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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (112190)	3/14/2008 9:26:09 AM
From: Freedom Fighter	Read Replies (1) \| Respond to of 132070

skeeter, You have to be careful when you just think in terms of dollars. If a car costs me 15K and then because of inflation, the same exact car costs 30K, Nominal GDP has gone up, but Real GDP has not. If a car costs me 15K, and then because of productivity gains a better car costs me 15K, Nominal GDP is the same, but REAL GDP or standards of living are higher. Recent experience is that GDP goes up in dollar terms because of productivity, population increase, and "inflation". But living standards are not tied to increases in GDP related to inflation. They are related to productivity. That's why when we get a better computer for less money today than we did 10 years ago, we get credit for it in REAL GDP. It IS an increase in standard of living. The problem is when they add phony guesstimate DOLLARS to GDP because of quality improvements. IMO, that's not really correct. But somehow, we have to capture the fact that standards of living have improved because of better and cheaper computers. I just don't have the expertise to know how to do that correctly (and neither does the government) LOL

To: Skeeter Bug who wrote (112190)	3/14/2008 2:03:39 PM
From: TimF	Read Replies (1) \| Respond to of 132070

Tim, if the country made $1 trillion on model ts and make $1 billion on ford mustangs (and ford mustangs is all that were available similar to model ts back in the day, the nation would, in fact be poorer from a monetary standpoint. If you get more and better goods and services for less money across the board you would have deflation. Deflation doesn't intrinsically make anyone poorer. It typically isn't something people adjust to well or at least quickly so its likely to cause problems, but it doesn't directly make people poorer on the whole (obviously people with a lot of debt would be in pain). If you go beyond replacing cars to replacing goods and services all over the place, and the new better replacements costs 1000 times less in dollar terms than people aren't actually poorer (unless they have much less than 1/1000th the number of dollars). The nominal GDP figure would indeed be lower, but the deflation adjusted GDP would be higher. otherwise, i any ninny could argue that a new improved snickers bar that sells for half price is worth a million dollars in feel good "wealth." Which is another way to point out the problem I mentioned before. The correct adjustments are complex, uncertain, and even subjective to a degree. But that doesn't mean that the factors aren't real. If the Model T sold for $1000, and then the 2008 Mustang sells for $1001, you haven't had inflation. Ignore quality improvements and you would show a tiny bit of inflation, but in reality your getting much more for a very slightly higher price. The Model T and the Mustang are not the same good, paying more to get more doesn't show inflation. Even when the new good isn't clearly better, you still have the problem that it isn't a different good, and simply counting it as the same thing doesn't give you a very accurate picture. The adjustments might be difficult to do well, and easy to reasonably dispute, but counting a new good as the same good, is also very easy to reasonably dispute.