Economic Wargames

Great Debates
21

Ok, I’ll keep being nice, because there are some serious issues here.

First off, national income acounting is not algebra, it is measurement. It is an attempt to construct some meaningful numbers about various things, which are with some luck, comparable over time and maybe over regions. With statistic measurement, sometimes you have to ignore things that you don’t have good data for, are subject to bias, aren’t of first order significance and/ or you can’t afford to look at in sufficient detail to matter.

As I said before, lots of important things that we know affect economic welfare are not accounted for or poorly accounted for in national income accounting. Depreciation of consumer durables is one of them. (BTW, try searching for “national income accounting” “consumer durables” rather than “depreciation”)

One of those things is consumer durables. Let’s take a washing machine. You quite rightly say the depreciation of the washing washine is not accounted for in the statistics, and that this is an important feature which affects welfare (although not for the measure you mention, of which more anon).

A $500 dollar wahing machine goes into the stats as $500 this year. No account is made of the fact that it loses value of time. However - and as I said more importantly - no account is taken of the fact that it provides services over time either. My five year-old machine, which is still going strong makes no contribution to measures of national output or consumption in years subsequent to purchase.

Does this matter for welfare? Sure. Is it worth taking account of? It would be complicated. Do you assume a linear or geometric pattern for deprecation? How do you account for quality changes in consumer durables? I don’t know the answer to this, but I would say that national income accounts are not taken all that seriously as a measure of welfare due to problems much more serious than this already, and any enormously expensive attempt to account for an accruals measure of the time value of consumer durables would not make economists abandon their skepticism of these measures.

Note in passing, that as I said before, the net “error” in the accounts due to this problem is the opposite sign (high school enough for you?) to that which you state: the continued use value of durables unaccounted for is liable in any year to be greater than the depreciation of consumer durables unaccounted or.

Finally, you misunderstand the meaning of the measure of “Net National Product”. Getting rid of the depreciation of capital is not intended to give a measure of this year’s “real consumption”: it is intended to give an idea of next year’s output if the existing capital stock were used. In other words, you accuse the measure of being a poor measure of something else.

As an Australian, I don’t know what an SAT really is. And high school maths is a while ago.

picmr

22

Excellent. we are getting into what is the purpose of the economy and what data we should be collecting and why?

 NDP = GDP - Dcap         NDP = GDP - (Dcap + Dcon)

the left equation is the official one used and the right one is mine. (sorry i just mean that positionally)

i’ll resort to an analogy like economists often use to educate the unprofessionals. suppose you have a 55 gallon drum sitting next to a lake. there are two men, one on each side, with beer mugs dumping water from the lake into the barrel. one man is the capitalist, the other is the consumer. one would think that the amount of water in the barrel is increasing at whatever rate the men are bailing.
[can you only bail out, or can you bail in, LOL] but, there are two holes in the bottom of the barrel, one on each side. there is a capitalist hole and a consumer hole. our economist comes along and counts the number of beer mugs tossed in by both men every 10 minutes, and calls this the GBP, Gross Barrel Product. when pressed he admits there is some leakage on the capitalist side and will subtract this calling the result the Net Barrel Product. there is virtually no mention of the LEAKAGE on the consumer side. i suspect the vast majority of automobiles in the USA are owned by consumers.

now i said later in my essay that the way to keep score is NET WORTH. this means minimizing liabilities and depreciation. if consumers maximize depreciation they have to compensate for the loss to maintain the same quality of life which usually means working for somebody. so depreciation helps keep people running on a treadmill making other people richer. is that what the economy is for and economists RATIONALIZE the economic power game and justify most people being LOSERS. i really think it is an ECONOMIC POWER GAME but WARGAME made a better title.

do you notice how rarely economists talk about the NET WORTH of the average family. they talk about STANDARD OF LIVING. a lot of depreciation gives you a HIGH standard of living if you have the income to compensate for it. the bankruptcy rate has been rising in the US since 1994. every now and then you hear about the middle class shrinking. some are rising out the top, but more are falling out the bottom. why do so many families have husband and wife working to make ends meet? what has been the point of technological advances since 1950? shouldn’t the quality of life be going up? is it? if not, why not?

if you reduce the rate of leakage from the consumer side of the barrel, you run the risk of filling up the barrel. isn’t that the point of putting water in the barrel? are we supposed to be squirrles in a cage too stupid to figure out we are just working to make other peolple richer and polluting the planet in the process? there are other side effects to planned obsolescence. you have noticed the ozone hole down there?

i’m a landlord so i have 3 people paying me rent to cover my mortgage. it’s not that i think there is anything morally right about this private property concept, it is just that the system was designed this way before i was born, it didn’t do a competent job of educating me as to how it worked. had to find books and observe and figure out stuff myself. it is really stupid in it’s simplicity once you blow away the economist’s smoke screen.

if you look in YOUR MONEY OR YOUR LIFE, the 1st chapter is THE MONEY GAME. it corroberates most of what i say, but it doesn’t modify the NDP equation. that is original Timgar.
and it looks like the beginning of my 8th grade algebra book to me. did more complicated stuff when i was 13 years old.

                                             Dal Timgar
23

And speaking of smoking…

24

i LOVE your deep intellectual refutations bill. that was rambling smoke wasn’t it?

                                             Dal Timgar
25

dal_timgar,

I did not read the complete original post. But if the later summarization of it is accurate then I think you are missing an important point.

The GNP is not used as an absolute measure. There is not an absolute amount of GNP that is needed in any given year. No one thinks that the GNP is in itself a complete indicator of the state of the economy or the welfare of the people.

It is the rate of change in the GNP which is significant. A healthy economy requires a constant growth in the GNP. When economists see the rate of growth in the GNP veering from healthy and sustainable levels, it becomes cause for concern about the direction that the overall economy is taking, not because the GNP itself is a problem.

The depreciation you describe is certainly one factor which influences the growth in GNP. But as long as this rate of depreciation is kept to fairly consistent levels from year to year, it can safely be discounted from the analysis. If you could show that the rate is irregular than you would have a better case for making the effort to include it.

26

what happened to our economist? i’ve been waiting for his response to my NET and GROSS BARREL PRODUCT analogy?

@izzyR

how can we know if out depreciation remains at “consistent levels” if we don’t even talk about it, much less try to measure/estimate it? are we running an economy on FAITH here?

                                             Dal Timgar
27

> As an Australian, I don’t know what an SAT really is. And high school maths is a while ago.

It’s a standardized college entrance exam many of us Americans take. There are two parts, math and verbal, each with a maximum score of 800. Some people who do well on the test like to brag about their scores.

28

Dal - you can’t actually believe that bit about not needing to redesign cars and other things once a good design is made. First off, roads and highways do change, as do typical driver and passenger shapes, but that isn’t really important. What is important is that as more and better information becomes available designs are looked at again and revised. CAD systems, wind tunnels, and tons of other tools are being developed and refined constantly to improve the development and design of other equipment. Laws of physics don’t change but measuring devices and manufacturing techniques do. Materials availible for use in manufacturing change constantly too. You want an all metal car? No plastics? In terms of cost, safety, reliabily and fuel economy that is insane. Other factors change too, such as fuel cost, which appears to be an increasingly important factor right now. Admittedly car companies use planned obsolescence to sell more cars, but they also constantly strive to develop a product that consumers want, and consumers are incredibly fickle.

The other factor is choice. Slave cards? They are a really raw deal, but they are voluntary, and therefore nothing like slavery. Educating people could solve the problem.

Also, your essay seems to imply that there is a global consiracy to hide the “true” information about the economy. I think this info is readily available to anyone who looks for it, as are products like blenders, toasters, coffee makers, cars, etc that last almost forever. They just don’t sell that many of them to your average consumer. Next time you consider purchasing an effectively disposable product, do some leg work and check out the commercial models. Most restaurants use appliances like toasters and dishwashers that are all stainless steel and last a very long time. The smaller models are comparable in size to typical residential stuff, and are much more durable. The electric and plumbing connections can easily be made in most homes. They cost an arm and a leg but are probably cheaper if you look at lifecycle costing. They are there for sale, stop bellyaching and buy them. Tell your friends. Oh, and there are commercial model vehicles too, like cabs. Unless you would use it 24/7 with down time only for maintenance it wouldn’t pencil out though.

Sorry, but I can’t let go of this car thing. What are you thinking about with the stainless steel cars? Why? Stainless steel is a bitch to work with. Machining and welding the stuff is really tough. If you got a dent or a deep scratch you might as well throw out the whole panel. Difficult repairs mean faster obsolescence. The plastic doors on the Saturns are much better in almost every way than the Delorian bodies. Notice that no one is duplicating it. Stainless steel is for specialty applications that require a very high degree of cleanliness, like medical stuff or food processing, and maybe Danish furniture. It isn’t good for most other stuff. Plastic or composite materials are better. Really.

29

my OP is about ECONOMICS, it is not about CARS. cars are just a MAJOR expense and a large source of depreciation. i found a website that say you loose 25-45% in the 1st year on a car, sylvia porter says 50% in 3 years.

i don’t care if the car is stainless steel, or plastic reinforced by stainless steel as long as it doesn’t rust and lasts 30 years. i mentioned the P-38 and SR-71 in the OP. are you telling me lockheed didn’t know aerodynamics in 1940 when they designed a machine that flew 400 mph without computer aided design? what about the boeing 747, look at how much that aerodynamic design changed in 30 years, but it got bigger. i know the japanese have gotten taller since pre-WWII, but the only change i’ve heard about in americans is getting fatter. i know more highways are built, and they cut grooves in the road in some locations, but i don’t know of any change that would involve changing the design of the cars. i know they are experimenting with magnets in the surface for automated guidance, but even that wouldn’t involve changing the body design.

are you trying to tell me that you don’t think more than 90% of the changes are styling for marketing purposes. this means retooling the factory, makes replacement parts more expensive.

do you think the depreciation of the cars should be subtracted from GDP to compute NDP? what about the bathtub curve business? don’t you think auto manufacturers could test the durability of the machines and tell the consumers? do you think they test them already but don’t give us the data? it’s 30 YEARS AFTER THE MOON LANDING!!! don’t you think they know how to make cars right already? do you doubt that they just make more money with useless variations?

                                              Dal Timgar
30

OMG

A thread from before 9/11

I suppose I need to update Economic Wargames since it is half-a-century since the Moon landing.

Funny how data on the distribution of steel down the Twin Towers is not easy to get. Oh, there were horizontal beams on each level in the core?

31
Summary

Welcome to the Dope. I suspect your time here will be less than half an hour.

32

Moderating: Hiding your post. If you think there is an issue, flag it. But posts like this are not acceptable.