GDP is a Fallacy
Wednesday, March 30, 2011 at 9:27PM Do you have a government registered financial advisor? Does he or she drone on about how the stock market "always goes up"? Or does he/she point to GDP growth figures as proof of an economic recovery?
I remember, when, as a young go-getter I decided I wanted to get involved in the "money business". Stock markets... brokerages... banking... that appeared to be where the "money" was. And, in fact, it was and still is. It won't be for much longer, but that is another story.
I never liked school but, circa 1993, I decided to enroll in Economics 101 at a government regulated college. I walked out on the first day. Half of what they talked about was obvious and the other half was obviously propaganda.
I then worked at a bank for a while and decided I wanted to be a stock broker so I took the Canadian Securities Course - a government prerequisite for getting a "license" in Canada to tell people what to do with their money.
Again, half of what I was reading was obvious and I could tell the other half was complete propaganda. "The stock market always goes up"... oh really? I suppose, theoretically, you could say it is true. The Zimbabwe stock market went up 1,000,000,000%... in Zimbabwe dollar terms.
The fact of the matter is, ex-dividends, stock markets would not go up much, at all, in the long term, without monetary inflation. It's all a mirage, based on inflation.
My personal favorite is how people even talk about Gross Domestic Product (GDP) as though it is a) something which you can even calculate b) a true indicator of the financial health of an economy and c) a government statistic that can be trusted. Frank Shostack, a warlock of Austrian Economics (the only school of economic thought with its basis in reality), tells it like it really is:
"We can thus conclude that the GDP framework is an empty abstraction devoid of any link to the real world. Notwithstanding this, the GDP framework is in big demand by governments and central bank officials since it provides justification for their interference with businesses. It also provides an illusory frame of reference to assess the performance of government officials." - Frank Shostak - http://mises.org/daily/770
If anything, if you want to use this number for any purpose, it should be called Gross Domestic Consumption (GDC?) and it should be looked at negatively if it keeps going up. After all, what it is basically saying is that consumption continues to increase.
Do you want to see what actual GDP "growth" looks like? China has huge GDP growth. What an economic miracle! Here is how they do it:
They print tons of money, then build a bunch of stuff no one wants, and people think this is growth? It is the exact opposite. It's destruction of scarce assets. It's perverse.
And what does this do? It makes eco-green freaks like David Suzuki, who I actually like somewhat, think that economic growth will destroy the world! True economic growth will actually save the world. "GDP Growth" by governments who think printing money and using scarce assets to build things people don't want, is destroying the world. You should be fighting governments and central banks, not the free markets, David. Call me, I'll explain it to you.
The same old "broken window" fallacies get trotted out every time there is a natural disaster. Japan just had billions of dollars of wealth and assets destroyed by a massive earthquake and tsunami... well, say the mindless talking heads, GDP should be up in Japan as they reconstruct! It's growth! No one ever asks them, if massive amounts of destruction are good for growth, why don't we burn down our cities every year? Just think about how many jobs that would create!
In the US they say they've had GDP growth for most of the last decade. This at a time when more than half a million people per month are signing up for food stamps - and real unemployment is over 18%... you don't believe the government unemployment figures, do you?
The GDP figures are as much a fallacy as the unemployment and inflation (CPI) figures. If you solely account for CPI the way it was calculated in the 1990s, before the government learned how to hedonisticly take all the price increases out of the CPI Index, the US has been in a depression for the last 10 years.
It's an inflationary depression, but a depression none the less. And that is even if you want to take into account government GDP numbers, whatsoever. They are pointless, useless numbers that have no bearing on reality.
The next time the talking head on TV even mentions GDP numbers as though they have any bearing on anything, turn off the TV. If your financial advisor, sitting across from you, starts to talk about GDP numbers as though they have any relevance to how you should invest in anything, give him a second chance. Just to be nice. Tell him, "You're kidding, right?"
If he says, "No, GDP numbers in the US are up this quarter and you should invest in...", stand up and without saying a word, walk away. Don't say goodbye. Don't say thank you. Let him sit and take a moment to actually think about what he is talking about. He'll probably never get it but if enough clients do that he may actually think about what "GDP" is and why it doesn't matter and figure it out.
If not, at least you won't lose money because of him.
Reader Comments (2)
Re the topic of depression, apparently many Americans are still living in homes they aren't paying for. The banks are reluctant to foreclose, as this causes the value of the "asset" on their books to decline. At some point, people probably won't be allowed to continue living in homes they aren't paying for (though perhaps in a bizarre way, it's a good idea - compare this to constructing new government housing projects!). In any case, when this arrangement ends, those leaving homes they can't pay for will be facing rising rents, at least in multi-unit buildings. So we will have the bizarre situation of many empty homes and a rental accommodation shortage. Apparently some clever homeowners are buying a new house on the cheap while letting their existing (often underwater) mortgages go unpaid. This creates a game of musical chairs (houses?), in which people who don't pay their mortgages are able to buy less expensive houses (maybe also a bizarrely good idea). On top of this, US corporate taxes are a major obstacle to US companies continuing to operate at home. However, since people think the corporations are exploiting them, they want to raise corporate taxes, driving ever more US companies out of the country. Basically, if all the US housing inventory were permitted to trade on the market, prices would fall drastically, making homes (and rents) affordable for many more. Rather than bailouts, permitting banks to let homes with no mortgage payments go on the market may be the best of all ideas for "clearing the depression." If US corporate taxes were dropped to world rates, or even zero, the US would then begin to participate in the global boom that is occurring in the non or less-indebted countries, with many more jobs created at home, housing becoming affordable, etc.....Perhaps the government would have to default on its obligations and close up shop, but a renewed healthy business climate might pick up the slack... and more. The sad thing is that a recent calculation shows that the US can get away with this for 15 more years. So that is the possible length of the inflationary depression.....
Re the "spammy" comments showing up here, maybe you can get a "report abuse" feature. Look at Seeking Alpha for a nice setup on reader comments.....