If I'm a company making $1000 gadgets and then adopt some technology (like robotics) to reduce the cost of my gadget to $500, have I just reduced my country's GDP?
Great question. The answer is no. This is one of those many cases where thinking in money terms confuses the issue.
If the country had 100 people making gadgets, and now it only requires 50 to make the same number of gadgets, the country can now double the amount of gadgets it makes, or the 50 people can go make something else.
Therefore, a doubling in productivity will not decrease GDP (total production of an economy), but increase it.
By doubling the amount of gadgets in the market you are also reducing price of the gadgets (according to offer and demand). The parent's idea is not new, it was already introduced in the first chapter of Marx's Capital. The only capitalistic solution to the devaluation of work introduced by increases in productivity is to increase the demand for things: by increasing peoples consumerism via marketing, reducing the durability of the things, etc.
This vicious circle has to stop, or the planet will stop it for us. We should think about how to work less and consume less.
You have a very one-dimensional opinion on consumerism. Increased consumption doesn't just mean selling twice as many shoes as yesterday for half the quality. It also means augmenting existing services: Like creating a telephone connection instead of a telegraphic line. Or creating a global computer network instead of a simple telephone connection. It's a very virtuous cycle. Of course it's not a guarantee for a better world but your proposal that [w]e should think about how to work less and consume less is a certain path towards a lower quality of life.
To be fair you have to mention another way to increase demand: make new and better goods and services. You could argue that this is just "consumerism" but I think that definition misses a big part of the reality. Consider a high-tech prosthetic arm as an example.
What? If people want the same amount of things but are now more productive, they can also choose to work less (which is what has happened over the last few hundred years.)
What if the number of gadgets produced isn't doubled and the workers do not go on to make something else for another 20 years due to similar automation simultaneously affecting all other jobs that would have otherwise been available to them? It seems to me that this might preserve the GDP rather than increase it (within the 20 year period), but it would also redistribute wealth and create severe inequality.
Underlying assumption here is that the economy is supply-constrained. If the economy has insufficient demand all you'll do is create more unused capacity.
True in the assumptions. When looking around the world, I don't see any constraint in demand. I see people wanting better healthcare, iPhones, yachts, food, etc. I also see people wanting longer weekends and earlier retirement.
The alternative demand constrained world with excess supply would look very different
People may want a lot of things but in order to belly up to the demand side of the economic table they have to have the means to buy them.
Create an economy where the vast majority are unable to consume very much while aggressively expanding productivity and you'll create an economy with a demand shortfall.
It can double the gadgets, but it doesn't necessarily have to. If the reduction in total income leads to less demand for (other people's) labor, then people could just work less in total and consume the same. They're better off, but have the same GDP.
Alternatively, imagine that someone makes a universal bot-slave that provides for all of your needs, manufacturing as necessary from raw inputs. It just buys the natural resources for pennies and makes them for you. The only inter-human commerce is for the natural resources (delegated through the bot-slave).
In that case, almost none of the production shows up in GDP accounting (because the bot just makes it and gives it to you), yet people are much better off.
But the GDP is usually measured in money, right? Also, if there is no demand for more gadgets, and those 50 people who are unemployed and can't find new jobs, then what happens to the GDP?
If it costs $900 to make a gadget you sell for $1000 and you replace the staff with robots which cost $500 per gadget then there is no effect on GDP as it only tracks value produced.
The only way to reduce GDP is by lowering the price of your goods (assuming demand stays constant), or implicitly by letting your excess profits sit as cash instead of consuming or reinvesting (which both create and increase value).
> If it costs $900 to make a gadget you sell for $1000 and you replace the staff with robots which cost $500 per gadget then there is no effect on GDP as it only tracks value produced.
If you are selling in a competitive market, the price for per gadget will drop with the price of production, reducing GDP before considering other effects (while the purchasers will probably spend their additional cash on some other good, there is no guarantee that good will come from your country, so while world product may not decrease, your domestic product may.)
If that's not the case and you have pure monopoly pricing power, then the effect on GDP depends on how you spend the excess profit: if you spend it in ways that have the same velocity in your domestic economy as your old employees would have (and if the maintenance expenditures for the robots likewise are spent in such a way), the effect is neutral -- if the net of these two things is spending that has less domestic velocity, then GDP could still drop as a fairly direct result of the decision to bring in the robots.
Theoretically, those people who lost their jobs are now free to use their time producing some other product, thus increasing GDP. We'll see if that happens, though.
Exactly. Skilled labor and an aged population doesn't help much. What happens to the worker over 50...or even 40 with a family to privide for...there isn't much time to acquire new skills. It's easier said when you don't have a family to provide for or responsibilities. There should be a transition period where people are allowed time to obtain new skills instead of being dropped...and in some cases, left to be picked up by local government - job training programs are not cheap.
They have those training programs in America. The problem is training or education never created a job. You can stamp all the degrees and certifications you want, but if there's no jobs, its fundamentally not going to help.
If you have 11 pounds of flour to put in a 10 pound bag, no matter what you do with applying nice looking labels, its not gonna fit.
Possibly, assuming people don't just buy $500 worth of other random things instead, and that you haven't expanded the market for the gadget to include people who can't or won't pay $1000 but can and will pay $500, and the resources you no longer consume don't go into producing something else, and any number of other factors.
But even if those don't happen and you have lowered GDP, a lower GDP is not a bad thing; it's perfectly acceptable, and desirable, for people to spend a smaller fraction of their income.
As for your company, if you can reduce costs such that instead of making $50 on each $1000 gadget, you make $100 on each $500 gadget, both you and the consumer of your product win. Arguably, GDP seems broken as a metric for not taking that into account.
> But even if those don't happen and you have lowered GDP, a lower GDP is not a bad thing; it's perfectly acceptable, and desirable, for people to spend a smaller fraction of their income.
Lower real GDP doesn't mean lower individual spending, it means lower domestic production of value relative the cost of living.
Lower nominal GDP also doesn't mean lower individual spending, it means lower domestic production in terms of some particular unit of currency, ignoring cost of living.
Both spending and capital investment within the domestic economy (that is, excluding imports), as well as all exports (whether consumer or capital goods) are included in GDP.
> As for your company, if you can reduce costs such that instead of making $50 on each $1000 gadget, you make $100 on each $500 gadget, both you and the consumer of your product win.
But the suppliers of the inputs to the product lose.
> Arguably, GDP seems broken as a metric for not taking that into account.
GDP does take all of that into account, including the parts you ignore.
Exports were one of the many things included in "and any number of other factors" (that could cause GDP to not drop in the scenario described in the post I replied to).
The point I was trying to make is that production/GDP alone does not seem like an entirely appropriate metric, if you don't necessarily consider the increased production and consumption (of "gadgets" or otherwise) a universally desirable property. Be careful what you measure and reduce to a numeric metric.
> But the suppliers of the inputs to the product lose.
GDP doesn't include that. GDP includes "final goods and services", not intermediate parts or business-to-business transactions. There are other metrics that include the intermediate steps, if that's desirable.
It's complicated because as I understand it airlines hedge the price of oil far into the future.
However, big business are often corrupt so wouldn't surprise me equally if there was some sort of cartel. It's strongly in their collective interests to not drop the prices.
A lot depends on the definition of "my country" are you talking the exporter or importer? You seem to be implying the exporter country. In that case GDP will drop.
Competition means the price you charge the importer has to drop by "something" otherwise your competitors (assuming you haven't used the .gov to outlaw competition) will undercut you. Unless you use .gov or "something" to prevent competitors from installing the same, or even newer better robots.
Surely as per efficient market hypothesis the employees working there were already at their best possible job over a long term average over a large group of people, like an entire factory. So an external force eliminating those jobs mean in an efficient market they'll by definition be working less well matched to their abilities jobs. This ripples thru the economy see anecdotes about aerospace engineers driving taxi and so on. Whoops taxi driving jobs are going away too. So society as a whole will be less productive, have less revenue, have an inferior match of their abilities to their jobs. This will further depress the GDP.
Traditional income inequality models indicate the marginal use of a dollar / yuan is much lower for small higher income brackets. Not just the wealthy CEO but say, engineers. So the impact on the greater economy of taking away 1000 line jobs is much higher than taking away 1000 line jobs equivalent out of the CEO's bonus. This is not seen as overly controversial, obviously the velocity of any given yuan is much faster for a poor dude than a rich dude.
Finally there's the multiplier effect where productive jobs that generated 1 yuan or whatever also generated as a side effect service transactions of 1.5 or 3 or 10 yuan per productively generated yuan. Obviously the real estate agent won't be selling homes to the now unemployed people which has downstream effects like the commissioned mortgage broker and commissioned bank reps all the way down to title registration won't get those service dollars, er, yuans.
There seems to be no reason to expect the GDP to increase or stay the same. There is a tragedy of the commons aspect where every individual benefits individually, but society suffers. Its much like dumping industrial waste into parks, for example.
At least in theory no, because GDP growth calculation is inflation-adjusted. If lots of gadgets get a lower price because of lower costs, but with the same features/performance, then this should be accounted for in the GDP deflator [1] and be neutral to GDP growth accounting. Of course, correctly estimating the GDP deflator in practice is very difficult.
Well, for one, supply & demand says you would sell more of the gadget if it was priced lower. If not, you'd keep it the same price and enjoy wider margins.
GDP is a weak proxy for wealth. We are much more interested in adding up the consumer surplus and the producer surplus, but getting accurate numbers is usually impossible.
If we are comparing economies that are, in a suitable sense, "the same shape" then more GDP is better. But adopting new technologies in the way that your question imagines, changes the shape in a way that breaks the proxy. GDP goes down and that is a good thing. No surprises or paradoxes here; GDP is well known to be a poor proxy for wealth.
That alone isn't enough. Don't forget that you will sell more of them at $500 per gadget, so the total revenue from gadgets may go up.
But it is possible, and does happen, that technological change messes up GDP measurement. It was definitely a metric formulated without changes in the production process or even consumption process in mind.
depends on what those people who previously made your gadgets start doing. Provided they end up doing productive work elsewhere, you haven't reduced your country's GDP
