On Sat, Mar 21, 2009 at 8:12 AM, Jim Devine <[email protected]> wrote:
> However, I can't claim to have read all of your pen-l contributions, Tom. > You really only have to read the one that you are ostensibly replying to, Jim. The argument is about whether GDP remains a useful measure of what it is intended to measure. You and I agree, I believe, that GDP isn't intended to measure utility or national welfare. I think we also agree that it is intended to measure market transactions. I would go one step further -- and here is where we may disagree -- to say that GDP is intended to measure something like "real" transactions (or final consumption, if you prefer). If you and I share a car and every time I take it out I pay you the value of the car, $1000, then you pay me the value of the car when you take and the car changes hands three or four times a week, all those transactions don't count in GDP. Hirsch's argument is that there are intermediate goods and services whose only purpose is to gain an advantage in the competition for other, "scarce" or "congested" goods. These intermediate goods and services do count in GDP, even though they don't add to the supply of the scarce or congested goods (or at least not much). You may say, "so what, they still generate profits for business." But I say they don't have the same characteristics as final consumption goods and services. They depend for their demand not only on the total volume of aggregate demand but also on a particular illusion about "the way the world is" and how to get on in it. By itself, fiscal stimulus may raise the level of aggregate demand but it doesn't reinstate the previously prevailing illusion. That's all I'm saying. More abstractly what I'm saying is that "economic demand" cannot be reduced to a mechanical and quantitative thing because it is also subjective and cultural. A mechanical, quantitative policy response to a crisis will not work, otherwise there wouldn't have been a crisis. -- Sandwichman
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