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Comment by epups | Hacker News Reader

> Don't believe GDP as an indicator of real growth, they keep on adding fictitious sources to these numbers. Did you know that rent is part of GDP? And even rent that homeowners would have paid to a landlord had they owned their home?

Of course renting is an economic activity that should be reflected in the GDP, and it is as "real" as anything else. To focus solely on international trade feels shortsighted as well. When a doctor sees you and charges you $200, that's going into the GDP but not into any trade balance.

The world is richer since 2008 by almost any metric you can think of, including inflation-adjusted per capita income which is independent of GDP.

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So often I read so many utterly ridiculous economic opinions expressed here by people who should know better and be better educated.

How can a smart, presumably educated person not know that rent counts as economic activity?

To say the world is poorer than in 2008 is just utterly preposterous.

Per capita GPD in China went from 3500 to 12500. India 1000 to 2200.

There is half the world. US, Canada and Europe is only 15% of the population but I don't know how the case can be made we are poorer than in 2008 either.

https://en.m.wikipedia.org/wiki/Rent-seeking

For the 1000th time, regular rent (e.g. you pay $1000/mo for an apartment) is not the same as rent-seeking.

It's just correlated with ALL sorts of rent seeking:

https://www.propublica.org/article/yieldstar-rent-increase-r...

> How can a smart, presumably educated person not know that rent counts as economic activity?

Of course it's "economic activity". But if I sublet to someone that sublets to someone that sublets to someone that lives in an apartment, that's a 4x increase in money flow but there's no production of goods or services at all.

It makes sense to have the cost of building and maintaining homes represented somewhere, but rent is a poor proxy for that.

GDP doesn't count all "economic activity." Otherwise, HFTs would cause GDP to explode. It doesn't account for the cost of construction either because that's an intermediate cost. Even home sales aren't counted because they're considered an investment. GDP only considers the value of the final consumed goods and services, and rent is a consumed service. If you're a homeowner, they estimate your rent and use that instead.

> GDP doesn't count all "economic activity."

Right, which is why the insult in the post I quoted is getting things very wrong.

> GDP only considers the value of the final consumed goods and services, and rent is a consumed service. If you're a homeowner, they estimate your rent and use that instead.

I understand that but it's a notably flawed way of going about it. Prices in general can have a loose coupling to value but with rent it's extra bad. A small change in housing stock can trigger a massive swing in rent and GDP even though the service being delivered doesn't change.

So the country is better off if prices of non-tradable services are increased by their suppliers? That sounds like the broken window fallacy.

If I own a house (outright) and live in it, I pay nothing, and no impact on GDP

If my neighbour owns a house (outright) and lives in it, I pay nothing, and no impact on GDP

If I rent from my neighbour for $10k a year, and he rents from me for $10k a year, GDP increases by $20k a year, but nothing has really changed, expect the amount of money paid in taxes.

So that's why you have imputed rent as part of GDP. Fine, I get that.

How about this scenario

I have a kid and look after it, I pay nothing, and no impact on GDP

My neighbour has a kid and looks after it, he pays nothing, and no impact on GDP

I look after my neighbours kid 3 days a week and he looks after mine, in an exchange, no impact on GDP

I look after my neighbours kid 3 days a week and he pays me $300, and he looks after mine 3 days a week and I pay him $300. GDP increases $600 a week, and more money is taken in taxes.

Do we include all unpaid work?

If I (a painter) pay my neighbor (a gardener) to garden my front yard and he pays me to paint his garage, then GDP increases.

If I do the gardening myself, and he does the painting himself, GDP doesn't increase.

How about me looking after my old parent vs me working overtime and paying a care home to do it?

The GDP is a measure of economic activity, meaning the exchange of money for products or services. Of course there are activities, such as the ones you describe, that will not be accounted because they are done for free or in exchange for something else.

> How about me looking after my old parent vs me working overtime and paying a care home to do it?

Yes of course the latter will have an impact on the GDP, and the former not. You are producing more work for money and you are buying more work for money.

The point is that the country is no wealthier in either scenario, yet people use GDP as a proxy for the productive output and wealth of a country.

But the country is wealthier in the scenario where you produced and sourced more labor for money. Arguably more productive too, because you expanded the pool of labor when you worked more hours, which your employer (presumably) transformed into more money.

Can you explain how?

If someone is paid to dig holes and fill them up right after, the country is not any wealthier even though GDP is increased, in fact slightly less wealthy because of wear and tear on the shovel/excavator.

GPD is an estimate that relies on most people being rational.

A company that pays contractors to do nothing but dig up holes and fill them back up again will quickly go bankrupt, so most people aren't going to engage in such enterprise.

Just because you found a way to hack the GDP in an online argument doesn't immediately throw its usefulness in the real-world.

Repeatedly digging up the same place is a relatively common real world scenario, such as when multiple utilities need to be installed or repaired on the same stretch of ground.

e.g. repairing a water main, then laying some underground electrical cables, then laying some fiber optic wire.

Due to inefficient coordination, country A may have the same patch of ground dug up and filled three times.

Whereas country B, more efficient, only has to dig once, do all the work, then fill it up once.

So country B records lower GDP but in fact ends up slightly wealthier.

I certainly agree that different countries will not only have different levels of efficiency, but also different accuracies in their GDP measurement.

Shadow economies also exist and comprise different % in different countries.

The example that started this is someone taking care of an elderly person themselves vs working overtime and paying someone to do so. Simply by working overtime for a company, this person created economic value, likely higher than of their own wage. Second, other economic agents received payment in exchange for services, so this also increased our productive output. In both sides of this operation, taxes were paid, and the country is therefore wealthier in both a fiscal and economic sense.

I think the confusion here is because it seems odd that taking care of your parents by yourself is not considered productive unless you exchange money for it. GDP is an imperfect measure, and by definition does not take into account such voluntary/unpaid activities.

I don't see how formalizing and adding money to an informal relationship increases wealth.

The caregiver is doing the same work either way. Where is the wealth increase coming from?

Before we continue our discussion, can you tell me what is your definition of wealth?

I go by the OED standard definition.

Assuming you mean OECD, and that for these purposes we consider money reserves as an asset, then the person doing overtime has no increase in wealth (assuming they paid the same to the caregiver), the caregiver has an increase, every company involved have an increase, and the government also has an increase in wealth. If the person doing overtime is more qualified than the caregiver, then productivity increased as well.

I meant OED as in the Oxford English Dictionary.

The OECD definition seems suspect, an increase in money reserves does not guarantee an increase in wealth when there's been inflation. Do you have a source for it?

> Yes of course the latter will have an impact on the GDP, and the former not. You are producing more work for money and you are buying more work for money.

I neglected to mention I work in an old peoples home. The overtime is the exact amount of care my parent needs.

Two economists were walking down the street. One saw a dog s*t on the ground, and told the other: “If you eat that, I’ll give you thousand dollars.” Other guy looked at it, thought “It’s bad, but I’ll get $1000”, and ate it. His friend paid him, although he still regretted it because it was really bad. After some time, they encountered another dog s*t. This time the guy who ate it before offered $1000 for eating it to his friend. He accepted, thinking “I’ll gain the $1000 I lost”. He ate it and got paid. After some time, they stopped for a while, and one said to other, “I feel like we just ate dog s*t for nothing”, the other replied “Oh, come on! We just contributed to the GDP by $2000, it was not for nothing!”

Makes sense. GDP captures money spent on services, not philosophical judgment on if that money was wisely spent or produced net happiness.

In a more realistic examples, alcoholics purchasing booze, obese people overeating, and people wasting their lives watching TV all contribute to GDP.

> If I rent from my neighbour for $10k a year, and he rents from me for $10k a year, GDP increases by $20k a year, but nothing has really changed, expect the amount of money paid in taxes.

Not really because even if you are living in your own paid-off house, the rent will be added to the GDP.

> If I do the gardening myself, and he does the painting himself, GDP doesn't increase.

There is a law being worked out somewhere (probably Europe) that will tax any activity you are doing. If you paint your garage, this activity will be evaluated financially and you'll have to pay taxes on it. Not doing so is tax evasion.

* last one was /s but maybe not really?

Along with the surveillance to make it practicable.

> There is a law being worked out somewhere (probably Europe) that will tax any activity you are doing. If you paint your garage, this activity will be evaluated financially and you'll have to pay taxes on it. Not doing so is tax evasion.

New feudalism

> If I do the gardening myself, and he does the painting himself, GDP doesn't increase.

But capital increase. Next time this capital will hit market - when you decide to sell fruits or home with beautiful garden it will be taxed and will increase GDP.

GDP is statistics anyway, so any work that doesn't rot and hit the market will eventually show up in GDP.

> If I own a house (outright) and live in it, I pay nothing, and no impact on GDP

This is not true, at least in the US. If you're a homeowner, they estimate how much it would cost to rent your own home and include that in the GDP.

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

You snipped the following line

> So that's why you have imputed rent as part of GDP. Fine, I get that.

I then came up with other parts where economic activity is not imputed

The GDP, by virtue of having the basket of things under comparison already picked out, has this very convenient thing called the implicit price deflator.

The sentence "the country is better off" is subjective. The country's GDP will go up if all prices go up, yes. But this will also mean that inflation will go up, and in adjusted terms no one will be richer. The price deflator mentioned by the sibling is one of the ways to make that adjustment.

Equating a high GDP with "better off" is problematic.

It could be backed by products that nobody wants (wars and such) or it could be at the expense of other quality of life metrics such that the juice is not worth the squeeze.

It's like lifting weights to get huge instead of to get strong or healthy, you can end up some undesirable results.

https://www.youtube.com/watch?v=XndsyYUjMv8

Watch this. Counting rent is about as sensible as counting financial services.

No thanks - if you are interested in an argument, please present yours in written format.

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