Saturday, December 08, 2018

Growth Means "Smaller"

Dean Baker, economist, not only admits yesterday that his discipline mostly doesn’t know what it’s talking about, saying that, “Almost no economic models projected the collapse of the housing bubble and Great Recession,” in the same article he admits that he does not know what constitutes growth.

As things wear out, the tells us (“clothes, shelter, computers, etc.”), and we replace them with ones that are “better (e.g. longer lasting, clothes that are warmer or cooler etc.) than the ones they replaced,” presumably on a one-for-one basis since he uses the term "replace," he asserts in the article that, “that sure sounds like growth to me.”

So, if I have a 2 MHz computer with 2Mb memory that cost me $3000 and am able to buy a 4 MHz computer with 6Mb memory to replace it for $1400, which actually happened, that $1600 smaller sale and $1600 smaller contribution to GDP would represent growth to Dean Baker.

A businessman would certainly not consider a $1600 smaller sale, a 53% decrease, to be “growth.” Only an economist would think in those terms.

1 comment:

  1. bruce9:02 AM

    well it would also be a smaller wholesale cost to the businessman, so his net profit should be similar. And lower cost outlay might be better for growth in terms of product available to sell.

    But the article blathers on about global warming a lot - a problem, sure, but ... It just seemed confusing.