IBMWatson autobiographythoughts on 773

Some people tend to forget that economics is a social 'science', and therefore must pay exceedingly close attention to what they measure, how and why.

GNP-GDP are closely related measures of compound value creation in developed, market-oriented economies. They use market prices and transaction values as the foundation for all measurement.

This gives a pretty accurate picture of values; and an even better one of the short-time changes in value; for even a moderatly developed and capitalist society.

It reflects changes in market values well. It picks up effects related to interest rates, wages, production efficiency very well.

It is sensitive to short-time changes.

It is sensitive to multiplier effects in all forms. (One well known multiplier effect is the effect that banks re-lend money, and a dollar in the bank therefore can mean several more dollars created as that dollar is re-lent, invested, put back in the bank, re-re-lent etc. without nullyfying the first deposit of that dollar.).

GDP-GNP can therefore be inflated for silly reasons like artificial resource trading, or the artificial lack of such trading. If you don't put a market value on something it doesn't exist in GNP.

GNP is not the right measure on a static, subsistence economy.

Actually, the "GDP alternative" the communist economists made in Comecon is a much better measure for such economies; but IMF will never admit that. That would be admitting the enemy was right.

NMP is "Net Material Product", and it uses units of labour as the base denominator, and only converts to money as a final conversion. It does not use markets at all, and is totally out of whack measuring an advanced, dynamic economy; as the eastern block found out to their peril once they developed such economies. It also is totally out of touch with productivity gains that result from capital formation.

But it measures static, subsistence farm economies very well, and pick up the important results for subsistence farmers pretty well. It also is grossly comparable to a GNP measure. But the NMP effect from introducing a market for base foods instead of eating your own would just be a small second order effect related to the cost of operating the market vs the improved allocation of resources that market allowed.

Or perhaps Comrade Hank will elaborate?

-- mrr