GDP is a Big Fat Lie: The Real Wealth is Decreasing Annually

[oldtobor]

GDP is a big fat lie.

Why do economists still use such a FALSE measure of wealth such as GDP ?
A real measure would be simply the ratio between minimum pay and minimum amount of money needed to rent a one bedroom home. If you plot this ratio wage/rent from 1970 to now you will see that it was once (in the USA) maybe 400/100 dollars and now is 800/400. So it went from 4 to 2 in 30 years, about 2% less each year. The real growth of our wealth is MINUS 2% each year. In Europe and Japan it is way worse maybe MINUS 3%. So the real wealth is constantly DECREASING with no end in sight!

Reasons are :

1) constant population increase looking for homes (people from poor nations getting in USA and Europe)

2) Capitalism getting harsher, companies squeeze all the profits they can from real estate , by renting ever higher and opening and closing offices to squeeze profit from poor people that have to rent or buy homes to work in central cities like chicago tokyo.

3) Gas and other resources costs always more.


We are all getting poorer and there is no end in sight, it is a race to the bottom.

 

[Pengwuino]

Wow that is one arbitrary standard...

 

[pikapika!]

Still, gdp is still good for determining buying power right?

 

[russ_watters]

GDP has never been meant to be a way to measure poverty, so you are arguing a strawman. And your criteria is not only arbitrary, but near useless since it is only one point - it doesn't tell you how many people are poor.

Besides, you made up the numbers you used!

 

[Genecks]

Using paper money is like playing monopoly, even though you seem like you're a tycoon now, it doesn't mean anything until you have the real estate. Viva la gold bug revolucion!

 

[nameta9]

Numbers are real if not even extremely moderate and conservative. In the US you're closer to 600 dollars a month for a 1 bed home and min. pay is 800 dollars. If you factor in other inflation like health care and other items (gas etc). you get that we are getting poorer at a more extreme rate. I think the point is that GDP seems to give us an impression that the economy "grows" so we are getting richer. In this sense that is totally WRONG AND FALSE! We are getting poorer even if you don't like the idea. Japan and Europe are getting even worse. Try to rent in Tokyo and work minimum wage... Granted there are many rich and well off people, but as time goes by, they will be sacked.

 

[Hurkyl]

For fun, I'll play along.

If you plot this ratio wage/rent from 1970 to now you will see that it was once (in the USA) maybe 400/100 dollars and now is 800/400. So it went from 4 to 2 in 30 years, about 2% less each year. The real growth of our wealth is MINUS 2% each year. In Europe and Japan it is way worse maybe MINUS 3%. So the real wealth is constantly DECREASING with no end in sight!

Yep, the ratio went down 50%. But, did you notice your income, after rent, has gone up 33%?

 

[Smurf]

But, did you notice your income, after rent, has gone up 33%?

That's assuming that rent was the only price that went up.

 

[Hurkyl]

That's assuming that rent was the only price that went up.

No it's not, since I was speaking about "your income, after rent".

 

[Smurf]

No it's not, since I was speaking about "your income, after rent".

Fine! However, it still doesn't show that your networth has actually increased.

 

[russ_watters]

Since income alone doesn't say anything at all about net worth...ehh, nevermind, this thread is useless.

 

[Hurkyl]

Fine! However, it still doesn't show that your networth has actually increased.

Right -- overly simplistic figures like I (and the OP) gave are often of little help in actually figuring anything out.

 

[oldtobor]

If you were a manager who got laid off and had to flip burgers, you would have to compute exactly those 2 things, wage and min. rent. To all of you who think this is not so, report to me how much the local burger wage is and how much is it to rent a 1 bed apartment. Now if this happened to you in 1970 you would have much more left to live with than today. This means that society as a whole is getting poorer, bear in mind, min. rent is a basic necessity and not a luxury or whim. It is like bread unless you want to end up like in Japan where they work to midnight and have to sleep in the streets, they went full circle, to avoid being homeless they become homeless, but you can sleep in the streets in japan because there is no violence.

 

[Hurkyl]

Now if this happened to you in 1970 you would have much more left to live with than today.

Using the exact numbers you gave, in 1970 you would have 300 left to live with, but now you would have 400 left to live with.

 

[Plastic Photon]

Would rent include utility bills? What are the stats for energy cost per kilowatt compared with both dates?

 

[loseyourname]

Ultimately, the only thing that's going to matter to an individual is his own buying power. Other than disputing whether or not we should include credit rating and available credit balances in this, it seems a pretty straightforward way of determining wealth.

 

[gravenewworld]

You have a very poor understanding of what GDP is. GDP is income! GDP is a measure of total national income for the economy. The media only talks about it in terms of how much is produced on American soil in a fiscal year, but that is only one way to measure gdp.

 

[nameta9]

I would say that most of humanity for most of its history has lived in extreme poverty and the fact that from 1950-2000 there was so much increase in wealth was JUST A QUIRK COMBINATION OF ECONOMIC VARIABLES. That increase is now descreasing and will so in the future at an ever faster rate. We will retrun to 18 century poverty levels. The reason is :

1) last century population was lower in the only 3 areas of the world that have really ever know some wealth US, Europe, Japan. Now that pop. continues to increase and people from poor contries come in the rich ones and there is not enough for everyone.

2) technology was at a level where wealth increased , now it is working against any increase in wealth. For example, open source kills software jobs, globalization is a race towards the bottom in wages etc.

3) Natural resources are dwindling, science can't keep up, a lot of quirk waste etc.


So it is true we are all getting poorer, in 1970 you could raise a family of 4 with just a normal job of the husband, now it's hard with both working.

 

[Automagman]

You have a very poor understanding of what GDP is. GDP is income! GDP is a measure of total national income for the economy. The media only talks about it in terms of how much is produced on American soil in a fiscal year, but that is only one way to measure gdp.

uhhhhhh, what? There is an income and expenditure approach to measuring GDP. The two numbers (when computed perfectly) are exactly the same.

Also I am surprised no one has brought up the CPI yet...

Also what your forgetting to measure is the quality of our lives are getting better. Everything is getting more durable, more useful, and more pleasing. I would much rather live now than 35 years ago.

The poor may be getting poorer and the rich may be getting richer but also notice what the poor have now than they did not have 35 years ago when they were *richer*.

 

[selfAdjoint]

The poor may be getting poorer and the rich may be getting richer but also notice what the poor have now than they did not have 35 years ago when they were *richer*.

So what is it that the poor have now that's so much better than what they had in 1970? Cheap clothes from China? Better housing? What is it that the poor can afford that's better than in 1970?

 

[gravenewworld]

uhhhhhh, what? There is an income and expenditure approach to measuring GDP. The two numbers (when computed perfectly) are exactly the same.

uuhhhhh precisely. gdp=income.

 

[oldtobor]

Look at any data of the US in 1970 and you will be quite surprised. Rents were a lot cheaper, it was easier and cheaper to buy new homes, gas was cheaper, almost all of the modern consumer goods were available as today (except computers and cell phones and VCRs , but anyways..) , it was easier to find work, heck in NYC my cousin could change a secretary job every week if she wanted. No we are slowly getting poorer, only that it is hard to distinguish, you have to take a long look back and really remeber how it was.

 

[russ_watters]

How does inflation factor into your memory?

 

[selfAdjoint]

How does inflation factor into your memory?

Prices have inflated but the income for poor people hasn't, or hasn't kept up. For that matter the income of the middle tiers of the income distribution has not quite kept up with inflation.

 

[edward]

Although inflation is not a current problem for the most part, many people as SelfAdjoint mentioned have incomes that have not kept up with inflation.

Where we have a major problem is that personel consumption in recent years has been done on credit. The percentage of GDP that is attributed to personel spending is currently 70%. Most Americans have little if anything in savings.

GDP is not an accurate method to determine the true state of the economy because none of the debt incurred by the recent excessive personal consumption is subtracted.
If there is a forest fire for instance, the cost of fighting that forest fire is added to the GDP, and yet the value of the timber burned is not factored in.

 

[ShawnD]

1) last century population was lower in the only 3 areas of the world that have really ever know some wealth US, Europe, Japan. Now that pop. continues to increase and people from poor contries come in the rich ones and there is not enough for everyone.

What do you mean there isn't enough for everyone? North America's population has exploded, but we have more food than ever. We have more healthcare than ever. We have as many resource as we've ever had; maybe less oil but we've increased efficiency an insane amount and we now have an overwhelming abundance of grain... care for some ethanol?

2) technology was at a level where wealth increased , now it is working against any increase in wealth. For example, open source kills software jobs, globalization is a race towards the bottom in wages etc.

The myth that technology steals jobs is just that - a myth. Before computers and robots, companies had twice as many people doing the same job. An engineering team would need 10 secretaries; now they just need 1. Has unemployment doubled since 1970? Not really. We've had fluctuations of up and down but overall it hasn't changed.

3) Natural resources are dwindling, science can't keep up, a lot of quirk waste etc.

Not really. We has as much water as ever (since water doesn't go away). Air is cleaner than it was in 1970 since we have much tighter laws. We have as many trees as when the settlers first landed since trees grow as fast as humans and nature can destroy them. We don't have as much oil, but we have developed newer and more efficient ways of generating energy such as CANDU fission, nuclear fussion (yay!), diesel from algae, and ethanol from the overwhelming excess of food we have.

So it is true we are all getting poorer, in 1970 you could raise a family of 4 with just a normal job of the husband, now it's hard with both working.

That's not really true either. Between the years of 1985 and about 1998, my dad was the sole provider for a family of 4, and we had no problems getting by. Both my parents cars are paid for. The house is also paid for. My family has no debt of any kind. After 1998 my mom also got a job, so the amount of disposable income increased by a considerable amount.
Today people are just greedy bastards who want everything. In 1970 your family had 1 TV. In 2005, my family of four has 3 TVs. We also have 4 computers, 3 stereos, 5 cars (been meaning to sell one), my brother alone has 4 motorcycles. Did I mention that both me and my brother went to college on my parents money?

If you live like a person in 1970; with one TV, one stereo, one car for the entire family, and very little technology (no computer, no ipod, no pda) then you will never have a problem with money. This will not change any time soon.

 

[ShawnD]

Rents were a lot cheaper, it was easier and cheaper to buy new homes, gas was cheaper, almost all of the modern consumer goods were available as today (except computers and cell phones and VCRs , but anyways..) , it was easier to find work, heck in NYC my cousin could change a secretary job every week if she wanted. No we are slowly getting poorer, only that it is hard to distinguish, you have to take a long look back and really remeber how it was.

The rent and land prices were lower because science can't really create land (yet anyway).
As for the gas prices, they're only spiking right now because of the war going on. This happens all the time as you can see here. Gas prices now are about the same as 1978, but it's still way below the record high in 1980 (what happened in 1980?). You can also see on that graph that the gas prices went crazy during the first Gulf War; hopefully the prices will go back down after this war as well.
Employment opportunity hasn't really dropped; you're just looking at the wrong job. Secretaries are going the way of the dodo because of computers, but most other jobs are still easy to get. Last summer I had a new job practically every 3 days. I was a landscaper one day, I was in construction the next, then I worked in a plastic factory, then I worked in a warehouse. This all went down over the period of 2 weeks. No resume needed for anything; just show up, smile, and I get the job.

 

[russ_watters]

Prices have inflated but the income for poor people hasn't, or hasn't kept up. For that matter the income of the middle tiers of the income distribution has not quite kept up with inflation.

Over what time period? According to the Census Bureau, over any time period beyond the current cycle, every income bracket, any way you slice it (individual, household, etc.) has increased faster than inflation. You hold a very common misconception. I don't know where it comes from, but it is a big factor in the politics of this issue - and liberal politics in general.

http://www.census.gov/hhes/www/income/histinc/histinctb.html

I encourage everyone to peruse the tables. I probably haven't looked at every one(the data is cut so many ways), so if anyone finds a category that hasn't shown an improvement since the data was started being collected in 1967, by all means, let me know. A quick sample, the broadest one:

Mean Household income of each income group, all races, by income group, inflation adjusted:

...1967...2004..increase in real buying power
0-20%...7,668...10,264..34%
20-40%..21,246..$26,241..24%
40-60%..33,918..$44,455..31%
60-80%..47,457..$70,085..48%
80-100%..85,406..$151,593..77%
95%-100%..134,722..$264,387..96%

That table is http://www.census.gov/hhes/www/income/histinc/h03ar.html" . That means that if you just match your parens' level of achievement - their relative place in the economy - you will be, at the very least, 24% richer. Yes, that's right, folks, the common liberal theme-song, that the poor are getting poorer, is flat-out wrong.

Now, many will notice that I used household income and will no doubt argue that that's a reflection of multi-income households, not individual income. I will say that while multi-income families have gone up, family size has gone down and those essentially cancel each other out. Regardless, that is an irrelevancy: it does not change the fact that poor people are richer, it only affects why: they may be richer because more have jobs, but they are still richer.

Here is where people will start changing the definitions in order to find a way to define the poor as getting poorer...

 

[selfAdjoint]

OK Russ. Now do the price of housing in the inner city. See how far that $10,000 mode of the lowest quintile goes.

"Real purchasing power" is more of a big fat lie than GDP! The "shopping basket" it's based on is unrealistic and, one suspects, gamed by the government.

 

[russ_watters]

OK Russ. Now do the price of housing in the inner city. See how far that $10,000 mode of the lowest quintile goes.

SA, the incomes are adjusted for inflation, and housing prices are part of that. What you are saying now is not what you argued before. Ie, you said before:

Prices have inflated but the income for poor people hasn't, or hasn't kept up.

That is factually wrong. The fact is that prices have inflated, but incomes for poor people have inflated faster.

"Real purchasing power" is more of a big fat lie than GDP! The "shopping basket" it's based on is unrealistic and, one suspects, gamed by the government.

You also cited inflation, SA - not just me. If you want to change your argument, fine, but then all we're left with is numbers you pull out of a hat, and change when you find that they don't say what you want them to say!

 

[nameta9]

Ok, let's not get into complicated rich-poor debates left-right etc. It is a very complicated argument and very subjective, the guy in Canada has 5 cars, he sees the world well off, another guy gets laid off he sees the world bad etc. Maybe what I think has changed is the BARRIER TO ENTRANCE into a middle class lifestyle. True everything has always been somewhat hard, but just considering the simplest case of a minimum job 800 dollars monthly and a minimum rent 500 dollars monthly and just considering this very simple system to evaluate a society's wealth, well this number is a lot worse today than in 1970. Of course the arguments and data can be sliced and diced in all possible manners, but I really think these 2 number are the real bottom line. How much will you make at the minimum job? and how much will it cost you to rent 1 bedroom house? well that represents how open our society is in general and a real funny thing is this number is very similar in Europe and Japan that have very different cultural and social differences from the USA. I think the structure of our western industrial societies hve this limiting factor that rents reach the minimum wage and these societies can't get much richer.

 

[russ_watters]

By the way guys, there is a related assertion here, that housing prices are increasing faster than inflation. This assertion is meant to support the assertion that standard of living is decreasing. Because of that, the assertion is factually true, but flawed. It comes with the implicit assumption that housing standards are either constant or decreasing. Ie, that with that more expensive house that you get today, you do not get a "better" house. And that's wrong. Housing standards are increasing. Whether they are increasing in line with housing prices, or across the board, is tough to prove either way, but regardless - they are increasing.

I had a better link, but for now, http://www.eia.doe.gov/emeu/recs/recs97/decade.html" is a link showing that "housing units" (houses and apartments) are getting larger. Ie, from 1978-1997, the percentage of dwellings with 1-4 rooms went from 35%-30%, while the percentage with 7 or more rooms went from 22-29%.

Another good example of both standard of living and housing standard increases is http://www.eia.doe.gov/emeu/reps/appli/us_table.html" . Some of these appliances (air conditioning, for example, is a biggie) are part of the cost of the residence and some (microwaves) are not. Some of these appliances have seen extrordinary increases in market penetration in the past 20 years. A few examples:

Appliance Percent with
...1980...2001
A/C (tot)...57...88
Microwaves..14...86
Computers...0...56
Diswasher...37...53

 

[russ_watters]

Maybe what I think has changed is the BARRIER TO ENTRANCE into a middle class lifestyle.

The barrier for entrance to middle class life is utterly nonexistant for a healthy individual. The primary requirement is finishing high school, and that is paid for by the government. In 2003, the average income for people who only ever finished high school was $30,000, while the average for people who never finished high school was $17,000.
http://pubdb3.census.gov/macro/032004/perinc/new03_001.htm

...but just considering the simplest case of a minimum job 800 dollars monthly and a minimum rent 500 dollars monthly and just considering this very simple system to evaluate a society's wealth, well this number is a lot worse today than in 1970.

I'm sorry, but your made-up scenario simply isn't real life.

 

[ShawnD]

simplest case of a minimum job 800 dollars monthly

Why are you taking numbers for somebody who works only part time at McDonalds? Those jobs are all filled by kids, and kids don't pay for room and board. Adults who need to live on their own work at higher paying jobs; usually full time. The US may not have something like this, but Canada has a government website with job listing for every city in the country; link. Just take a look around at how much some of those jobs pay, usually with no experience needed. My city, Edmonton (in Alberta), has had 549 jobs posted in the past 48 hours, and the lowest hourly rate I see is 7 hourly. It's very easy to find a job that pays at least 10 hourly for 40 hours per week, and most of them are not physically demanding. Pizza cook? Warehouse shipping (that means driving the lift)? Receptionist? These jobs are not physically intense. If you're working for $5 only part time it just means you're lazy.
Also try to keep in mind that the US on average has higher paying jobs (even before the currency rate is factored in), and the US has lower unemployment rates than Canada.

 

[oldtobor]

So russ, shawn I imagine a manager who is layed off and has to work at McDonalds for 8 hours a day in Canada or Philadelphia. Now you are both saying that he can bring home 1,500 dollars a month at that job or any similar entry level job ? Aside from age descrimination or overqualification I doubt he would even get that job. By the way could a person who is overqualified simply say he always worked at his own business and only has a high school diploma to get that kind of a job ?

Don't think it is very easy for laid off professionals to find equivalent work if they are hosed.