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The Truth About GDP
Submitted by Alasdair Macleod via GoldMoney.com,
"I can prove anything by statistics except the truth" – George Canning
Canning's aphorism is as valid today as when he was Britain's Prime Minister in 1817. Unfortunately, his wisdom is ignored completely by mainstream economists. Nowhere is this error more important than in defining economic activity, where the abuse of statistics is taken to levels that would have even surprised Canning.
Today we describe the economy as being in one of two states, growth or recession. We arrive at a judgment of its condition by taking the sum total of the transactions selected by statisticians and then deflating this total by a rate of inflation devised by them under direct or indirect political direction. Nominal gross domestic product is created and thereby adjusted and termed real GDP.
The errors in the method encourage a bias towards a general increase in the GDP trend by under-recording the rate of price inflation. From here it is a short step to associate rising prices only with an increase in economic activity. It also follows, based on these assumptions, that falling prices are to be avoided at all costs.
Assumptions, assumptions, all are assumptions. They lead to a ridiculous conclusion, that falling prices are evidence of falling demand, recession or even depression. Another of Canning's aphorisms was that there is nothing so sublime as the truth. There's no sublimity here. If there was, the improvement in everyone's standard of living through falling prices for communications, access to data, and the technology in our homes and everyday life could not possibly have happened.
Well, they have happened, and the falling prices of the products of the greatest private sector corporations on earth are proof that they are both popular and good for business. Furthermore, the either/or condition of inflation/deflation firmly believed by macroeconomists would logically rule out the impoverishment of people in hyperinflations. If rising prices are good for the economy, how come everyone was so unhappy in Germany's Weimar Republic in 1923, or in Zimbabwe fifteen years ago? Surely, as inflation accelerates the happiness level should rise...
No sublimity here, either.
Error compounds upon error. So what is economic growth? It is not what the name suggests, it is merely an increase in the total monetary value of statistically eligible transactions. There is no qualitative judgment in this: governments can and usually do goose the GDP number with needless bureaucracy and projects few consumers would be prepared to pay for with their own money. Furthermore, an increase in GDP only occurs if the quantity of money and bank credit has been increased, and then applied to the part of the economy explicitly covered by the statisticians' statistics.
The following is what happens when new money or bank credit enters the economy. The banks create money out of thin air and lend it to a favored customer. The customer spends it before prices adjust, reaping the full benefit of prices that do not take the creation of the new money into account. Only then will the prices of goods bought with this new money reflect the extra demand that has materialized seemingly out of thin air, and this price effect subsequently spreads, always one step behind the new money being spent. The large majority of consumers will find prices have already risen against them, without any compensation in their income, or if they are retired, the value of their pensions and savings. So the end result is wealth has been transferred from the weakest in society up the line incrementally to the first receivers of the new money.
As the new money gradually spreads through a community, prices will tend to rise. If one could record the effect, it would be found that in real terms the extra economic activity from currency debasement is gradually dissipated into higher prices. It is a short-term increase in demand that is then reversed. In a perfect statistical world, real GDP would faithfully track the effect. Unfortunately, we have the vested interests of statisticians and their paymasters to contend with, and also the inappropriateness of the application of statistical method, more suited to measurement in natural sciences such as physics than to an imprecise social science akin to psychology.
Instead of taking into account these temporal effects of monetary inflation on prices, it is just assumed that an increase in the quantity of money and credit leads to straightforward price increases. All else being equal, it eventually does, but all else is never equal. Of far greater importance is the public's relative preference between money and goods. Money retains its role as money only because people accept it as such. Fiat currencies, which have no value for any other purpose, are at continual risk of becoming valueless. The condition required for a fiat currency to retain any value is that demand for it has to be maintained, so that it is always scarce.
Assuming that condition applies, the most important determinant of the level of money's purchasing power is the marginal balance of peoples' preferences for it relative to goods. In practice, and because government ensures a monopoly exists for its fiat currency, this is usually stable, tolerating large changes of the amount of money and credit in circulation without altering radically.
If this marginal preference changes from consumption goods towards money, prices of goods will tend to fall. This was dramatically illustrated during the financial crisis in 2008/09. The opposite is also true, when the marginal preference swings away from money towards goods. It is this condition which leads to hyperinflations, not the rapid expansion of the quantity of money as commonly supposed, though monetary expansion is usually part and parcel of the condition.
It should now be obvious that economic planning through monetary policy can never succeed. Even assuming that the planners are blessed with a prescience they do not have and that no economic model can give them, it appears they are unaware that concepts of growth and recession are not the same as economic progress or the lack of it. For measurement of this thoroughly bad substitute they rely on the one thing, which as Canning wryly observed, can tell them everything but the truth.
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EWE CAN'T HANDLE THE TRUTH.
I watched a couple of Mike Maloney videos this morning and thought that his comparison of various metrics to GDP, Gold, Silver, M2 and M3 etc. gave a stark view of current economic realities.
https://www.youtube.com/watch?v=BOHeCotWh90
DaddyO
Yeah... Whatever.
Now look at Kim's arse on this 101inch flat screen TV I took gunshot wounds for last Friday...
Besides, that guy's name rhymes with 'baloney'... so he must be lying... all the 5 day accounts said so and they MUST be telling the truth... whoever they are.
You're so cheeky Dame Edna...
We should all be so lucky to be able to view Kim's arse, especially before the photoshoppers get through with it. (Yuuck! on either view)
I do hope your gunshot wounds heal up soon, you could have saved yourself a lot of trouble if you had explored the trend towards streaming and the collapse of broadcast and cable/satellite.
DaddyO
Yo DaddyO.
I've not watched TV for decades (no joke).
Poor return on time invested... and the mere hint of it makes me fly into a fit of expletive-riddled rage.
A chess board, a glass of Shiraz, a spliff and a formidable opponent sat besides the fireplace... now you're talking
Y = C + I - G + NX.
fixed it.
If you like your gross domestic product, you can keep your gross domestic product..................... until your " elected representatives " need it, which is long before you get any of it.
By the time the feds and staties finish giving you your taxation enemas, you gonna be cleaner than the Christmas goose before it hits the pan on the way to the oven.
Which is where the feds and the staties want all of us eventually, so's we don't mess up their plans to take everything.
Muppets gonna get hosed, honest law abiding men and women will rebel against taxation without representation.
It happened before, and there is legal precedent for the American people to do it again.
It is called The Constitution of The United States of America.
One more Time..
Say it With Me Bitches:
It's a RECOVERY!!!!!!!
LOLOLOLOLOOL!!!!!
'WE'RE ALL INDIVIDUALS'
I'm not!
Miffed;-)
There's always one.
;)
You noticed that as well!
If I only had a generous research grant to study the phenomenon, gain prestige and wealth, respect from fellow bombastic blowhard colleagues, invited to pretentious soirées where I could feast on tuffet titmouse tongues and 100 year old cognac......*sigh* I lack such ingenuity and ambition so I remain a tax/ wage slave.
Miffed;-)
Ah but a quick wit and nice rack will go a long way to make up for any lack of prestige...
I know you qualify on the quick wit and I can only imagine the other! Ooops, so ungentlemanly of me.
Cheers...
DaddyO
Haha! Commentary usually seen on late night ZH.
I have reined in my topless stiletto cooking with mister. I have found knives and flames should not be in company with D cups. " My eyes are up here" and " be mindful to your cooking dear." have had limited effect as the injuries mounted. I now do the cooking and he watches.
Wow, lots of sexual innuendo there. I should have left the typo " cocking " instead of " cooking" stay. I guess my modesty prevailed.
Miffed;-)
Regardless of what the increase in GDP is (particularly in the USA) we already know that the overwhelmingly largest portion of that increase flows to the top 0.01% - 1%. In fact I would not be surprised if the portionof the increase going to the lowest echelons of society has become negative.
The central planners know the truth. They also know that their job is to transfer wealth upwards into the hands of a select few. A job that they are exceedingly good at.
Torture the numbers till they tell you what you want to hear......
Old Weimer notes (those that were not burned in fireplaces and stoves, or by Allied fire bombing) would fetch a good price on eBay. Their rarity today, in fact, probably means that they have held their value MOAR than the U.S. dollar, which has lost 97% of its value since that time!
Even old FED notes in excellent condition would receive high prices but this is because they are much scarcer now.
"Deficits don't matter" -Sith Lord Cheney (true, as long as the USD is King)
"GDP doesn't matter"** -Kirk
** Why? Because we are seeing a NWO toward Neo-Feudalism. As such, the GDP are just another smoke & mirror distraction, while the Wealth-Transfer continues. As long as the Supply Lines work and the Dollar remains King, almost nothing will truly matter.
We now go back to our regularly scheduled Bread & Circus programs on Global Warming, Terrorism, Black Lives Matter, Assad-must-go, Guns & Background checks, Syrian refugees, Football, Weather, Holiday shopping...
Rising prices are good for the economy! C'mon! How many friends and family have told you they just can't wait for that new car they want to buy to go up in price?
The truth about (nominal) GDP is that it cannot grow faster than (nominal) debt. Neither Bernie Sanders nor Ron Paul can do anything about it, either.
Perpetual growth in the real world is impossible.
Economic growth distills to an increase in debt owed to the issuing power (private banks).
More units of debt-money, the less each unit is going to be worth.
Prices rise because the purchasing power of the debt-money unit is diluted. fractional reserve debt money creation plus interest means that over time overall purchasing power becomes more and more concentrated.
If the system of economic transactions was based on productive labor (somehow) and given technical improvements in efficiency, prices should be seen to fall for many goods and services. Capital would not perpetually steal value from labor.
But in a debt-money, frac reserve system where every unit created also creates additional debt by its own creation, the reduction in purchase power per unit is simply the result of more debt in the system.
Its the biggest fraud on earth outside of dogmatic religion.
and only the priestly class can comprehand what's going on (because it'snot about reality etc) and save us (if we pay/elect them)...
Furthermore, an increase in GDP only occurs if the quantity of money and bank credit has been increased, and then applied to the part of the economy explicitly covered by the statisticians' statistics.
Yep, mcleod is right !
look at the graphs: http://www.tradingeconomics.com/united-states/gdp
and compare this (left under) with united states m2 money supply
zero hedge very sssssssllllllllloooooooooooowwwwwwwwwwww!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Within Eurozone: No devaluation - no inflation in Southern Europe (...without massive life on tick or permanent money printing in favor of the southern countries).
Deficit spending guarantees increased prices the following year: With more spending created by government deficit spending, producers have an opportunity to raise prices, because the demand goes up when a new, single source spender is introduced with known spending targets. Since the “law” says if prices go up, demand will fall, the producers can infer the prices can be raised when they know demand is rising. The marketer says “I know demand is rising, therefore I do not fear prices going down, nor do I fear raising them, so I will raise them.”
http://www.teapartytribune.com/2015/05/18/two-laws-that-guarantee-social...