GDP

Whoa, we’re halfway there (Q1 GDP)

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If a lumberjack cuts down a tree and sells it to a carpenter, and the carpenter makes a rocking chair and sells it to Home Depot, and Home Depot sells it to a hipster who wants a rocking chair on his 4′ x 6′ apartment patio, the only sale counted in GDP is that final sale. It’s counted in “consumer spending”, which makes up ~67% of total GDP. If the carpenter had sold it to Cracker Barrel, it would have been counted in “business investment” (~18% of GDP). Who remembers the equation and what is coming next? C+I+G+(x-m)=GDP. If the Bureau of Economic Analysis bought the chair for their waiting room, it would be counted in “government spending” (~17% of GDP). And, finally, if Kim Jong Un bought the rocking chair for the DMZ, it would be counted in exports (~-5% of GDP; we import more than we export). Simple enough, right?

Living On One Dollar

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Over 70% of our GDP is consumer spending, and it doesn’t account for human value or quality of life in the slightest. For example, let’s say a husband gets a promotion at work which allows the wife to stay at home with their children. That would be interpreted as a negative thing by GDP metrics! They are no longer spending money on childcare, and so on and so forth. Along the same lines, having your kids do chores around the house instead of hiring outside help decreases GDP.

COVID-19 mortality rate and GDP

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The first quarter of 2020 ended on the last day of March, but we won’t have the first Q1 estimate by the BEA until April 29, which they call an “advance estimate” (which means it could be way off). Oh, and for the record, the most common definition of a “recession” is negative GDP growth for two consecutive quarters. So, if you do the math, we can’t even *know* if we’re in a recession until six months or more after it started! This lag is an argument against the usefulness of these sorts of macroeconomics numbers, the equivalent of Karen Smith’s weather report in Mean Girls: “It’s 68 degrees, and there’s a 30% chance that it’s already raining.”