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Comment by toufique | Hacker News Reader

Possibly because it's a lot easier today to generate income without "producing" or creating new value.

"Sayer argues that the past four decades have been characterised by a transfer of wealth not only from the poor to the rich, but within the ranks of the wealthy: from those who make their money by producing new goods or services to those who make their money by controlling existing assets and harvesting rent, interest or capital gains. Earned income has been supplanted by unearned income."

Source: http://www.theguardian.com/books/2016/apr/15/neoliberalism-i...

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That true, but it also has to do with the way productivity is calculated. If Joe borrows $10,000 from John, and loans $10,000 to Jill, and Jill uses that $10,000 to pay back the money she owes John, that counted as $30,000 worth of productivity as far as GDP is concerned. "Economic activity" does not equal productivity. If the government hires one person to dig a hole, and another person to fill it in, that's "economic activity" but it sure as hell isn't the productivity that GDP says it is.

No, borrowing and repayment are not included in GDP.

But there are some almost similarly absurd situations. If you paint your garden fence and your neighbor plants some potatoes, that doesn't count into GDP. However, if you buy your neighbors potatoes, and she pays you to paint her fence, those exchanges become relevant (ignoring the fact that small stuff like this is hard to measure).

This is more relevant than one might think. Considering one of the largest economic developments in the last half century was the integration of women into the labour force, growth statistics would look quite different if were to assign a fair value to unpaid housework they used to do.

Yeah, there's a lot of problems with measuring economic productivity. Almost to the point where I wonder if it's informative at all. In Australia, we've had a 10 year slump in measured productivity (MFP). During the same period, commodity prices were at all-time historical highs and we were raking in a tonne of national income (as our exports are heavily weighted towards commodities).

Guess which sector has been the biggest drag on MFP? Yep. Commodities. Because market prices were so high, it was profitable to throw a crap-load of inputs to extract fairly marginal outputs. Hence the drag on MFP. Now that the 'mining boom' is over, our national productivity will probably rise while our living standards fall due to the sharp reduction in national net income.

Productivity should not be seen as an end in itself, although it seems to dominate political discourse on the economy. I wonder if there are more sensible (and calculable) metrics that we could use...

If you need potatoes but don't feel like growing them yourself, and you like (and/or are better at) painting fences, then exchanging favors (whether or not involving currency) creates value - it's a positive-sum game.

Yes, absolutely! It's the tenet No 1 of a market – when people freely exchange something, both are better off. (No 2: there's some stuff that you can't do without cooperation).

But in the potato-case, all the potato-value and great-fence-you-have-there-value gets added to GDP, where realistically, output only grew by whatever the increase of efficiency was.

Yes, but apart from the women's integration into the workforce scenario, how relevant is this? It doesn't feel like that huge trades happen with "transaction of favor", instead all probably use money.

Big examples:

Grandparent childcare.

Eldercare.

wikipedia

volunteer activity

open source software

Not just the housework, consider the child care - you now have women who gets paid money for taking care of other peoples children.

> that's "economic activity"

True

> but it sure as hell isn't the productivity that GDP says it is

No, because GDP is just a measure of economic activity, not useful economic activity.

>GDP attempts to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (earnings) of an accounting statement, which determined the “value added” or the value of final use.

https://en.wikipedia.org/wiki/Gross_domestic_product

I would agree that GDP is not really a measure of useful economic activity. But if that is so, the question begs, what practical use is the metric of GDP in the first place?

Having the Fed use QE to buy mortgage-backed securities aggregating $500,000 loans for $200,000 houses made to people making $20,000/year is the financial equivalent of paying someone to dig a hole and paying someone else to fill it in.

No.

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