- #1
John Creighto
- 487
- 2
The problem with GDP is that it doesn't distinguish between goods which create value and disposable goods.
For instance a job in the service industry is considered equally valuable as a good, which you can use over several years. Now I think that the price of a good is related to how long it lasts so indirectly it is included in the gross domestic product. However, to me comparing services to durable goods is like comparing apples to oranges.
If we strictly look at consumption, then we can compare a service to a durable good, as the amount of the durable good we consume is depreciation. While when we purchase a service the value of that service is generally consumed in a very short time frame. Thus if we look strictly at consumption we get an apples to apples comparison.
Note that in the GDP consumption is included as part of the calculation but the consumption of durable goods is measured in the time the good was produced. Depression is also included in the GDP but only the depression on capital investments.
Now I understand that measuring the economy based on consumption as opposed to production seems to promote a measure which rates an economy with more disposable goods as better then an economy with less disposable goods. However, if we subtract the gross Consumption product from the GDP we get the growth in real wealth.
My point is that I find it more interesting to look at two indicators, total consumption, and wealth generation, then GDP. Consumption represents the amount we benefit form goods and services in the present while the growth in wealth represents how much we will benefit in the future.
http://www.trcb.com/Finance/Economics/GDP-and-Its-Measurement-1055.htm
For instance a job in the service industry is considered equally valuable as a good, which you can use over several years. Now I think that the price of a good is related to how long it lasts so indirectly it is included in the gross domestic product. However, to me comparing services to durable goods is like comparing apples to oranges.
If we strictly look at consumption, then we can compare a service to a durable good, as the amount of the durable good we consume is depreciation. While when we purchase a service the value of that service is generally consumed in a very short time frame. Thus if we look strictly at consumption we get an apples to apples comparison.
Note that in the GDP consumption is included as part of the calculation but the consumption of durable goods is measured in the time the good was produced. Depression is also included in the GDP but only the depression on capital investments.
Now I understand that measuring the economy based on consumption as opposed to production seems to promote a measure which rates an economy with more disposable goods as better then an economy with less disposable goods. However, if we subtract the gross Consumption product from the GDP we get the growth in real wealth.
My point is that I find it more interesting to look at two indicators, total consumption, and wealth generation, then GDP. Consumption represents the amount we benefit form goods and services in the present while the growth in wealth represents how much we will benefit in the future.