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Preprints & Reprints Gartner Wentworth Report Looking through today's economic data there seem to be three broadly contradictory statements for the global economy. One suggested a steady but unimpressive growth, another almost flat, and yet another a slow decline. This all seems so obviously wrong from any practical standpoint. Despite the passage of time I still remember being unimpressed by the mechanisms for gathering raw economic data let alone the crude models employed. Any relation between data, forecasts and reality always seems to be accidental. The Gross Domestic Product (GDP) is generally considered by most to be the broadest measure of aggregate economic activity that encompasses every sector. And I quote; 'For investors it is the consummate measure of economic activity because it dictates how investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market doesn't mind growth but is extremely sensitive to the economy growing too quickly and paving the road to inflation. By tracking the GDP, investors will know what the economic backdrop is to their portfolios'. This seems to be based more on doctrine than any scientific or practical basis. The definition of GDP is delightfully varied, but broadly falls inside the following description: 'A measure of the total production and consumption of goods and services - the market value for all final goods and services produced within a nation in a given time period. Intermediate goods such as plastic, glass, wood, cotton, etc are not counted since they are not in their final state. Including only final goods and services prevents double counting and avoids a GDP overstatement. Final goods include household purchases since these items are not used to produce other goods and services. GDP consists of four key components: Consumption (C), Investment (I), Government (G), Net Exports (NE)'. GDP can be calculated using the formula GDP = C + I + G + NE Yep, the economy of planet earth is defined by a single one-line linear equation. Sure there is a lot more mumbo jumbo about the categories, contributions and definitions of what goes into the equation, but nothing of significance, or for that matter, anything vaguely related to the true economics of the planet. Where are the black, grey and bit economies in all of this? For sure they are very significant, and in the case of the grey, growing very fast. From a practical standpoint it seems that the GDP of our planet should be principally defined and measured in terms of the transformation of materials and bits. Their actual and final consumption may turn out to be secondary effects in the overall rating of human endeavour. Would it not be better to embrace a more meaningful Entropic measure to reflect total wealth creation. The accepted definition and formula fall far short of the mark. The true GDP is actually tracing an exponential curve like Moore's Law for chip development and performance. Economists can thus expect some serious repercussions from sticking with an 18th Century perspective and not embracing the Gross Bit Product. Someday around 2010 they will wake up to find their world gone, along with the significant tax revenues it generates, all replaced almost overnight by a bit economy growing at an exponential rate. Word Count = 541 |