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Old December 13th, 2016, 06:28 AM   #51
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Is it the case with GDP that if say a school burns down and is rebuilt then the cost of rebuilding it will be included in GDP even though nothing new has been added?
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Old December 13th, 2016, 09:12 AM   #52
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Is it the case with GDP that if say a school burns down and is rebuilt then the cost of rebuilding it will be included in GDP even though nothing new has been added?
Yes and no. On the one hand, GDP is a flow variable, i.e. it measures transactions through which wealth is created or transferred. The actual unit of GDP is not, say, value added, but value added per year. The rationale behind GDP as an instrument of economic theory and policy is to measure existing economic capacities, not existing wealth. On the other hand, GDP is a measure of the gross product, i.e. it includes all transactions in an economy. Thus, some of the transactions based on the existence of the school building will not happen after it burned down, or change in content: the monthly rent to the owner, or the wages of the cleaning personel, for example. That's why, in the others threads, I argued in favour of GDP for the analysis of the economic strength of countries, like China. It does, however, not directly measure wealth or well-being.
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Old December 13th, 2016, 10:24 AM   #53
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Is it the case with GDP that if say a school burns down and is rebuilt then the cost of rebuilding it will be included in GDP even though nothing new has been added?
Well somebody got paid for it and went on and spent the money elsewhere.. So even though your number of school is still the same, you might have , for example more cars (the guy bought a car for him and his wife) or houses (he built a house) or whatever....

One of the tricks in the economy is that the money moves around... the faster it moves the more "value" it creates (and the more tax revenues)
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Old December 16th, 2016, 04:56 PM   #54

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Well, GDP is a measure of how wealthy a country is. What it is not is a measure of how well this wealth is diffused through society, or, indeed, of how good living standards might be. When media cites GDP figures in regard to China, at least in my experience, they do so to show the strength of Chinese manufacturing and exports. And in this context, using GDP is perfectly fine as competitiveness does not have to correspond with income equality or quality of living.
Which is my point. it's misused by the media. GDP only can say how much is produced, it should never be used to denote living standards.
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Old December 16th, 2016, 05:20 PM   #55

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Ive always considered the Debt to GDP notion to be a misconception of how to measure debt and deficit.
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Old December 16th, 2016, 11:22 PM   #56
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Ive always considered the Debt to GDP notion to be a misconception of how to measure debt and deficit.
Why ?
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Old December 16th, 2016, 11:23 PM   #57
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Which is my point. it's misused by the media. GDP only can say how much is produced, it should never be used to denote living standards.
Why not ?

If a country produces nothing, its living standards will be low..... If it produces a lot, there is wealth to distribute, money to be spent on infrastructure etc...
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Old December 16th, 2016, 11:44 PM   #58

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Why ?
Japan has a Debt/GDP ratio of 230%. Greece had one with 175%. That is a difference of 55%. Guess which one needed extensive debt assistance. There are various things to consider, namely the Interest Rate, and the ability of the Government to call upon the nations financial resources in the form of Government Revenue (which in turn is heavily influenced by Per Capita).

I think the better way to judge debt is Interest as a percentage of Government Revenue. And I would judge Deficit by how it will influence that percentage. So if Interest grows as a percentage of Revenue (baring in mind the growth [or lack thereof] of Revenue), then the Deficit is too high. If it shrinks, then the Deficit and Debt, despite going up, is in the Green.

Of course, things such as increased taxation or Interest Rate reduction matter greatly, as they may generate a 'fake' reduction in the Debts severity.

So Interest as a Percentage of Revenue, not Debt/GDP. And the Change in this Percentage to judge Deficit, rather then just the absolute number of that Deficit.
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Old December 16th, 2016, 11:51 PM   #59

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Why not ?

If a country produces nothing, its living standards will be low..... If it produces a lot, there is wealth to distribute, money to be spent on infrastructure etc...
A country with a thousand people and a billion dollar GDP will have more wealth, relatively, to distribute then a country with a billion people and a trillion dollar GDP. Or perhaps not, if that first country has 1 Billionaire. At which point the nation may very well a lower standard then the second.

The GDP only helps if you can see a variety of other factors, like population size and already present distribution.

Also, taxation as a percent of GDP matter.
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Old December 17th, 2016, 01:45 AM   #60
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Japan has a Debt/GDP ratio of 230%. Greece had one with 175%. That is a difference of 55%. Guess which one needed extensive debt assistance. There are various things to consider, namely the Interest Rate, and the ability of the Government to call upon the nations financial resources in the form of Government Revenue (which in turn is heavily influenced by Per Capita).

I think the better way to judge debt is Interest as a percentage of Government Revenue. And I would judge Deficit by how it will influence that percentage. So if Interest grows as a percentage of Revenue (baring in mind the growth [or lack thereof] of Revenue), then the Deficit is too high. If it shrinks, then the Deficit and Debt, despite going up, is in the Green.

Of course, things such as increased taxation or Interest Rate reduction matter greatly, as they may generate a 'fake' reduction in the Debts severity.

So Interest as a Percentage of Revenue, not Debt/GDP. And the Change in this Percentage to judge Deficit, rather then just the absolute number of that Deficit.
I agree with you that the debt to GDP ratio can be misleading. I would add a couple of other points to your above reply.

GDP in itself can be very misleading. All it takes is for a financial or housing bubble to artificially inflate GDP by, say, 10% or so for the GDP figure to be little more than bunk.

The Gov't revenue figure is important but can also be misleading. Here it would be good to compare UK and France. Both countries have similar GDP and similar debt levels. Yet I would say in one way the UK govt is in a better financial position. France has ran up it's Gov't debt under a far higher tax rate than the UK govt has with it's debt. The UK gov't can in theory increase it's tax intake without the economy crashing. I think an increase in French tax rates will be a disaster. I don't know the exact rate at which marginal tax rates increases lead to a reduction in revenue but France must be very, very close to that point.
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