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Why GDP Is Overrated & Nobody Should Care About It!

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GDP is one of the most universally recognised terms in economics. Even outside people with an interest in the subject most adults would be able to tell you that GDP is a measure of how large an economy is.

They might not be able to tell you how it’s calculated or even what it stands for but they would get at least that part right.

And you know what, that’s probably all they need to know, it might be all economists need to know about the figure, because it might be the extend of what this figure can tell us.

Gross Domestic Product is a measurement of production in an economy, the idea is that the more stuff that is being created and transacted the wealthier the economy is and while this isn’t necessarily wrong it’s not the whole story.

The tachometer is a measurement of your car’s performance. Higher revs on the dial, normally mean your car is going faster, but there is actually no way to know without other information, like if that car is in gear or even if that car has wheels on.

This might be a bit of a rough analogy but in a world where people are becoming hyper-focused on GDP figures and what they mean for everybody amidst the chaos of 2020, it’s important to remember to check the other indicators.

Something to keep in mind amongst all of this is that GDP is a macro-economic measure, it looks at the whole economy as an aggregate or a total collective.

Sure the figures might not look great, but ask yourselves watching, did your lifestyle become 33% worse when a 33% drop in GDP was recorded?

For most of you watching I would imagine the answer is no, which might start to raise some eyebrows as to just how useful this measure is at telling economists what’s really going on in the nations they are studying.

So

What are the limitations of GDP?

Are there better figures to look at to get an idea of how prosperous an economy is?

And how could focus on something outside of pure productive capacity be good for our economy?

#Economics #GDP #NetWorth

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Comments

  1. We need economics… humans need to eat and need a few things to exist. But Americans have a lot of stuff they don't need…that nobody needs. And, there is so much hoopla over economics but almost none about improving human character. If a Nation has strong economic growth but an increasing percentage of the citizens are sociopaths and selfish, greedy pricks, what's the point.

  2. A 33% drop in GDP doesn't mean a 33% drop in the lifestyle of economics explained viewers because, they are all atleast middle class or upper middle class households. The pandemic hit harddddd on africa and the poor, lower middle class people in developing countries. Their lifestyle would have dropped 100% or even 200% drop in quality. That is why the aggregate is still only -33%. Most of that brunt is borne by the already poor people…

  3. I thought about the engine problem.
    Repairing is actually assessed in calculating GDP.
    It is a part of the service industry which is a secondary or tertiary sector.
    The problem though is that service provided is mostly part of informal economy.

  4. I like ee but this video is simply not to the point. GDP does not measure wealth it measures strength. Thus also the comparison to a speedometer is wrong. In this context it would have been better to compare GDP to horse power. Wealth in this context are the miles travelled. Thus a country with a strong economy which is not able to transform its strength into speed (producing consumer goods instead of durables) and which circles around (repairing things instead of producing new ones) will not create much wealth but could be still wealthy simply because it is already producing for a long period of time. On the other hand a small country with a not so strong economy, which however is focused and thus brings its power to speed and makes a lot of miles could create a lot more wealth for its people. This explains why people in transforming countries profit a lot more from their economies than people in established countries. Happy to discuss this further if desired.

  5. If economic growth is defined as the productive potential of the economy, and we use real GDP to measure, wouldn’t ‘updating’ your car, essentially updating its ‘productive potential’ be updated as well, in turn affecting GDP? Since that person is able to use their ‘updated car’ they then continue to interact with the economy, that interaction helps create an increase in production. And, if that engine at the manufacturers is not technically counted after being made and not until put in a car, wouldn’t that ‘updated’ car essentially act in a similar manner as a new car?

  6. In the Netherlands we use "buying power" as a metric rather than GDP. It tells you a lot more about living standards and what people are able to do with their money. It doesn't account for the economy as a whole though, if there is such a thing.

  7. A car without a working engine is worth much less than a car with a new engine, so value have been created. You could view it as building a new car with the old car, the new engine and the mechanic labour as the component parts.

  8. About the car business, investing in a new engine can be seen as the cost of running your business.
    What you are doing with this investment is increasing the lifespan of the car. Thereby increasing your output compared to you not having a car.
    Just like when a fuse goes of in a factory, replacing the fuse doesnt increase your initial output, but it does keep it going. its just like investing in a new machine, except that you already have 95% of it installed in your factory.

  9. >MFW my country makes it illegal for almost any transaction not to produce a govt registered receipt just so they could make the line on the GDP graph look bigger to foregein investors

  10. USA has the highest GDP in the world, more than any country, more than the entire European Union combined…..but it means nothing when 78% of Americans are living paycheck to paycheck.

  11. The world has an extra engine if it’s a totally new engine and not a re conditioned. In other words does an engine become an engine when it’s newly built or when it’s fitted to a machine.

  12. Here is a little example of how weird GDP is:

    Consider a divorce.

    In terms of well-being, it is usually better to be in a loving marriage than divorced. But suppose a couple does get a divorce. They'll then need two homes, two sets of pots and pans, two bedrooms for each child, two of everything whereas before they might only have needed one. Plus they need to pay the divorce lawyers and for court documents.
    All of this is great for GDP.

    So if a country wants a great boost for their GDP. Just encourage divorces. Is it a better world with happier healthier people? Nope. But the GDP figures will look great.

  13. Do I video on the effects of people not having enough kids maybe a good and bad type of video been reading alot of articles on it that it could be bad like Japan and elon musk commenting on the topic saying that is what he worries about
    Thank you love your videos

  14. Your quality of life didn't drop 33% with GDP because that is not what GDP measures. It is measuring your economy in relation to other economies. An attempt at measuring quality of life would be closer to HDI. Talk about useless metrics, HDI means absolutely nothing.

  15. Yeah services are definitely important enough that they should be included. Think about it, it should at least be reflected in the score in some form or another if there's elevator repair guys, underwater welding, etc. Even just for repairs or maintenance, it should be reflected in some aspect or another.

  16. I just gave $100 to my cat. The cat then gave me back those $100. If I made it legally official and did some bureaucracy and tax gimmicking (to avoid paying taxes and stuff), I would then increase the GDP by $200 without actually doing anything. Then I could do this 10 times, 100 times, 1000 times …

  17. One thing that bothers me particularly is that if I go to a restaurant and eat there it counts towards the GDP but if I cook for myself it doesn't, even though it's the same sort of value creation.

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