1/ Because of Who I Am As A Person, seeing Musk propose eliminating Government Spending (G) from GDP reminds me he has no idea what he's talking about, but this time he has veered into a domain I can talk competently about
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2/ Superficially, you can't do that because GDP is a well defined thing: GDP = Consumption + Investment + Government Spending + Net Exports = C + I + G + NX
If you take something out, and you can do that, you no longer have GDP
3/ We could, in fact, talk about a whole menagerie of alternatives, from the Net Domestic Product to National Income to the old standard, Gross National Product. I was wondering if *any* of the named ones in the NIPA handbook subtracted G, and they do not
4/ If you're keeping score, so far this is all appeal to definitions, which proves Musk, an obvious genius, simply has not learned the lingo. It is possible such a savant has intuited some profound insight that decades of economic research has thus far not seriously considered. Let's look at that
5/ If you only got an intro to macro, it's easy to have seen C+I+G+NX and conclude that these four pieces are it
There are, in fact, hundreds, and know now I am not going to give a satisfactory explanation of how it all fits together, but we can get the broad strokes
6/ The government arranges the data into 7 double-entry accounts, for 14 columns of data:
1) A summary account (GDP, basically)
2) Private enterprise
3) Households
4) Government
5) Imports and Exports
6) Domestic investment
7) Foreign investment
(These are fast and loose, but the gist)
7/ Critically, any dollar in an account must be recorded again in a different account for them to balance. We're interested in where government spending gets double-entered, because it explains a lot. (And the double entry is a feature, NOT AN ERROR)
Reminds me of motorcycle manufacturers switching to "dry weight" in specs, to make their bikes sound lighter. Dry weight is without fuel, oil, battery, all the fluids required for the bike to be a usable bike.
Magazines just started adding it back in and listing "Est. Kerb Weight" in articles.
It’s also why the SEC had to crack down on companies using “non-GAAP” financial measures - oh, here’s our net income if you don’t count all the losses!
Companies can still use these figures to some degree, but they have to very prominently reconcile them to the actual GAAP figures.
This is a really good metaphor, especially for a metaphor; you need those things for it to work right, there are actual improvements you could make, it sounds smart to not list those if you just give it a glance
Great explainer, thanks for posting. And it's pretty obvious at this point there's no topic Elon knows much of anything about. It's a safe bet to assume whatever he posts is either wrong, a lie, bullshit, or all of the above.
Correct me if I'm wrong, but wouldn't eliminating government spending from GDP calculations suggest command economies have 0 (or close to 0) economic output?
Conceptually, that's not even part of GDP because it's income, not production!
So, if Musk is saying they should rework this in a principled way, I think you'd splice that out and it would greatly decrease the reported output in such a country, but I'm not sure he's baked it that far
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If you take something out, and you can do that, you no longer have GDP
There are, in fact, hundreds, and know now I am not going to give a satisfactory explanation of how it all fits together, but we can get the broad strokes
1) A summary account (GDP, basically)
2) Private enterprise
3) Households
4) Government
5) Imports and Exports
6) Domestic investment
7) Foreign investment
(These are fast and loose, but the gist)
Magazines just started adding it back in and listing "Est. Kerb Weight" in articles.
Companies can still use these figures to some degree, but they have to very prominently reconcile them to the actual GAAP figures.
So, if Musk is saying they should rework this in a principled way, I think you'd splice that out and it would greatly decrease the reported output in such a country, but I'm not sure he's baked it that far