Sunday, November 20, 2016

Surreal GDP

The one they call "nominal" GDP is the one that figures the stuff we bought at the prices we actually paid for it. I call that one "actual" GDP.

The one they call "real" GDP is where they take the stuff we bought and figure what it would have cost if prices didn't go up at all. I call that one unrealistic. It is useful, though, if you want to see how much output has increased, apart from how much prices have gone up. It's useful when you're looking at economic growth.

Then there's one they call "per capita" GDP. For that one they take GDP (usually "real" GDP) and divide it by the whole population of the country. Like we each get an equal share.

The trouble with this one is it brings the numbers down from trillions to thousands. So now we're talking about GDP that's the size of your annual wage. It's just so far removed from nominal ("actual") and from real ("unreal") GDP that it is not even comparable. Nominal and real always cross somewhere -- these days it's usually in 2009, and between 14 and 15 trillion dollars. Per capita GDP is nowhere near.

So I had this thought, something I want to call "surreal" GDP. I want to take real GDP per capita and multiply it by population. Only, instead of using population I'm going to use a constant number, as if population was not growing.

It's just like holding prices constant. Except I'm holding population constant.

My constant-population GDP will be a big number, comparable to nominal and real GDP. Mine will equal real GDP in the base year, and that will be whatever year I get the constant number from.

What Surreal GDP will show is similar to what "real" GDP shows. Real GDP shows what GDP would have been if prices never went up. Surreal GDP shows what GDP would have been if prices and population never went up.

Surreal GDP will remove the effects of fertility and immigration (and death!) from the number. Similar to real GDP, it will give a more honest evaluation of our economy's ability to grow, apart from how much the population has gone up. Because it's just a tad hypocritical to encourage immigration to get the population number up so that there is more demand and more labor, so that GDP can go up. It's like faking economic growth.

It is faking economic growth.

So I started with "Real gross domestic product per capita" (A939RX0Q048SBEA) from FRED.

I looked at "Total Population: All Ages including Armed Forces Overseas"(POP) to get a population number. The series starts in Q1 1952, so I used that for my base year. The population then was 156,522 thousand. I used that number for all the years (dividing it by a million to correct for differences in the units). And I went to "Gross Domestic Product: Implicit Price Deflator" (GDPDEF) to get numbers so I could move the RGDP base year from 2009 to Q1 1952.

It's easier to do than to read about. Here's what I got:

Graph #1: Blue = Nominal GDP (Prices and Population Going Up)
Red = Real GDP (Constant Prices; Population going Up)
Green = Surreal GDP (Constant Prices and Constant Population)
For the numbers at the right end, Surreal GDP is about half as much as Real GDP. For the numbers at the left end, all three lines start out equal.

Everybody uses 2009 for the base year. That makes the lines cross in 2009. I think that's a mistake. I used an early date for the base year because, you know, if prices and population are going up, the lines should show it.

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