If I'm a company making $1000 gadgets and then adopt some technology (like robotics) to reduce the cost of my gadget to $500, have I just reduced my country's GDP?
If the country had 100 people making gadgets, and now it only requires 50 to make the same number of gadgets, the country can now double the amount of gadgets it makes, or the 50 people can go make something else.
Therefore, a doubling in productivity will not decrease GDP (total production of an economy), but increase it.
This vicious circle has to stop, or the planet will stop it for us. We should think about how to work less and consume less.
The alternative demand constrained world with excess supply would look very different
Create an economy where the vast majority are unable to consume very much while aggressively expanding productivity and you'll create an economy with a demand shortfall.
Alternatively, imagine that someone makes a universal bot-slave that provides for all of your needs, manufacturing as necessary from raw inputs. It just buys the natural resources for pennies and makes them for you. The only inter-human commerce is for the natural resources (delegated through the bot-slave).
In that case, almost none of the production shows up in GDP accounting (because the bot just makes it and gives it to you), yet people are much better off.
The only way to reduce GDP is by lowering the price of your goods (assuming demand stays constant), or implicitly by letting your excess profits sit as cash instead of consuming or reinvesting (which both create and increase value).
If you are selling in a competitive market, the price for per gadget will drop with the price of production, reducing GDP before considering other effects (while the purchasers will probably spend their additional cash on some other good, there is no guarantee that good will come from your country, so while world product may not decrease, your domestic product may.)
If that's not the case and you have pure monopoly pricing power, then the effect on GDP depends on how you spend the excess profit: if you spend it in ways that have the same velocity in your domestic economy as your old employees would have (and if the maintenance expenditures for the robots likewise are spent in such a way), the effect is neutral -- if the net of these two things is spending that has less domestic velocity, then GDP could still drop as a fairly direct result of the decision to bring in the robots.
However, if people are laid off and they don't get other jobs then yes that will indirectly lower GDP too.
If you have 11 pounds of flour to put in a 10 pound bag, no matter what you do with applying nice looking labels, its not gonna fit.
But even if those don't happen and you have lowered GDP, a lower GDP is not a bad thing; it's perfectly acceptable, and desirable, for people to spend a smaller fraction of their income.
As for your company, if you can reduce costs such that instead of making $50 on each $1000 gadget, you make $100 on each $500 gadget, both you and the consumer of your product win. Arguably, GDP seems broken as a metric for not taking that into account.
Lower real GDP doesn't mean lower individual spending, it means lower domestic production of value relative the cost of living.
Lower nominal GDP also doesn't mean lower individual spending, it means lower domestic production in terms of some particular unit of currency, ignoring cost of living.
Both spending and capital investment within the domestic economy (that is, excluding imports), as well as all exports (whether consumer or capital goods) are included in GDP.
> As for your company, if you can reduce costs such that instead of making $50 on each $1000 gadget, you make $100 on each $500 gadget, both you and the consumer of your product win.
But the suppliers of the inputs to the product lose.
> Arguably, GDP seems broken as a metric for not taking that into account.
GDP does take all of that into account, including the parts you ignore.
The point I was trying to make is that production/GDP alone does not seem like an entirely appropriate metric, if you don't necessarily consider the increased production and consumption (of "gadgets" or otherwise) a universally desirable property. Be careful what you measure and reduce to a numeric metric.
> But the suppliers of the inputs to the product lose.
GDP doesn't include that. GDP includes "final goods and services", not intermediate parts or business-to-business transactions. There are other metrics that include the intermediate steps, if that's desirable.
However, big business are often corrupt so wouldn't surprise me equally if there was some sort of cartel. It's strongly in their collective interests to not drop the prices.
Competition means the price you charge the importer has to drop by "something" otherwise your competitors (assuming you haven't used the .gov to outlaw competition) will undercut you. Unless you use .gov or "something" to prevent competitors from installing the same, or even newer better robots.
Surely as per efficient market hypothesis the employees working there were already at their best possible job over a long term average over a large group of people, like an entire factory. So an external force eliminating those jobs mean in an efficient market they'll by definition be working less well matched to their abilities jobs. This ripples thru the economy see anecdotes about aerospace engineers driving taxi and so on. Whoops taxi driving jobs are going away too. So society as a whole will be less productive, have less revenue, have an inferior match of their abilities to their jobs. This will further depress the GDP.
Traditional income inequality models indicate the marginal use of a dollar / yuan is much lower for small higher income brackets. Not just the wealthy CEO but say, engineers. So the impact on the greater economy of taking away 1000 line jobs is much higher than taking away 1000 line jobs equivalent out of the CEO's bonus. This is not seen as overly controversial, obviously the velocity of any given yuan is much faster for a poor dude than a rich dude.
Finally there's the multiplier effect where productive jobs that generated 1 yuan or whatever also generated as a side effect service transactions of 1.5 or 3 or 10 yuan per productively generated yuan. Obviously the real estate agent won't be selling homes to the now unemployed people which has downstream effects like the commissioned mortgage broker and commissioned bank reps all the way down to title registration won't get those service dollars, er, yuans.
There seems to be no reason to expect the GDP to increase or stay the same. There is a tragedy of the commons aspect where every individual benefits individually, but society suffers. Its much like dumping industrial waste into parks, for example.
If we are comparing economies that are, in a suitable sense, "the same shape" then more GDP is better. But adopting new technologies in the way that your question imagines, changes the shape in a way that breaks the proxy. GDP goes down and that is a good thing. No surprises or paradoxes here; GDP is well known to be a poor proxy for wealth.
http://lesswrong.com/lw/jmm/true_numbers_and_fake_numbers/ai... works through the details, but the other way round - the robot breaks down, prices go up, GDP goes up and that is a bad thing.
But it is possible, and does happen, that technological change messes up GDP measurement. It was definitely a metric formulated without changes in the production process or even consumption process in mind.
Basically, $ used to cost 0.001 gadgets, but now it costs 0.002 gadgets. But your country's Product, measured in gadgets, does not change.