Posts tagged with: Gross domestic product

Recently we considered a simple tool and metric for measuring economic well-being: real GDP per capita.

Yet such metrics feel can seem materialistic. What about the things that money can’t buy, we wonder, like health and happiness?

As economist Alex Tabarrok explains, while real GDP is an imperfect measure, it tends to be correlated with many of the non-monetary improvements that contribute to human flourishing.

Leighblackall-76202405Andrew Biggs of AEI has a piece up today at Forbes addressing the gender pay gap and provides a neat solution: “forbid women from staying at home with their children.” As Biggs points out, such a policy would address perhaps the greatest root cause of gender pay inequality: varied work experience attributable to choices women make. “Most mothers who stay at home or work only part-time are doing what they wish to do and what they view as best for their kids,” writes Biggs. This results in gaps in pay when those women re-enter the work force or increase their labor participation.

Biggs’ proposal to “make staying at home with kids illegal, just like child labor is illegal” would have another benefit favored by many: it would be a boon to GDP. As I point out in a review essay in the latest issue of Christian Scholar’s Review, the work that stay-at-home parents do is not counted toward GDP. When those parents pay someone to take care of their children as part of a business transaction, however, as in the case of day care centers, then that exchange does count towards GDP.

My piece, “Affluence Agonistes–A Review Essay,” takes a look at the book The Poverty of Nations by Wayne Grudem and Barry Asmus, in addition to a couple of other recent publications. The CSR essay expands upon a review of the Grudem/Asmus book I wrote for Public Discourse, “Life to the Full: The Dangers of Material Wealth and Spiritual Poverty.” As Grudem and Asmus put it simply, to combat poverty “the goal must be to increase a nation’s GDP.”

So not only are stay-at-home moms a major source of wage inequality, they are also “a drag on GDP.” As one press report put it, “With female participation stagnating, potential growth isn’t rising as quickly.”

Biggs’ proposal to ban stay-at-home mothers should logically be embraced by both anti-gender inequality progressives as well as GDP growth fundamentalists. As I argue in the essay, “If a nation were to pursue GDP growth as its highest goal, it would probably institute policies and incentives to induce women to work outside the home and professionalize child care. GDP incentivizes specialization and the division of labor, since such transactions are the only things taken into account.”

But the Grove City College economist Shawn Ritenour rightly concludes, “We ought not give into the temptation that all of human welfare is encapsulated in GDP.” Another way of putting it is that men, women, and children do not “live on GDP per capita alone.”

Update: For those readers who might not bother to read Biggs’ piece, he does not (and neither do I, for that matter) actually advocate for this policy.

Blog author: jcarter
Friday, March 11, 2016

What is Gross Domestic Product (GDP)? The definition is rather straightforward: GDP is the market value of all finished goods and services, produced within a country in a year. But that’s not very useful in trying to understand the concept.

In this video by Marginal Revolution University, they recommend thinking ofthe economy as a giant supermarket, with billions of goods and services inside. At the checkout line, you watch as the cashier rings up the price for each finished good or service sold. What have you just observed?

union-jack-flag-great-britain-x-nature-with-uk-for-2685143At the height of power, circa 1922, the British Empire was the largest empire in history, covering one-fifth of the world’s population and almost a quarter of the earth’s total land area. Yet almost one hundred years later, Great Britain is not so great, having lost much of its previous economic and political dominance. In fact, if Great Britain were to join the United States, it’d be poorer than any of the other 50 states — including our poorest state, Mississippi.

Fraser Nelson discovered that fact by using a “fairly straightforward calculation” (see the end of this article for an explanation, and what Nelson missed). The result, as Nelson explains, is that all but one income group in America is better off than the same group in Britain:

Recently, the World Bank agreed to partner with Nicaragua to give the country 69 million U.S. dollars in aid. This poses the immediate question of whether or not this aid will be effective in producing its stated goal of decreasing poverty and increasing economic productivity. Should the World Bank continue to give money to the government of Nicaragua, which – especially of late – has been showing a decrease in political stability and democratic processes? History shows that international loans provide little help when countries suffer from decreases in stability and equality within their system.

The World Bank justifies the money that Nicaragua receives: “Nicaragua has achieved a real Gross Domestic Product (GDP) growth of 5 percent in 2012 and 4.6 percent in 2013, returning to pre-crisis growth levels.” GDP, however, does not paint a complete picture of the country’s performance. Most of the wealth within Nicaragua is located among the upper class, making the GDP less accurate for the country as a whole. Gross Domestic Product in purchasing power parity (PPP) in 2012 was estimated at $20.04 billion USD, and GDP per capita in PPP at $3,300 USD, making Nicaragua the second poorest country in the Western Hemisphere.

Blog author: jcarter
Thursday, June 13, 2013

Among the most significant economic challenges in America today is getting Americans to understand what an economy is.

measure-economyWhen the Latin term oeconomia was first used in the 1500s it meant “household management.” A few centuries later, the term political economy was used in reference to the economies of states or polities. It wasn’t until the modern era, though, that “economy” became to refer primarily to the production and distribution of national income and wealth and lost almost all connection to the household.

Because of that shift, we often see a confusion of terms and concepts. Take, for instance, the opening sentence of this recent news report:

The U.S. economy grew at a modest 2.4 percent annual rate from January through March, slightly slower than initially estimated.

The problem with this is that “U.S. economy” is conflated with gross domestic product (GDP) — the market value of all officially recognized final goods and services produced within a country in a given period of time. While GDP can potentially be an important economic indicator, it is not a true measure of the nation’s economy (aka political economy).

Derek Scissors provide a superb explanation for why a better measurement is one that gauges the original economy:

Blog author: jcarter
Thursday, September 6, 2012

Stanford economists Russ Roberts and John Taylor offer a helpful discussion potential GDP, recessions, and recoveries. Their comparison of previous recession/recovery cycles to the most recent one helps to illuminate just how unusual (read: terrible) our current recovery has been.

(Via: Cafe Hayek)