Debating GDP Dogma With An Economist

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Re: Debating GDP Dogma With An Economist

AWUGDU

The correct acronym for 'real GDP' should be AWUGDU -- pronounced 'a-woogdoo' -- for 'Arbitrarily Weighed Unquantifiable Gross Domestic Utility'.
Jonathan Nitzan

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Re: Debating GDP Dogma With An Economist

I like it. One question, should it be "weighted" and not "weighed"? As in;

'Arbitrarily Weighted Unquantifiable Gross Domestic Utility'.

But then I might be wrong. I can see it working both ways as a term.
Ikonoclast

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Re: Debating GDP Dogma With An Economist

Jonathan Nitzan

Posts: 80
Joined: Sat Dec 06, 2008 2:39 pm

Re: Debating GDP Dogma With An Economist

Hi, very nice treatment of the topic! In the article () I would change the numbers in the example section to make the point even more explicit. Here are my numbers:

In my economy there are eggs and apples.

Year 1: 400 million (m) eggs sold at 0.1 \$/egg = egg income \$40m; 30,000 tonnes of apples at 2000 \$/t = apple income \$60m.
Total nominal egg-and-apple GDP = \$40m + \$60m = \$100m.

Year 2: 250m eggs @ 0.2 \$/egg = \$50m; 50,000 t apples @ 1000 \$/t = \$50m.
Total nominal GDP = \$50m + \$50m = \$100m.

So in nominal terms our economy is constant.

By definition, real GDP of year 1 based on year 1 = nominal GDP of year 1 = \$100m.

Real GDP of year 2 in prices of year 1: 250m eggs @ 0.1 \$/egg = \$25m; 50,000 t apples @ 2000 \$/t = \$100m.
Total real GDP year 2 = \$25m + \$100m = \$125m.

So in "real terms" based on year 1 our economy has grown by a whopping 25% instead of remaining constant.

Real GDP of year 1 in prices of year 2: 400m eggs @ 0.2 \$/egg = \$80m; apples 30,000 t @ 1000 \$/t = \$30m.
Total real GDP of year 1 in prices of year 2 = \$80m + \$30m = \$110m.

By definition, real GDP of year 2 in prices of year 2 = nominal GDP of year 2 = \$100m.

Thus our economy went down from \$110m to \$100m, or shrunk by 9% (relative to year 1) if real GDP is based on year 2.

Rather than just showing how numbers differ, I think it is even more illustrative to show how the same set of numbers can indicate a constant, growing, or shrinking economy. Also using "100" makes percentages easier to see. I also think one should make it explicit that, by definition, "real" GDP equals nominal GDP for the base year.

Ulf
Last edited by uma on Wed May 29, 2019 6:42 am, edited 3 times in total.
uma

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Joined: Thu Dec 11, 2008 6:59 am

Re: Debating GDP Dogma With An Economist

The observation that Real GDP is a nonsensical number may create a problem for some of the previous CasP research.

In "The Global Political Economy of Israel" (GPE/IL, which I am currently rereading) Real GDP is used at least in fig. 2.7: 70, 2.11: 79, 2.12: 81, and 4.1: 138. There are other instances where just "GDP" is used without indication if that means "nominal" (which I assume).
GPE/IL @

It would be very bad if the argument in GPE/IL suffers from this because the book is still extremely valuable to show how theory development and empirical research go together. One could check if it is possible to make the argument that use Real GDP with nominal GDP. Nominal prices, which reflect the "state of capital" of a year, should be a better conceptual fit to CasP.

Best, Ulf
uma

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Re: Debating GDP Dogma With An Economist

Jonathan Nitzan

Posts: 80
Joined: Sat Dec 06, 2008 2:39 pm

Re: Debating GDP Dogma With An Economist

It would perhaps be interesting to put the removed parts to the BNA page of the book as an addendum if they form a piece of text on their own.
uma

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Joined: Thu Dec 11, 2008 6:59 am

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