Do Nominal GDP Numbers Mean Anything (Very Much)?
This is a slightly changed version of a comment I wrote for Naked Capitalism this morning which I think is of general interest.
I'm sure you'll forgive this, and hope you do, but using constant GDP (nominal dollars or any other dollars) over the longer term is very problematic to the point of being named absolute incompetence. Taking constant GDP numbers as part of a ratio means the ratio is meaningless, just as if something were divided by zero. Making policy recommendations on the basis of constant GDP numbers, and ratios derived from constant or nominal GDP is kind of like someone trying to run before they've developed the balance required to walk. These two articles which have appeared in the links section of Naked Capitalism today and this (by three academic economists of liberal bent) on January 9th, are illustrative of the issue. Both are done by economists as persuasive work for policy-makers to act on. Policy makers probably won't, but not for the right reason. The work is incompetent. The policy makers not interested. The relation between the two is self-feeding difference. People who make policy should be interested. People who write for them should be competent at what they do. What's the citizen to do in the circumstances?
US and Britain on Brink of Debt Disaster
Consider how GDP is produced. It is the net of sales of goods and services in the economy. Compare how those goods and services which are sold have changed, from bank services and personal ones like nail trimmers to the steel industry, space program and defense industries. In the 70's the US was pretty much self sufficient except for fuel supplies. There were industries and farmers producing things to be sold and consumed. There was a composition of the employed work-force which reflected that activity and tax income for a more or less balanced government budget. All these features have dramatically gone down the tubes while GDP has increased in nominal constant or any other terms. What has increased with GDP is financial and speculative activity, as approximate self-sufficiency has been undermined by outsourcing and shifting the composition and function of employment.
Considering nominal or constant or adjusted GDP numbers to represent growth is to consider the growth of diseased tissue to be beneficial to the sickened body. No wonder US health care lags constantly so far behind other nominally advanced countries in the breadth and depth of services provided, while the nominal dollar share of health care transactions in the GDP numbers have gone through the roof. To think that the hollowed out deformation of earlier economic power that is hidden by nominal, constant gdp dollars represents anything meaningful in regard to anything else, debt, currencies and so forth is kind of like playing make believe. Let's pretend the names we use to describe things and actions are self-evident
Such considerations might be thought to show an absolute confusion among the ranks of professionals who do not even seem to consider that part of any investigation is to determine what is the same and what different and what is like and unlike. Anyone who thinks the US economy has grown over the past 30 to 40 years, and considers nominal, constant or adjusted GDP to reflect such growth should probably be considered to be in constant need of adjustment themselves, nominally speaking of course. To accept the garbage put out as data series as input for calculation and analysis without considering what the data represents is just to repackage garbage. This is pretty much the same kind of transaction as has come to be represented by the growth of GDP. We sell packaging to each other. Throw it away and reprocess the waste into packaging. It's the real thing, in nominal terms, that is. Coke does things to the system too, nominally and constantly. They do say "It's the real thing," too.
I'm sure this could be put less forcefully, but I think that anyone who can think about the issue even in a dispassionately forceful way, would have to agree that such a statement of the problem is more truthful than the view of the economy represented by those who repackage or manipulate nominal constant or adjusted GDP numbers. It may be helpful though to think of some branches of the economics profession as really part of the world of advertizing, or publicizing, or maybe the better nominal value which could have constant appreciation potential would be "propagandists". I think that is translated from some language where it came from a word that meant "spreaders". Farmers know something about that field of study, and bookies know how to recognize betters at analyzing transactions.
Self-sufficiency in this context does not mean abandoning trade. It is outrageous that the US can no longer feed itself, because its agriculture has been corporatized, and shamelessly feels free to take the food out of the mouths of others world wide. It is outrageous that the US does not produce the equipment which could enable others to solve problems like sanitation water, food supply, housing and other construction, on their own when these problems reflect the degradation of all our lives and the environment. Someone said, You can give a hungry man a fish, or you can show him how to use a line and hook. We should be providing lines and hooks not taking other peoples' fish. But they should be really lines and hooks, and not just invoices for non-existent transactions that have made off with the wealth of the country in the name of growth because people are no longer able to understand what they think they are looking at, or what goes into making an economic transaction a transaction that counts.
Thank you for your patience, and sympathy with the concerns which motivate this, and probably other, statements of the case against those who constantly insist on using such numbers in a nominally uncritical way. Hopefully they will understand just what a vulgar kind of activity it is to pass on the digested output of a process and try to pass it off as health-some food.