Democratic Domestic Product
ergodicityeconomics.com
ergodicityeconomics.com
To defend conventional GDP calculations for a moment, it’s worth keeping in mind that when GDP measures were first invented the data necessary to compute something like what is proposed in the article wasn’t even a pipe dream. (The original ideas predate the 20th century.)
The data simply did not exist and was not even foreseen in anyone’s wildest imagination. Even computing conventional GDP measures 75 years ago took a lot of work, a lot of it on paper. (In fact one of the earlier innovators in GDP calculations warned about treating it as a welfare measure way back in the 1930’s! The critique here is not new.)
You can sell a measure with a lot of individual heterogeneity like the one proposed in this note to economists. (You don’t need to dress it up in superfluous mathematical machinery like a geometric Brownian motion either.) But this is stuff that has become possible only recently thanks to advances in data availability and computing power. It’s also worth noting that the data itself is only available to a tiny fraction of researchers.
If you are the IRS and have a good picture of everyone’s income at a very precise level, you can compute this measure. (It is not easy once you get into the details!) If you are the Bureau of Economic Analysis, which computes GDP, you probably need permission from Congress to access that data for that purpose.
If someone set you a task with a million unborn babies, and magic money to redistribute, it's fairly obvious what you'd do with it to maximise happiness, utility, and even GDP to the degree it measures something useful. If an algorithm randomly allocated the magic money to some of the hypothetical babies before you got a chance to make the decision, it doesn't change that answer economically, just politically as the hypothetical baby parents might use the money to harm your political career if you make the wrong decision.
It's more simple than that.
The unspoken assumption is: "There's a fixed amount of money".
Once you realise there is no more a fixed amount of money as there are a fixed amount of awardable points in basketball, then how many points "the rich" happen to have becomes an irrelevant concern.
Then you can get onto the real issue - what are the power dynamics and are real resources being used effectively or hoarded.
Ordinality is inherently zero-sum.
That is, any "game" metric in which the quantity aquired by an individual, without concern for what others have is the basis for evaluation, so long as one person has a sufficient quantity, what any other party has doesn't matter.
But in a game in which each contestant is ranked against others, then no matter how many participants there are, there is only one first place. And in fact the more participants are, the harsher the competition for that place.
Economics claims that competition is based on profit, utility, and wealth, which are cardinalities. Evidence suggests, and Adam Smith notes, that it is instead based on power, an ordinality, and a zero-sum game.
Also, I am pretty sure it'd be a challenge to find a single economist who claimed the amount of money was fixed. What they do think (many of them, and probably somewhat reasonably, anyway) is that you can't create infinite amounts of it without things going awry — see above.
Money is exchanged and retained in its own right. There isn't a one-to-one relationship between money and stuff. It's more of an inductive relationship.
Something power engineers understand of course. They have to generate and deal with reactive power every day, and ensure there is sufficient generated so that electrical items can operate at full output.
Too many economists believe the apparent power of the economy and the real power of the economy must be the same.
The relationship between dollars and things depends on how many dollars and how many things are produced. Doubling the money supply while keeping the productive output of an economy the same will only half the value of dollars. You can increase the nominal dollars infinitely, but that doesn't change the productive capabilities of an economy.
Only spent dollars cause price changes, and then only if the capacity to expand is exhausted.
If I have a billion dollars in a cupboard prices won't change at all. More importantly if I have a billion dollars in a bank account prices won't change at all, because money in a bank account isn't available for anybody else to use.
Economists struggle with the difference between a stock and a flow, which is why their accounting is terrible. Particularly their bank accounting.
So having a lot of money in absolute terms is supported by being rich in relative terms.
“Basketball points are an irrelevant concern… now let’s move on to the real topic at hand: what basketball teams are the best?”
With regard to economics how much the rich have in relation to everyone else becomes a concern due to the nature of human psychology and social dynamics with regard to greed, jealousy, sense of fairness, etc. The social dynamics indicate that too much imbalance in wealth leads to societal instability. In the realm of economic theory it might not matter that there is great inequality but in the realm of politics and societal mechanics it is definitely something to pay attention to.
You seem to have missed that what ties your first and second sentences together is that, above a certain level, wealth, by itself, brings political power. So, effectively, we end up with a system that's closer to $1 = 1 vote rather than 1 human = 1 vote. Understandably, the humans who only get 1 vote, while others get 1 billion votes, tend to get upset about this.
So long as there's an ability to make an additional score, there is no limit to the capacity to award points. No valid score will lack a point award for lack of points.
The same capacity exists in an economy with a fiat currency or infinitely extensible government credit (equivalent statements FWIW). There is no limit on the government being able to award additional monetary units (points). What's upwardly bounded is the ability to produce real wealth in any given period.
The analogy breaks down in the sense that points aren't transactable; there is no basketball economy in which teams exchange points for economic goods and services and engage in entrepreneurial activities to develop new point-scoring abilities within a game. And in basketball, if a score is made, the point is awarded automatically, rather than being exchanged in a market.
But so far as the concept of points and monetary units not being constrained by any physical quantity, the similarity holds.
I agree largely with your second paragraph, and add to that:
"Wealth, as Mr Hobbes says, is power."
-- Adam Smith, Wealth of Nations
In a similar way the amount of money that can be created in the next X years without completely devaluing the currency is finite. Once people lose all trust in the currency it is meaningless how much one has. Therefore the amount of money (buying power) one can have is limited.
Although there is an infinite amount of basketball points available, you can only award them when games are played. And then only at a value that people have agreed is reasonable according to the agreed rules of the games decided by the game's authorities.
In monetary terms, the spending stops automatically when there is no longer anything to buy at a price worth paying.
The argument is never "we can't afford it", the argument is always "it's too expensive".
There is no bound on points.
The potential awardable events --- baskets sunk in a game, multiplied by their value (1, 2, or 3 points per basket) --- is finite and bounded. But should there ever be a means to score more baskets, the points will be there.
You seem to be confusing awardable events (baskets) with points (numbers from the set of all positive integers). It's the latter which are infinite.
Put another way, even if the total number of baskets scored in all games for all time has some finite maximum, by changing the awarded points per basket the total points in a game could increase.
Rather than 1, 2, and 3 points we might award 2, 4, and 6.
Or 10, 20, and 30.
Or 1*10^100, 2*10^100, and 3*10^100.
There are always more points available to match to baskets and their value. There is no "point store" that can be depleted.
(I'm not arguing that awarding a googol points per free-throw is desirable or would improve the game. I'm saying it's possible to set the scoring to do this. Pinball games seem to follow a similar scoring logic, for comparison.)
10^100 would be a number greater than either of these values. That's the named large number googol.
A googolplex is 10^10^100 ... that is, ten raised to the power of ten raised to the power of a googol.
There are notations for describing yet larger numbers.
One of these is Knuth's up-arrow notation, in which an upward-pointing arrow (↑) indicates iterated exponentiation.[1]
2↑4 = 2 * (2 * (2 * 2)) = 2^4 = 2^16
2↑↑4 = 2↑(2↑(2↑2) = 2^16 = 65,536
It is 2↑↑(2↑↑(2↑↑2)), which is 2^2, itself raised to the power of 2, and so forth, 2^65,536 times. (The Wikipedia article represents this more clearly, though omitting ... some detail...)
The number is immensely large. It is immensely larger than the number of atoms, or subatomic particles (roughly 1 electron and 3 quarks per atom), or Planck lengths (~10^53), or Planck volumes (~10^53^3), in the observable universe. And yet it can be represented.
And it's hardly the largest representable number.[2]
The up-arrow notation itself can be more concisely represented as ↑^n, where n is the number of arrows: ↑^2 = ↑↑, ↑^3 = ↑↑↑, etc.
And all of these are simply representations of integer numbers. There are infinitely many integers, and given a need, a sufficiently concise set of expressions can be constructed to describe these.
Infinity is like, really big, man.[3]
There is no bound on points. There is no bound on monetary units which can be created. There is a bound on what those can represent, but that is a separate argument. Money != value. Money is a unit of measurement of value.
________________________________
Notes:
1. See generally: https://en.wikipedia.org/wiki/Knuth%27s_up-arrow_notation
2. See generally: https://en.wikipedia.org/wiki/Large_numbers
3. I won't even get to different sizes of infinities, though that's a fun exercise. See for example Cantor's Diagonal Argument: https://en.wikipedia.org/wiki/Cantor%27s_diagonal_argument
In practical terms if too much money is printed then the currency quickly loses value. We can’t just print any number of dollars. At a given time there is a number beyond which the currency has no meaning, Your initial assumption about the economy is just plain wrong.
There might be a physical constraint to the current ruleset. When that becomes a problem, someone(s) will just update the rules.
“If you would allow me to continue..."
Ford nodded dejectedly.
“Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich.”
-Douglas Adams, The Restaurant at the End of the Universe
https://www.goodreads.com/quotes/685739-if-the-management-co...
If you get into the real issue of power dynamics, then you realize that resources are not what is important. What is important is the social relationship between two classes - the class of heirs who expropriate surplus labor time from the class of workers who create all wealth.
The very deep but unspoken assumption in the hegemony spread by the heirs is this revolves around resources. From the perspective of the worker who may not even contemplate it, is that this revolves around relationships.
Even the name of the study shows this. Originally, people studied political economy. As the study itself became political on the side of the current ruling class, the word political was dropped, and the scientific sounding -ics suffix was attached - economics.
Likewise “heirs” is a misnomer. Most millionaires in the US did not inherit their wealth, they accumulated it.
Marxism is religious bunk.
Marxism happens to be correct as a science, even if its conclusions are against your own class interests. Possibly the most obvious example is the tendency of the rate of profit to fall.
> Possibly the most obvious example is the tendency of the rate of profit to fall.
So your evidence of the validity of Marxism is... a 50-50 shot? Even in the replication crisis, science at least demands no more than 5% chance for hypotheses to come true by random luck.
The rate of profit has a historical tendency to fall, as companies are incentivised to produce cheaper by automating. This reduces the proportion of costs attributed to labour, which means either reducing wages or reducing profits. Since workers will resist being paid less than they can survive on, profits end up falling over time.
The rate of profit does get reset by destruction of capital (like wars), just like the labour theory of value suggests. This can be seen historically, using data collected by mainstream economists. You can find such graphs in most economics textbooks. Here's some more on the topic https://thenextrecession.wordpress.com/2020/07/25/a-world-ra...
Yes, of course in the course of competition, in mature industries profit will reduce to the cost of capital; although automation (as a productivity improvement) will delay this process, not accelerate it. But as industries mature, others arise through innovation.
Simply drawing a trend line on a graph (and it's not clear what the graph is displaying) and exclaiming that it fits theory is nowhere near enough to evidence a hypothesis, especially when the counter-trends are contrary to theory. What destruction of capital occurred in the early '80s?
The overall global rate of profit has been steadily falling since the beginning of capitalism; this is not disputed by bourgeois economists. Destroying capital is one way to reset it, which did happen in the 80s as well through war and closing of “old” industries. Along with forced privatisations, which opened up more of the economy to commodity production for profit. And along with deregulation and violent suppression of labour movements, to reduce the price of labour. Neoliberalism is what temporarily raised the rate of profit in the 80s.
There is certainly no consensus that the global rate of return is in long-term decline, and much evidence to the contrary, particularly over the recent decades when econometric data has become sufficient to measure it. And anyway, even if there were a secular trend, Marxian economics could not explain it because that theory is dependent on Marx's law of value, which is entirely contradicted by evidence.
TIL only capitalists can invent products.
FWIW, I'm currently reading The Dawn of Everything (Graeber, Wengrow). Here's a characteristic pullout, from Ch 10 "Why the State has no Origin: The Humble beginnings of sovereignty, bureaucracy, and politics":
"Just as access to violence, information and charisma defines the very possibilities of social domination, so the modern state is defined as a combination of sovereignty, bureaucracy and a competitive political field."
As with Graeber's prior efforts, I feel like he's rewiring my brain, by exposing all these assumptions and presumptions I never knew I had. (a la Does a fish know about water?)
Keeping in this theme, my next book is Mine: How the Hidden Rules of Ownership Control Our Lives (Heller, Salzman).
Marx's Capital discusses relations of production, surplus labor time etc. as well, but is famously not an easy read (certain chapters any how, including the first one).
https://www.epi.org/publication/secular-stagnation/
Inequality stifles GDP growth.
Like this line from the article:
> > One key conflict in economic affairs is that between the individual and the collective
Specifically the rich individual versus the collective, since the individual in liberal economics is modeled on propertarian individualism. “The pursuit of property”
It's not particularly well-hidden..
Rather than openly say, "this is the best solution possible, as long as we don't take the rich people's money and redistribute it, which would definately be better" they talk about how something is "Pareto efficient or optimal".
Imagine you were stuck on a deserted island and one guy had hoarded all the coconuts. If someone started talking about what the Pareto optimal solution is, or how we could theoretically get there by creating a free market for coconuts then it would clearly be a smokescreen for saying "you are all going to starve to death because I have claimed the coconuts and will physically attack you if you try to take them from me"
Would it, though? It’s not like this hasn’t been done repeatedly throughout history. Go read up on the campaign against the Russian kulak class for a particularly bloody example. Mao’s Cultural Revolution was in a similar vein, and that didn’t exactly go swimmingly.
Historically though, offer them that option and they'll prefer using their wealth to start a war.
Examples:
Free the slaves -> no -> civil War, slave rebellions.
Let me vote -> no -> civil, revolutionary and independence wars.
I might do the same for China, but heres the intro paragraph from Wikipedia:
> Historians in mainland China trace the origins of the 1949 Revolution to sharp inequalities in society and imperialist aggression. They charge that high rates of rent, usury and taxes concentrated wealth into the hands of a minority of village chiefs and landlords. One Western historian quotes the statistic that "Ten percent of the agricultural population of China possessed as much as two-thirds of the land".[5] These historians also argue that imperialist pressure by the Western powers and the Japanese and "Century of Humiliation" starting with the Opium Wars and including unequal treaties and the Boxer Rebellion led to a rise in nationalism, class consciousness and leftism.[citation needed]
Is there any country yet that doesn't just use GDP as their main measuring stick? I just skimmed through a proposal from the UK government about their plans to complement GDP with a suite of measure which take into account climate change and other trendy stuff but still manage to avoid any discussion about how raising incomes for the poor by X is better than raising incomes for the rich by X is something that should be a popular policy goal in a democratic country.
Topically, the poorest quintile were the hardest hit financially from covid, but that won't show up in the stats that everyone uses to measure their performance, and any action that actually attempted to fix the real problem would look bad in the current stats.
I have a feeling that if GDP really badly reflected the interests of the rich and powerful instead, we'd not have put up with it for so long.
Bhutan uses "Gross National Happiness" as their metric. If you ask me, they've got the right idea. I don't give a damn about numbers at the bottom of some calculation. I care whether peoples' lives have gotten better.
See https://sustainabledevelopment.un.org/index.php?page=view&ty...
Actually you're not allowed to take anybody's money, and that's not economics, that's law as practiced since the dawn of civilization.
Slavery, for example, has been legal in various forms.
You may quibble that we're not taking their money, just chaining them up and lashing them with whips to force them to earn money that we keep without them ever seeing it, and occasionally selling their children to other slavers for more money, but I feel even expressing that quibble is an important indicator.
Somehow "you can't take peoples money" got enshrined in law more concretely than "you can't own slaves/serfs/peasants". It's almost like it was the people with money, and not the slaves/peasants/serfs that were writing the laws.
It very much is. David Card, who won the Nobel Prize in Economics this year for his work in the 90s that showed modest increases in the minimum wage do not cause layoffs, talked about this attitude in the field.
https://www.minneapolisfed.org/article/2006/interview-with-d...
"I've subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole."
This "cause of economics" is making rich people richer at the expense of everyone else.
It leads to absurd situations, where person has actual negative income (has to borrow money to get by), but on paper is "very rich". But millionaire with couple of properties can claim hardship and ask for social welfare.
a health insurance deduction would likely be regressive anyway. the primary beneficiaries would be the same (upper) middle class people that max out their 401k every year.
imo we should get rid of pretty much every deduction (except maybe for dependants) and slightly raise all the brackets.
A person's net worth is simply defined as assets minus liabilities. Income isn't part of the equation, but having a higher income can sometimes allow you to increase your assets over time.
What sort of social welfare are you referring to? Most welfare programs have cut offs based on income and assets.