Monday, January 14, 2013

Humor: the fallacy of GDP (and Economics in general)

From Saturday Morning Breakfast Cereal daily cartoon, very inspired as of late, which allows reposting:

Technically accurate is the phrase, indeed.

Useless is the word.

But hold, wonder and despair... it actually applies to the most important macroeconomic figure as described above: if a doll is made in China at the cost of $3, including export costs, and then sold in California at $10, guess how the resulting GDP input is divided... Indeed, $3 are added to Chinese GDP and $7 to US GDP. Yet the USA generated absolutely no real wealth in this transaction other than the act of selling (which has a much lower actual cost, say $1 or $2). 

So actually this useless but very real GDP is being created out of debt or printing money, what is about the same. Normally this would cause inflation and restore the balance somehow (at least that's the theory), however because of the privileged central position of the dollar in the World monetary markets the USA can export much of that inflation to wherever they use dollars. 

They are threading thin because you can only grow an ever increasing debt so much, tell Philip II of Spain, but they are threading nonetheless.


  1. Your example of the doll is a good one. Correct me if I am wrong - won't the US have to pay China $ 3 in this case. If that happens - the amount added to the US GDP should be $ 7 - $ 3 = $ 4.

    Anyways this is just an exercise in Arithmetic. As you told me many years back - Marx understood Economics, others are just Accountants. While I haven't read Marx and am not a Communist, there is no doubt that the present system is collapsing.

    The Take Home from the Fiscal Crisis of the various govts. around the World, for me, is that they have become too big and inefficient. What do you think future will bring? Smaller States? But they will be vulnerable to the bigger ones, as has been the case throughout History.

    What actually matters is the situation on ground and not the figures in the book. No use chasing the mirage of a high GDP.

    The US $ continues to rule bcoz of the US' Political, Military, and Cultural clout. What is the way out? Currency Swaps? I have no idea how they work, but there have been some recent instances.

    1. The doll is paid $10 at the shop. I borrowed the example from someone else (can't recall who).

      "Marx understood Economics, others are just Accountants".

      I said that? I probably did. I was wrong: Marx was also an accountant because even if he understood well the difference between use-value and exchange-value, he built all his theory on the latter on the grounds that everything else was not accountable. I have gone through several lengthy discussions with theoretical Marxists recently (see my dedicated page and comments for example) and realized that I was in a rough misunderstanding.

      But obviously if you ignore use-value (approximated by bourgeois economists as "demand") and you also ignore all the wealth generated by Nature (estimated to be much more than all we can "produce"), then your foundations are wrong and you cannot build a comprehensive economic theory, just a particularist one for the Capitalist system for as long as it can continue predating on Nature, etc.

      Marxism is still very good analysis in other aspects or even to understand the nature of exploitation within humanist (and excessively anthropocentric) parameters but not what I thought, misunderstood.

      "What do you think future will bring? Smaller States?"

      Honestly I do not know. I do not think that the tendency towards globalization is reversible but on the other hand decentralization is needed for democracy and for sustainability, so it should be both: global networks of coordination based on local democracies (including democracy over the economy, i.e. communism). We now have weak global networks of power based on local tyrannies, be them political (classical tyrannies) or economical (capitalist appropriation in few hands of land and all kind of resources, including our own creations: buildings, machines, media...)

      "What actually matters is the situation on ground and not the figures in the book".

      We need "books" (an economic theory and praxis) that reflect the situation on ground, sea and air.

      Can't say much more right now.

    2. Smart individual I'd say - US employee 'outsourced job to China'

      The software developer, in his 40s, is thought to have spent his workdays surfing the web, watching cat videos on YouTube and browsing Reddit and eBay.

      He reportedly paid just a fifth of his six-figure salary to a company based in Shenyang to do his job.

      How does the outsourcing of jobs/work in the services sector work out? I spent a couple of years working the call centers in India and wasn't impressed - coz I just saw young people burning out and knew that this work can be shifted any day to another city/country.

    3. I don't understand the question, sorry. Call centers are junk in any case but apparently this guy was outsourcing a more qualified job instead.

    4. The Doll example you gave is about a Physical Product. I was seeking a clarification about services being outsourced.

      It is pretty clear that they are being outsourced because of the cost advantage. However, they would also lead to jobs being lost in the better performing economies.

      How would things work out in a theoretically equal world - no services being outsourced for cost advantages I guess.

    5. Well, it's clear that there is a gain for the capitalists with all kind of outsourcing. This is not totally a new phenomenon but globalization allows for a much greater scope of the possibilities of outsourcing and relocation in general to wherever the costs are smaller while providing roughly equivalent quality of service or production. Naturally the cheaper salaries, once corrected for differences in the local cost of life (PPP) impact negatively in the outsourcing country's working class and have an ambivalent effect in the destination of the outsourcing: on one side providing jobs and salaries but on the other not really providing but a fraction of what those jobs provide in the developed world - i.e. pollution, environmental destruction, lack of labor rights, bad social security, healthcare, housing, etc. are what allow that cost to be so low as to become interesting for the outsourcing capitalists. The benefit for the developing countries is relative at best and, as you say, unstable because it's mostly the jobs with low qualification which are outsourced, now maybe to India but maybe tomorrow to an even cheaper country, say Malawi.

      The other side of outsourcing is immigration to developed countries, with immigrants, often illegal being exploited in low salary and often black market jobs such as temporal workers in agriculture or domestic servants without a contract or construction peons with extremely poor conditions.

      In any case all that produces, with all the mentioned contradictions, is some redistribution of wealth (Capitalism is more or less internationalist, especially in the long run) but it seems to me that only countries with at least some long-term planning of the economy and good educative systems, for example China, can make the best of this distributive trend of globalization. And even then there are heavy hidden costs to pay like the ongoing extreme pollution of Beijing and other Chinese cities.

      "How would things work out in a theoretically equal world - no services being outsourced for cost advantages I guess".

      There must be decentralization in the economy: it is objectively costly (if not in money in terms of raw energy and environmental costs) to, say, import oranges from Chile in winter (instead of simply not eating them, as we used to do with no further ado). Of course this should affect the most the basic productive economy and the less the, let's call it, "intellectual" economy, i.e. research and knowledge sharing. We should end up traveling a bit less, moving goods a lot less around the world but retaining and even expanding the exchange of knowledge and experiences, what nowadays can be done at very low cost, also of the energetic/environmental type.

      Less airplanes and cargo ships and more Internet, so to say. But it's difficult to imagine all the specific solutions that should be implemented in each particular case.


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