Disentangling GDP

Captain Capitalism is a good site that you should read.

He had an interesting post today trying to discern the “black magic” behind Keynesian economics, and I left a comment there that I want to flesh out further here.

The flaws of the Keynesian stimulus approach to reviving our moribund economy come from pursuing a flawed metric through a flawed method.

The Flawed Metric

GDP is, quite simply, the wrong metric to prioritize.  While the values it aggregates are all denominated in dollars, they all have different future meanings and implications.  Losing the distinctions between the three major component categories causes much muddled thinking, and allows someone trying to optimize GDP to cheat through unsustainable means.

Let’s break it down, remembering that what matters is productivity; productivity is the only sustainable method of growth that does not rely on theft from future generations:

I

Current Impact: purchasing the necessary assets to increase productivity

Future Impact: More stuff is produced for consumption by future people.

Note: the existence and magnitude of investment is heavily reliant on projections of ROI, meaning the likelihood and magnitude of profit are the key levers affecting investment.

C(-Imports+Exports)

Current Impact

Future Impact: Keynes treated consumption as roughly equivalent to investment because consumption worked its way down the value chain to pay for the materials at each step of the path.

Note: The method by which Keynes’ equivalence is drawn is the retention and reinvestment of profits beyond what gets passed down the value chain.  As a result, profitability impacts the extent to which consumption can cause sustainable, real growth of an economy.  This, in turn, means that driving C without also allowing profitability and reinvestment is pissing in the wind.

G

Current Impact: Stuff that people are willing to vote for, but not willing to pay for directly; green energy companies, tax collectors, military adventurism, EPA investigations,

Future Impact: Death and Taxes and Litigation

So, putting that all together, G, C, and I all count the same in an instant measurement of GDP – but each component has significant differences in what it means for current happiness and especially future productivity.  These differences are obliterated when we focus on an aggregate measure instead of looking at the underlying components.  When you throw in the borrowing power of the government, GDP is too susceptible to manipulation to be a metric with either predictive power or value as a goal to be pursued.

The Flawed Method

Academic economists view Keynes as reduced to formulas by Samuelson not as a rough model of reality that needs to be refined and infused with real-world meaning, but instead as a simple optimization game based on those established  formulas.

Combine that with their stated desire to be the sci-fi heroes of their youth, Asimov’s “psychohistorians.”  That adolescent wish causes academics to most embrace the school of thought that would allow them to carefully curate economic outcomes, and leads to the forumulas-as-optimization-game approach.

As discussed above, GDP has a gaping flaw in that it treats three unlike items as like.  This flaw creates a loophole in the rules of the GDP optimization game, where using deficit spending and transfer programs to juice C and G offers the appearance of growth but without sustainable gains in productivity that would produce long-term prosperity.

Resisting the Army

One of the purposes of the Second Amendment is to enable the citizens to resist tyrrany.  This causes anti-gunners to present a ridiculous and troubling argument: that gun rights should be surrendered because resisting gun owners would be crushed by the might of the US Army.

This is troubling because it illustrates the liberal desire to turn the guns of the state against all they find objectionable.  You see this in their attitudes towards tax and regulation, but it’s always masked by the enforcement agents being agencies like the IRS (who actually buys a lot of JHP ammo!), instead of the Army.

It is also a misguided argument on two fronts: it assumes military loyalty, and it ignores the reality of insurgency.

If crushing resistance with tanks and drones were so easy, we would’ve been done with Afghanistan a long time ago.  However, armed resistance mingled among civilians is difficult to root out, and would only be more so as the collateral damage became more important to the average American (as it would on our soil, versus drone strikes on random Afghani camps including war-crime “double-taps”).  Tanks and drones would not be shooting at my house, because I live surrounded by Obama voters.

Perhaps most insulting is the idea that the Army would bring their terrible power to bear on American citizens.  The President may be Commander-in-Chief, but the servicemen swear their oath to the Constitution.  Politics within the service are diverse, and many soldiers are also recreational shooters, hunters, and collectors off duty and big believers in their right to armed self-defense even outside the uniform.  To assume that government employees would robotically follow orders and rules, without regard for their own interests, goals, or principles is the same Liberal fallacy that ignores the possibilities of regulatory capture and corruption.  There would not be a unified force turning its guns on Americans; at best, it would be a fractured and hesitant force because of the morality and character of its individual servicemen.

Finally, it’s troubling as a matter of character.  Anti-gun advocates believe that their argument “if you fight, you’d die” necessarily leads to the conclusion “you should never fight, nor be prepared for a fight.”  The unstated premise needed in that argument is that dying is never worth it – that there is no principle, freedom, or group more valuable than one’s own continued existence.  The principle goes unstated because Liberals cannot imagine something greater than themselves; a trait that drives their hubristic approach to legislation and a managerial structure to government and the economy.

Quick note.

People talking about the NRA or a “gun lobby” as though it’s a small fringe are largely ignorant of the scope of firearms ownership in America.

Obama received 61 million votes in 2012.

America has approximately 80 million gun owners currently, though projections are somewhat fuzzy.

The requirements for gun ownership are stricter than those for voting, though they both have a similar age requirement and require non-felon status.

If you paint the gun lobby or the NRA in particular as some sort of illegitimate fringe, then you are also denying that Obama has sufficient mandate to change anything.