lot. Unemployment rates are a piece of data used to figure out what is going on. While they might not contain ALL data, nothing would. The question is whether they contain SOME data, and I think everyone believes that unemployments convey SOMETHING about how the economy is working at the moment. It may be true that 5% and 5.1% may not be a meaningful difference enough where anything is conveyed due to noise, but 15% vs 5% conveys something.

I don't think many Keynesian economists make these mistakes. A few may though. Most of the people who make these kinds of errors are usually non-economists who are applying some vague notion of what they think Keynesian economics is.

In any case, I think that a better effort is needed to attack Keynesian economics. Certainly something that shows a better eye to what these models are doing/attempting to do.

You're absolutely right, too.

I could get into how he and I explicitly disagreed with each other thus we can't be absolutely right without violating the law of non-contradiction, BUT, you're absolutely right as well.

Group hug?

From a math point of view. GDP is a quantitative amount. It is time based and can therefore be plotted and compared to previous GDPs. Rates of change can be calculated. There's value in them darn hills. Now, what that infers and what is conveyed by our politicians are at times at odds and meaningless.

There is certainly nothing wrong with your analysis--to the extent that you have made it. But your assertion misses a number of crucial issues.

First of all, there must be a means of comparison between different economies. When the market wants to determine a fair price for the purchase and sale of currency the relative size of the economies that support the two currencies in question is crucial. Yes the plumber in China charges 20% of the price that the plumber in the United States charges--but that contributes (in a microscopic amount) to the differences in currency value. And all of this has a direct impact on you, because when we buy goods from China for resale in our markets in North America, the relative values of all our currencies dictate price.

Second, you seem to be considering GDP as a raw sum of currency denominated economic activity. But when GDP is used as a comparitor, it can be adjusted for inflation (for comparisons over time) or for purchasing power parity (for comparisons in differently monetized economies). Your discount Chinese plumber is going to look very different (and much more valuable) when his price is considered in GDP normalized for PPP.

You are much closer to the mark on the question of employment. Unlike GDP, there is no single international standard for the calculation of employment statistics. Everyone can agree that you ought not to count children and retirees in your employment statistics, but what about stay-at-home parents? How do you count self-employed people? How do you count people employed in the gray market (or, for that matter, the illegal market)? Do you count people who are no longer actively looking for work?

I am not sure about your qualitative argument. A person employed digging holes and a person employed filling holes are both employed. They both earn income from which they both consume. If employment statistics are meant to describe the number of people who can finance their own participation in the economy as consumers through their own labour, then it doesn't matter whether a person is employed as a hole digger, a hole filler or any other occupation. What is missing, though, is a measure of full-time equivalent employment. A person working 20 hours per week is not employed at the same level as a person working 30 hours per week or another person working on a salary basis.

But the fact that there are different ways of counting employment does not mean that we shouldn't be doing it.