Web of Wealth

Can anyone explain to me what Gross National Product (GDP) measures? Perhaps I am a bear of small brain, but whenever anyone mentions the subject, I rapidly find myself baffled.

Usually, when it is mentioned, someone quotes the statistic that "In the UK and the USA, 70% of GDP is consumption"

Now I thought that Production and Consumption were on opposite sides of the ledger.

So how can 70% of Production be Consumption?

I wouldn't expect any of this to make sense. Monetarised transactions nominally count towards GDP or GNP. So flood damage is product and free software is not.
I reckon the contradiction you point to is significant in showing that no-one is alert to the ways in which the figures produced may lead us to doing all the wrong the things.

IYCMIMI: the thinking that runs: 'if you can measure it, measure it' has been used over the years to impart meaning to all sorts of nonsense. Implicit in this bureaucratic way of thinking is that measuring equals controlling and controlling imparts meaning. QED.
GDP, and similar made-up measures, are firmly in the IYCMIMI camp. For me, they are no more than the explicit admission of a catastrophic failure to understand how to intervene in complex systems.
Donella H Meadows, in her 1997 paper, Places to intervene in complex systems, sets out for us a hierarchy of effective interventions. Naturally, the more effective the intervention, the more challenging it is.
On Donella's scale of zero to nine, intervening by numbers is the least challenging of all. It's also the least effective. It's where GDP sits in the great scheme of things.

On the subject of the intellectual giants who bring us GDP, the same guys, a few years ago decide they were going to run the economy using Milton Friedman's ideas about 'monetarism' in order to manage inflation. (Monetarism was no more than a restatement of economics's old-time Quantity Theory. This says that inflation is a function of the quantity of money in circulation, price levels and transaction rates. )
When the time came they were unable even to measure 'money'. They couldn't even agree on what they meant by 'money'. They never spoke about 'circulation'. They ended up with all sorts of nonsense measures - M, M1, M2, M3, M3+ - to try to get a grip on what money might be: pocket change, cheques and drafts, credit cards, foreign exchange and so on and on.
In the end they did what IYCMIMI guys always do when they find they can't actually measure it: they kicked the whole thing into touch and went to back to stuff they felt comfortable with.
Stuff like GDP.

Hi, John,

This obsession with measures that don't make sense goes along with the claim that anything that we can't measure therefore does not exist. Since it does not exist, it therefore doesn't matter. The favourite slogans here all start with the words "In the real world....".

I find the use of the word "real" extremely interesting in discussions of economics. When the Credit Crunch set in, it triggered the usual questions about whether this would affect the "Real Economy".

We now know the answer to that, but few people seem to ask the obvious question, "If there is a Real Economy, this implies that the world of global finance is the Unreal Economy. If it is the Unreal Economy, why do we allow it to ride roughshod over everything else?".

Who but a bunch of lunatics would allow the Unreal to dictate to the Real? Surely we can arrange our affairs better than this?

Rather than just poking fun at all this stuff, I hope that Web of Wealth will become a platform where we can build real tools that we can freely distribute to people to manage their affairs better.

I am not interested in adopting political stances with respect to these matters. All the labels used in these matters are leftovers from the eighteenth and nineteenth centuries - Left Wing, Right Wing, blah, blah, blah.

Instead of debating stuff, our stance should be "Here are some tools, try them out. If you like them, then use them. If not, help us to build better ones".

I've just been listening again to Michael Sandel's first Reith lecture. Over the series of five such he's addressing precisely the questions WoW sets out to answer. Find it at http://www.bbc.co.uk/worldservice/specialreports/2009/06/090612_reith_lectures_2009.shtml. It's practically what I imagine Aidan would be saying if he were lecturing. (There are also echoes of Tom Lehrer, which is an added bonus.)
When he started on (inappropriate) marketisation, my mind slid to a spoof we staged right after Thatcher privatised water. It involved the police arresting an old lady for illegally melting snow and subverting the market for water. Next, we should expect there to be a clothes line tax as the wind becomes the exclusive resource of turbine owners generating power...

To pick up this thread again, there is a potentially measurable real number that is significant. If a firm makes goods, or trades, there is in general a gap in time between when it acquired what it needs and when it can sell on its added value output. The time over which value is tied up in the process needs to be bridged by finance, otherwise output and value generation is artificially limited.
If we take this process throughout say a national economy, we have a measure of how much money must be in circulation to allow the real economy to function normally. If this stock of money is maintained there is no inflationary pressure from extending the money supply.
As I understand it, the political pressure to count everything anyone does, including civil servants as "adding value" has debased these measures to the point where if you divide the totals by the working population everyone is ridiculously productive. How would a correction happen?