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Comment by jstx1 | Hacker News Reader

It's hard to take this seriously when the author mixes up the basic meaning of GDP.

> For example, when economists think about how “the economy” is doing, they have traditionally focused on total income (GDP) or per-capita income (mean GDP) as the most important measure.

No, they don't. GDP isn't income at all, they're completely different metrics.

And in fact the article never mentions "median GDP" like the posted title suggests, it switches to "median income" because median GDP isn't even a thing that you can calculate since it's not a metric that exists for each individual person (therefore no median).

How did this get to the front page?

View on HN

GDP has something to do with income, certainly.

But I think that the article's author suffers a fundamental failing of understanding of why people look at GDP per capita. It's not because they're trying to understand the experience of individuals within the country at all -- it's because they're trying to understand how rich the country is, normalized to its size.

True as far as it goes, but the fair response to this is: who really cares how rich a country is, normalized to its size? In the

If you care about the country as people, then median is better as you point out. But if you care about the country as country, then total is generally more interesting (to understand, say, military power).

China's a big deal despite not being particularly rich per capita. On the other hand, the leaders in per capita GDP, outliers like Macau and Luxembourg, are not usually countries people are interested in.

A per capita metric might have a lot more influence on where someone chooses to live, at least for those privileged enough to have a choice.

For example, you are trying to figure out which country has a good pro-growth policy regime. You don't want to imagine that India, let's say, has done better at economic development than South Korea, despite India's higher GDP.

As one of many examples.

GDP per capita is a yardstick for labor productivity. I’m generally interested in the cost of doing business in various places. GDP per capita is a good metric.

> GDP per capita is a yardstick for labor productivity.

Or how much oil will gush out of the ground if you drill a hole in the right place.

>drill a hole

>labor

I believe you are saying the same thing

Only if the value of a hole of equivalent dimensions is constant and independent of location.

There's a whole Disney movie that demonstrates not all holes are created equal.

Well no, the whole point of measuring country differences in labor productivity is that in some countries spending x hours to drill a hole in the ground is vastly more productive than in others.

The point here is that, if we want to use GDP as a proxy for labor productivity, then including wealth from extractive industries isn’t that useful because it tells us much more about the geology of the country then about the labor force.

It's a yardstick for productivity per capita, from both labor and capital. I mean, I guess that's just saying "gross domestic product per capita" in different words.

> median is better as you point out

As the grandparent post correctly stated, median GDP cannot be computed. In cannot even be defined!

It assumes a normal-ish distribution. Mode would be a better single-number measure, but it’s the income x number of people curve that carries the important message.

You didn't read the opening comment from jstx1, did you?

GDP is not income.

Personal GDP is not defined.

I'm sorry I didn't make myself clearer. I'm not talking about GDP, but income (which has a distribution curve).

OTOH, we can see that curve in a global context, of GDP per capita across countries. It's a boring curve, very power-law ish with slightly odd peak in the 30K-40K region.

https://imgur.com/a/BqsQDT9

> But if you care about the country as country,

A useful measure would be GPD per billionaire. Since they amass political power alongside the economic one, they are de facto political leaders.

> GDP has something to do with income, certainly.

So do a million other measurements. I'm pretty certain you could find some level of correlation with virtually any measurement and income levels. Thus, this is an irrelevant statement.

> GDP has something to do with income, certainly.

Well I'd say that GDP is much more like revenue than income. You're certainly correct that they are related, as income is typically some percentage of revenue (even negative) however the actual percentage is different for every entity, so it somewhat meaningless.

> But I think that the article's author suffers a fundamental failing of understanding of why people look at GDP per capita. It's not because they're trying to understand the experience of individuals within the country at all -- it's because they're trying to understand how rich the country is, normalized to its size.

Completely agree. Generally there are better metrics if you want to look at the income distribution for a country, e.g. the Gini index.

> GDP is much more like revenue than income

There isn't a great analogy for it on the individual or corporate level. GDP is a measure on transactions within a system. A person can't meaningfully transact within themselves.

And, let's not forget, "how rich the country is", should be in astericks. It's not adjusted for PPP and therefore it's more a measure of how strong the country's currency is. A country with GDP per capita of x10 times higher than another's doesn't mean, the average person is x10 times richer or even x1 as rich as the other country. And, even when it is adjusted for PPP, the basket of goods tends to be skewed towards less relevant purchases, rather than the essentials of life, thus making it somewhat innacurate.

I've closely compared my own standard of living with someone else in a developing country. And, my country's GDP per capita was over x20 her country's. And, I was surprised to find how closely our material standard of living was: it was pretty much even: (taking into account, number and type of appliances, living space, eating out frequency, quality of food, access to education, water and electricity).

> GDP isn't income at all, they're completely different metrics.

Not exactly, according to the OECD.

https://stats.oecd.org/glossary/detail.asp?ID=1163

> Gross domestic product is an aggregate measure of production equal to the sum of the gross values ... or the sum of primary incomes distributed by resident producer units.

I guess it's more nuanced, but I don't have a PhD in economics like the author.

> I guess it's more nuanced, but I don't have a PhD in economics like the author.

English is funny. I knew exactly what you meant and I'm not saying it's wrong, but it would be read completely the opposite if you had said:

I guess it's more nuanced but, like the author, I don't have an PhD in economics.

Per the 'about' page, the author of the blog post does in fact have a PhD in economics.

Yes, that's why I said "I knew exactly what you meant and I'm not saying it's wrong"

> like the author, I don't have an PhD in economics.

Then you would say “unlike the author” - that’s what is confusing people.

Yes, that was my entire point.

I think shric was just remarking that English is funny because you can take the exact same words of a sentence and rearrange them a bit so it means the opposite.

Most sentences can be rearranged to mean the converse. This is cross-linguistically pretty common, depending on which atoms you choose to rearrange. Most sentences can be negated with at most a couple of word changes. This is cross-linguistically about as universal and anything in linguistics is, again depending on which atoms you choose as "words".

English isn't funny, humans are funny, building all sorts of redundancy into their languages, but then reversing polarity on a dime.

Not sure how you'd rearrange the same sentence in German to reach the negation without having to change cases and grammatical roles.

Komm, wir essen, Opa.

Komm, wir essen Opa.

Sounds like a characteristic of nearly any language with positional negation.

P => !Q

Can be rearranged to mean so many weird things.

GDP is a measure of all exchanged values.

Income is a measure of retained value after all exchanges have had place.

If I buy a truckload of ice cream for $1000, sell it for $2000, and pay the trucker $200, the GDP is increased by $1000 + $2000 + $200 = $3200, while my income is merely $1000, and the trucker's, $200. Our profits are even lower; mine is $800, and the trucker's is $200 minus fuel costs and road tolls.

Gdp in your case is $2000, and so is aggregate net income if you account for the person who put the ice-cream in the truck.

One of the methods of computing GDP is total income. So I would hardly say they are unrelated.

Yes, gross domestic income and gross domestic product _should_ be exactly the same, if accounting was 100% accurate.

That they are different in practice is sort-of a measurement error.

Wouldn't there be a difference in cases where due to foreign ownership and capital extraction some money would get counted as GDP in one country but GDI in another?

That's not really a problem as far as I can tell. The standard definitions take care of this.

Maybe you are confused about gross domestic product vs gross national product?

There is an accounting identity linking income and GDP

http://www.library.snls.org.sz/boundless/boundless/economics...

GDP in itself is a faulty measure. One easy way to increase it to ask everyone to throw a brick through their neighbours window. The spend on window repair will increase the GDP, although there is no value add to the economy, other than the glass fitters of course.

It would show that there are enough resources to fix the windows.

Yes, and that's likeky to have an impact on later GDP values, as all that has not been spent on better investments than repairing windows.

Except for the UK that has terrible windows and a proper upgrade would lead to serious reductions of gaz imports, that are likely to sting this winter.

Only if you assume everyone is sitting around doing nothing waiting for window repair work to arrive. More likely is that the effort and resources required to fix the windows will displace other economic activity which would have contributed positively to GDP numbers.

GDP is a flow measure. If you drain a dam the flow will increase for a while before you deplete your stock. There are stock measures of the economy, though they're difficult to estimate because an asset's value is only truly known when it is transacted. (And even then in a highly particular way.) One way to think about our capital markets is as an ongoing value-of-the-economy machine (or at least a subset thereof).

Wikipedia link if anyone wants to read more on broken window economics.

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

GDP is atrocious, "velocity of money" is worse, but really any attempt to measure "economic well being of most people" (direct quote from OP) based on dollars moving through the financial system is problematic. Finance-industry circle jerks? Counted - often over and over again. Domestic labor (especially child care) by a stay-at-home spouse? Not counted. Made-up increases in asset value? Counted. Barter or charity? Not counted. When GDP is the basis, mean vs. median hardly even makes a difference. Many countries have worked toward better measures of human prosperity, but again the US is falling behind.

https://www.scientificamerican.com/article/gdp-is-the-wrong-...

GDP is a blunt force measurement. A country with a high GDP per capita USUALLY (not always) has a higher standard of living that one with a low GDP per capita.

Taxation figures heavily into GDP - most taxes end up being measured as a share GDP (and why "financial circle jerks" and "made up increases in asset value" are counted as they eventually... but not always... end up being taxed). That is why "economic growth" is so good for the public sector. More GDP generally means more money to work with. Output that is out of reach of taxation (i.e. domestic labor, barters, charity) is also USUALLY not counted in GDP.

Finally, the Scientific American article is a really good read. GDP is not a measure of quality of life, and really never has been. It's just a measure of economic output.

From the title, I thought it was going to be a ranking of countries GDP per capita. Never mind :)

Since I implemented a median estimate while at Packeteer, I'm always amused by how many "educated" people don't even know the difference between mean and median.

Anyhow, "median income" and "median net worth" figures are quoted in the press all the time. There is not some conspiracy to suppress the median.

Agreed.

Usually the issue is collecting accurate income data. There are plenty of places where people do not necessarily report accurate pictures of their income, and so comparison is generally harder.

To elaborate further, nominal GDP is the number of dollars spent in the economy. Nothing to do with income

Doesn't income equal expenditure? They are one and the same.

They're not the same.

Velocity of money affects GDP. e.g. you spend a dollar, how quickly does that other person spend that same dollar.

Business to business spending is in GDP. Leveraged buying such as real estate is in GDP. Government spending is in GDP. Trade imbalances affect GDP.

People can save rather than spend their income, etc. Pretty clear

But the velocity of money doesn't change that. $1 spent is $1 of income no matter how or where it's spent.

Every transaction necessarily has a buyer and a seller

Income has nothing to do with GDP. Maybe do some research before littering the comments with uneducated takes.

And real income/GDP is what matters more in the end anyway. E.g. nominal wage increases aren't beneficial to people if their spending power is in decline

Are you confusing the economic term "income" with wages?

We're taking about the colloquial definition of income as per the author's mistake with wages.

And yes even income of producers is not GDP, because you have to factor in imports/exports

The same dollar changing hands every day for a week contributes $7 to the national GDP.

A dollar changing hands only once contributes $1 to the national GDP.

I too am interested in the difference between GDP and Income, and my usual sources (e.g. Wikipedia) don't satisfy.

1) Regarding velocity: if the other person quickly spends that same dollar, unless they spend it abroad, wouldn't it end up as someone else's income, domestically? So why should velocity matter?

2) Request you to elaborate your explanation using the example of a real country whose per capita GDP and per capita Income differ substantially.

If people in the US buy things from China, the income they earn does not contribute to US GDP. One example.

These are basic concepts with clear definitions. Why so many argumentative comments trying to dispute a textbook definition? Look it up first and stop spreading false information

> If people in the US buy things from China, the income they earn does not contribute to US GDP.

The income has already contributed to US GDP, by definition. The person has already produced goods or services and someone else has spent money on them, which becomes the income of the person in question. If the US person then buys Chinese goods, their expenditure does not contribute to US GDP.

Yes, thank you for proving my point.

How people elect to spend their income affects GDP, thus income does not equal GDP.

Have you figured it out yet?

You are looking at this the wrong way, from an individual perspective. National economy is about production, not consumption. Income is something that has already been earned, not something you choose to spend. Production comes first, and then expenditure gives it value and turns it into income. The way GDP is defined, the sum of domestic production in a time period is always the same as the sum of domestic expenditure and the sum of domestic income.

If someone buys Chinese goods, they contribute to Chinese production, expenditure, and income.

If I earn a dollar and don't spend it, it results in a lower GDP than if I spent it. Thus income can not be treated as equivalent to GDP.

We're talking about a very straightforward and obvious definition here. No need to confuse people

You clearly misunderstand what income is then.

If you receive an income, someone had to spend money (in this case your employer). So it does in fact contribute to GDP, as your employer spent money buying your service/finished work.

So income you received already contributed to GDP, even if it just sits in your bank account. Now if you go onto spend it, it will further increase GDP, as you spending it will yield an income for someone else. If you leave it in the bank account, it will not further increase GDP, as it won't yield anyone an income.

Additionally, when a US citizen buys a Chinese good, it does in fact contribute to GDP - namely China's GDP.

If it's not clear to you by now, GDP is almost the same exact thing as money velocity, just divide it by the money supply and you have the velocity of money.

I'm not sure how you all are misunderstanding adam_arthur.

GP wrote:

> If I earn a dollar and don't spend it, it results in a lower GDP than if I spent it.

You disagreed.

Here's the situation:

Today I earn $10. I then do one of two things:

1 I save it for a rainy day.

2 I buy something with all $10.

In scenario two, GDP went up $10 over scenario one.

Define "save for a rainy day". Are you talking about permanently putting it under your matress, leaving it in your checking account, or investing it? It will eventually be spent, and the only thing that is changing is the velocity. Either way, that is not necessarily correct.

GDP has multiple different calculations:

Y = C + I + G + NX

GDP = Consumption + Investment + Government Spending + Net Exports

Another calculation is

Y = C + S + T

GDP = Consumption + Saving + Net Taxes

Saving either through investment and cash hoarding both count toward GDP. The percentage of GDP that is Saving is the Gross National Savings or National Savings Rate.

tldr; In isolation, scenario 1, Investment is $10 as inventory and Savings is $10. Both add toward GDP

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

The issue is the next sentence:

> Thus income can not be treated as equivalent to GDP.

GDP is defined as total income, calculated in a certain way. There are also other equivalent definitions.

Income is the endpoint of economic activity. Your income contributes to the GDP when you earn it.

Your spending is largely unrelated to your income. In any period of time, you can spend more than you earn or less than that. Spending creates new economic activity. That activity contributes to the GDP, which by definition means creating new income.

I think you missed why I am failing to understand this one. The full context there is:

> If I earn a dollar and don't spend it, it results in a lower GDP than if I spent it. Thus income can not be treated as equivalent to GDP.

It's the second part that I don't understand. Those two sentences read to me like: "Spending decisions impact GDP, therefore income is not equivalent to GDP."

I don't think anyone is claiming that spending would fail to increase GDP. But I still don't see how income is disconnected from GDP, since that spending would be someone else's income.

But since, once you spent the $10, they are now somebody else’s income, namely for the person/company you bought from. Which means that now, by simply summing everyone’s incomes, you have an accurate count of GDP, without ever considering how individuals spend their money. I think the main problem of contention is, confusion about personal income v. national income, the latter of which includes institutions and is the one being used for GDP calculations. Money cannot be spent without being received by anyone, and the moment it is, GDP goes up in the country it’s received in.

You're being downvoted because you're wrong about textbook definitions and then calling other commenters uneducated and spreading false information. GDP and GDI (aggregate domestic production and aggregate domestic income) measure the same thing both conceptually and in an accounting sense. Discrepancies are caused by measurement errors, because they're different concepts. This is literally textbook macro-economics (e.g. Mankiw Ch 3, or a wikipedia summary [1], or the Bank of Englands layman explanation [2], or NBER [3]).

If people in the US buy things made in China, it is accounted for in both the GDP and the GDI in China by exactly the same amount (and likewise for US GDP and GDI if people in China buy things in the US).

[1] https://en.wikipedia.org/wiki/Gross_domestic_product#Income_... [2] https://www.bankofengland.co.uk/knowledgebank/what-is-gdp [3] https://www.nber.org/system/files/working_papers/w17421/w174...

>Leveraged buying such as real estate is in GDP

Not really. Building new houses contributes to GDP, as does renovating it, but if you're buying an existing house the only part that contributes to GDP is the realtor/lawyer fees.

https://www.nahb.org/news-and-economics/housing-economics/ho...

How do you think new construction is financed? What do you think has been the biggest contributor to Chinese GDP growth?

Yet you say "not really", which is obviously wrong. Leverage impacts GDP, yes, and in a big way.

Yes, they are the same. Economists consider GDP and GDI as two measurements of the same thing: https://www.stlouisfed.org/on-the-economy/2016/march/better-...

GDI is not people's wages which is what the author mistakes. And GDI is not GDP because trade factors need to be netted out.

Directly from your link:

"Because the two series are measured differently"

I forgot that two correlated series means they're the same thing. Huh

> In principle, these two series measure the same object.

Measurements have errors, particularly with something as complicated as the economy. The series are correlated because they are different measurements of the same underlying quantity. The correlation is not perfect because they measure that quantity differently, and so have different errors.

There being 3 different ways of measuring GDP (income, expendeture, and production) is not controversial. I am struggling to find any source on GDP measuring methodologies that does not acknowledge all 3.

Put another way, what produced value does not end up as income on someone's balance sheet; and an expense on someone else's?

Yes, a nation's economy is not a closed system, so you need to account for imports and exports, and this accounting manifests differently depending on which methedology you use.

GDP is the sum of the market values of all final goods and services produced. It can be determined equivalently by measuring production (or added value), income, or expenditure. "Final" is the key word: middlemen and other intermediate steps don't affect the GDP.

Then there is GNI, or gross national income, which is basically GDP with some adjustments for international situations. In most cases, GDP and GNI are within a few percent of each other.

Income is not GDP. A US citizen buying a Chinese good does not contribute to US GDP.

Can all these uneducated commenters please stop misleading people about very clear economic concepts.

Lookup how the velocity of money is calculated in relation to GDP and it will be more clear to you and others

If a US resident (citizenship is irrelevant) buys Chinese goods, the money spent does not contribute to US domestic production, income, or expediture. The income they use to pay for the goods is based on domestic production / expenditure.

The velocity of money is the ratio of GNI to money supply. I don't see how it's relevant here.

> Income is not GDP. A US citizen buying a Chinese good does not contribute to US GDP.

It does, just not very much.

GDP is value added. So contribution of anything done in an economy is (selling price - sum of buying prices of components and services needed to make the thing). So if you buy stuff abroad for 80 USD and import it for 20 USD and sell it in US for 105 USD - you increased American GDP by 5 USD.

And if a USA retailer imports a container of some sweatshop-made clothing for $5 each and retails them for $50 each, that's $5 in China's GDP and $45 for USA GDP, because technically the import-to-retail markup is added value.

> nominal GDP is the number of dollars spent in the economy. Nothing to do with income

Dollars spent by one are earned by another. This is captured in the twin calculations of GDP: the expenditure approach and the income approach [1]. (NX and NFI being the border adjustment variables.)

[1] https://corporatefinanceinstitute.com/resources/knowledge/ec...

This is producers income, not wages as is obviously what is being referenced in this thread, and the layman's definition of income

And dollars spent on imports do not increase local GDP

> producers income, not wages

TNI is the sum of all "sum of all wages, rent, interest, and profits." Wages are in GDP because the purchase and sale of labour is a transaction. Even in the expenditure approach, G includes government employees' wages.

Did you click the CFI link? The "What is the GDP Formula?" section is less than 200 words.

> dollars spent on imports do not increase local GDP

No. Hence the NX/NFI border adjustment. (In the income approach we count foreigners' domestic incomes and citizens' foreign incomes instead of exports and imports.)

Wages being included as a component in GDP calculation does not make wages equal to GDP.

GDP is also only one metric used to measure the health of an economy. No serious economist will look at it in isolation. They’ll look at everything from unemployment rate and inflation to budget deficits and even sociological indicators.

The author is confusing actual economists with armchair “economists” on Twitter.

>How did this get to the front page?

I've noticed sometimes things get to the front page evidently because everyone hates it and wants to talk about how much it sucks.

Another HN trend applies here: the most upvoted comment being a middlebrow dismissal based on a wrong argument, which is still popular with HNers despite most of the replies to it politely pointing out why it's wrong...

(GDP is calculable via an "income method", differs from Gross National Income only in excluding net transfers of incomes overseas, and per capita GDP is routinely used as a yardstick for income comparisons)

You can calculate the total GDP and divide it by the total population. You cannot (as far as I know), assign an individualized share of GDP to each person, which when summed would equal the total GDP of the country, and then find the median of that distribution.

Fortunately, the author isn't proposing to do this, instead stating pretty clearly that he proposes to use an estimate of the median income, not the median contribution to GDP. So it's not really relevant, except perhaps as a critique of the HN headline.

(He also doesn't specifically say that median income = median salary, although taking sales tax revenues and profit incomes and depreciation of capital outcomes into account probably doesn't actually make much if any difference to the median income vs median salary)

though FWIW I don't think it would be impossible to estimate some measure of an individual's "income measure contribution to GDP" based on that individuals' earned income plus imputed contribution to company profits plus sales tax paid; I just don't think it'd be that useful

> GDP isn't income at all, they're completely different metrics.

Please explain where income comes from if not from the sum of goods and services produced?

well, for a start, flows and holdings on foreign investments, interest and monetary flows, international trade, consumption of existing stock (depending on your particular definition of income).

but either way, he's fundamentally right.

No, it's just wrong to say they're completely different metrics. The Venn diagram between the economic activity measured by GNI (national income) and the economic activity measured by GDP is almost a circle.

US GDP in 2021 was $23 trillion. US GNI (national income) im 2021: was $23.3 trillion.

"monetary flows"

You're right, remittances and foreign aid are income but not GDP.

I think the article is onto something. It might benefits from a little rewording here and there but I believe you're arguing with a strawman here. I might suggest this: https://news.ycombinator.com/item?id=31940277

> How did this get to the front page?

Because it contains the magic words (tax the rich).

First define the rich. many people think it's someone earning $500k through productive work for 30 years, not someone with no income who just happens to be sitting on $20m of cash

From the economics perspective, GDP = sum of all production = sum of all income = sum of all costs.

Theoretically, it should give the same result when measured in these different ways.

That's only true inside a closed spherical cow.

> How did this get to the front page?

It’s Sunday.

Comparing medium income with GDP may be a moderately interesting measure of income inequality. Pretty moderately, because GDP is not income: see the famous example of a gentleman marrying his maid and decreasing GDP by that.

This could be fixed by just changing the punctuation:

> Look at median and not mean (GDP per capita) [to understand the way people live]

[brackets mine, of course]

Since each country only has one GDP, mean GDP per capita equals median GDP per capita.

Ya...good question.

There are several ways to measure gdp, one of them is income-based.

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