You really cannot see it, can you Ludwig. Every time you tap on your keyboard, you demonstrate a comprehensive misunderstanding of GDP and its role in our economy.

>>Ok, so firstly, regarding “good" and "bad" components to GDP: You have surely got to admit that not all economic growth is equal in terms of contributing to prosperity. And yet it is all treated as equal within GDP<<

GDP is not itself a measure of growth. Only the comparison between one measurement and the next can show growth - or decline. The measurement itself is completely static. It has fixed components that are added together.

There can be no "good" or "bad" components. Only components.

Whether any element of economic activity contributes to prosperity depends entirely on your personal definition of prosperity. GDP only measures the aggregate of economic activity within an economy. It doesn't ask "does Ludwig see this as good activity, or bad activity".

>>You can surely see that economic growth that occurs as a direct result of a flood is simply attempting to get us back on track to the same level that we were at before the flood, and should therefore not be counted as contributing to prosperity.<<

It could indeed "contribute to prosperity", if the flood had washed away an area of derelict and run-down slums, releasing land that is then developed with increased value.

But whatever the case, GDP is not in a position to make value judgments on the impact of the flood rectification. If the rebuilding effort is the same in each case - one where parity is achieved with the prior set-up, one where additional value is created - GDP measures it identically.

>>Disasters shouldn’t increase economic growth.<<

Of themselves, they don't. This is still your greatest blind spot. Until you understand how this cannot be the case, you will never be able to come to grips with the concept of GDP. And only when you understand what Adam Smith was on about, will you be able to grasp its simple logic.

<< Every time you tap on your keyboard, you demonstrate a comprehensive misunderstanding of GDP and its role in our economy. >>

You wish Pericles!

You’ve said this so many times that you have thoroughly convinced yourself that it is true. Either this or you are deliberately making false assertions just for the sake of maintaining disagreement, because you’ve got nowhere else to go with your argument!

Your insistence on disagreeing with me regarding the predictive aspect of GDP, after my repeated explanations that it is of no predictive value except that we can expect a number similar to the last number, plus or minus a bit, depending on the various variables, is very telling.

You have been told repeatedly that I do understand GDP, which you can’t deny, given how simple it is and how much we have discussed it….. and yet you insist that I don’t understand it.

Again this is very telling about the way you think.

I said in my last post:

>> There is a great deal of economic activity which is simply serving the community in a neutral manner, not in a manner that is advancing our quality of life, not improving prosperity and not taking us towards a sustainable society. Surely you agree with this. <<

Do you agree? Do you really think that all economic activity is equal?

continued

What about the value of GDP as a tool of comparison over time and with other countries? How can this be of any use at all when the fundamental contributing factors vary over time and are very different in different countries?

How can the GDP of say Japan, which is very highly technology-based and very minimally primary-resource and population-growth-based be compared in any meaningful way with Australian GDP which is very largely the opposite in its composition?

What sort of an incredibly blunt tool is GDP in that it does not differentiate the types of economic activity that contribute to it, nor the extent to which various economic activities advance prosperity or not?

It is such a blunt tool, or indicator, so as to be nigh on useless. Trouble is of course that it is much worse than useless, as it misleads us terribly.

What an incredibly misleading thing it is regarding high population growth, demand/supply balance, resource base security, quality of life, national prosperity, etc, etc.

I don’t know why you have got hung up on Adam Smith. After reading the introduction to ‘The Wealth of Nations’, I can’t see any great inspiration there at all. The very first sentence was a major turn-off, being fundamentally counterintuitive to the very fabric of economics!!

Ok, I just wrote this post very quickly, out of frustration at your apparent inability to see the most basic principles here.

Now I will have a closer look at your last post and respond directly to it in detail.

<< GDP is not itself a measure of growth >>

What?? Fascinating!

So, do you think that our politicians and economists feel the same way about it? Do you not think that they absolutely see it as a measure of growth?

<< There can be no "good" or "bad" components. Only components. >>

There are no differentiated "good" or "bad" components, or prosperity-generating and prosperity-neutral components, within GDP, which of course is its fundamental flaw.

It is very interesting that imports are the only thing that is excluded from GDP, and yet imports generate a whole lot of economic activity. I wonder how that really works. Obviously lots of businesses sell imported goods. Their profits get counted within GDP, do they not? So, exactly what is it about imports that doesn’t get included in GDP?

<< Whether any element of economic activity contributes to prosperity depends entirely on your personal definition of prosperity. >>

Phoowey! The concept of prosperity is pretty clear. But for the purposes of developing a much better indicator than GDP, which includes only activity that contributes to prosperity, an exact definition would need to be clarified.

continued

<< It could indeed "contribute to prosperity", if the flood had washed away an area of derelict and run-down slums, releasing land that is then developed with increased value. >>

Yes. And we would hope that this would always be the case – that whenever we need to rebuild after a disaster, we will do so to a higher quality than what previously existed. There will be an element of improved prosperity.

So then an assessment would need to be made as to what extent this has occurred after a building effort following a cyclone for example. Perhaps 5 or 10% of all the economic activity generated by Cyclone Yasi three years ago up here in north Queensland could legitimately be included in a realistic version of GDP.

I wrote:

>> Disasters shouldn’t increase economic growth. <<

You replied:

<< Of themselves, they don't. This is still your greatest blind spot… >>

You keep going back to things that we have thoroughly discussed, as though we hadn’t discussed them at all. I have made it patently clear that I agree with you that disasters reduce economic activity overall, via loss of crops, businesses, etc.

We are talking about the economic activity they generate in the rebuilding process. Where’s the logic in your acceptance that disasters reduce economic growth but then contribute to it by way of all the economic activity generated in the recovery process? This is entirely illogical!

I'm not sure we are making much progress on this, Ludwig. You seem unable to place the simplest piece of information in its correct context.

Nor can you accept the tiniest of flaws:

>>...my repeated explanations that it is of no predictive value except...<<

If you had left out the "except" part, we wouldn't be in disagreement. You didn't. So we are.

You insist on introducing red herrings:

>>There is a great deal of economic activity which is simply serving the community in a neutral manner, not in a manner that is advancing our quality of life<<

This has absolutely nothing to do with GDP. Only with your personal concept of components that are variously good, neutral or bad.

>>Do you really think that all economic activity is equal?<<

All economic activity is equally counted as part of GDP.

>>What sort of an incredibly blunt tool is GDP in that it does not differentiate the types of economic activity that contribute to it<<

It is GDP. Nothing more, nothing less.

>>What an incredibly misleading thing it is regarding high population growth, demand/supply balance, resource base security, quality of life, national prosperity, etc, etc.<<

None of these is a component of GDP. Your opinion is therefore aimed at entirely the wrong target.

>>The very first sentence [of Adam Smith] was a major turn-off, being fundamentally counterintuitive to the very fabric of economics!!<<

The fact that you cannot understand it does not diminish its extremely cogent and methodical insights.

>>Do you not think that [politicians] absolutely see it as a measure of growth?<<

Growth - or decline - is the difference between two measurements, not the measurement itself.

>>There are no differentiated "good" or "bad" components, or prosperity-generating and prosperity-neutral components, within GDP, which of course is its fundamental flaw.<<

Once again, you are looking for something that isn't there.

In your terms, it is a "fundamental flaw" that the Harbour Bridge does not connect the Sydney CBD with, say, the Cannon Park racecourse. The fact that it was not designed to do so does not seem to enter into your calculations.