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psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

GlobaLIES This!

GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP

GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP

These two acronymns are what we hear from economists and politicians all the time. GDP mostly replaced GNP around 1990. GDP is Gross Domestic Product and GNP is Gross National Product. The difference is GDP takes foreign investment into account but that is irrelevant to this discussion.

GNP_blog

This discussion deals with what you RARELY hear and what you NEVER hear. What you rarely hear and may never have heard is NDP or NNP. Net Domestic Product and Net National Product. These differ from Gross because our economists subtract DEPRECIATION. The robots that General Motors uses to manufacture automobiles wear out and eventually have to be replaced. These robots are what economists call CAPITAL GOODS. Capital goods have to be replaced for the factories to keep running so the government allows businesses to deduct this depreciation from their taxes according to IRS schedules and economists subtract this from GDP to compute NDP. You may have noticed that the blog did not mention NNP/NDP.

The economists also claim that this depreciation is small each year so they normally don't talk about it at all.

What you never hear is that the equation the economists are using is WRONG!

When Joe Blow consumer buys an automobile it gets added to GNP. But his car wears out just like the automobiles purchased by car rental companies which file their depreciation with the IRS. Just because depreciation doesn't get filed doesn't mean it doesn't happen. The laws of physics don't care about money or if we get our equations wrong.

The purchase of capital goods, like automobiles by car rental companies, increases GNP and is represented by arrow A. This increases NNP as indicated by arrow A'. The B and B' arrows show the same effects resulting from the purchase of durable goods by consumers. Things are a bit more complicated for the C arrow. Since depreciation is subtracted from GNP, C' points down reducing NNP. This results in an equation with two arrows on the left side pointing up but only one arrow pointing down. These arrows on the equation make it obvious that something is missing. Since Depreciation in the upper equation refers to CAPital goods it is represented by Dcap in the lower equation with the same C arrow. The variable Dcon is added to represent Depreciation of CONsumer goods. The D arrow represents increases to Dcon which is inside the parentheses with Dcap so it is also subtracted. D' arrow on the left side of the equation points downward with C' resulting in two down arrows to balance the two up arrows A' and B'. This will result in a value very different for, NNP, from what the economics profession has been getting and not telling us about. I conservatively estimate that Americans have lost TEN TRILLION DOLLARS in depreciation of automobiles since 1945.

This creates a problem for the economics profession. If they say this equation is correct how do they explain getting it wrong since World War II? If they say it's incorrect how do they explain what is wrong with it to all of the people that know how to do grammar school algebra? So most of them say nothing.

THE ECONOMY is not just the flow of money. It is the WEALTH, tangible and intangible, of every economic unit in a society. A man with $10,000,000 in a safe deposit box could have ZERO income for the remainder of his life but live quite well. He might be eligable for welfare benefits because his lack of income would put him below the poverty line. People with no wealth must have income for food and rent so they are coerced into laboring for those with wealth. Why hasn't accounting been mandatory in all of our highschools since WWII? Would the economies of all of the advanced nations be in quite different states if accounting had been mandatory? How many people with economics degrees are employed by companies encouraging people to go into debt for things which depreciate for the economists to ignore?

These diagrams of GNP are what economists use to represent an economy. The one on the left is mine and the one on the right is from the blog. They are functionally the same but some names are different and arrows are in different locations. Firms on the right are business on the left and households on the right are work/con for worker/consumers on the left. The Goods & Services arrow is on the top in the right diagram and on the bottom in the left. Labor on the left is factor services on the right.

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This is GNP minus the depreciation economists subtract but rarely discuss outside of professional economic circles, called NNP.

This is GNP minus all of the depreciation, including what consumers loose.

Maybe we should call it DNW for Delta National Wealth, change in national wealth.

On an international level this brings up the subject of planned obsolescence. Airplanes from World War II, the Spitfire, P-51 Mustang, P-38 Lightning, could fly at 400+ miles per hour. These planes were designed without electronic computers. How is it that 36 years after the moon landing automobile companies with computer aided design and computer aided engineering need to redesign machines that roll along the ground at less than 130 mph? If cars cost more because they are redesigned each year aren't the countries that import all of their cars losing vast amounts of wealth? Shouldn't the political leaders be aware of this ignored depreciation? How well do most politicians understand economics? FDR didn't understand what John Maynard Keynes was talking about.

FDR & Keynes

Mentioning FDR and Keynes brings up the subject of the Depression. The Depression was seen by many as a failure of Capitalism. Since govenrment officials did not understand how the economy worked many of the things they did to cure the Depression actually made it worse. Keynes developed the concepts we now refer to as MACROECONOMICS which included the concept of Gross National Product. Keynes told FDR to borrow money and spend it to "prime the pump" of the economy to generate cash flow. This made no sense to FDR and he didn't do it until World War II forced him to. The success of the American economy during WWII is taken as proof that Keynes was correct.

Life and technologies have changed greatly since that war. Keynes did not live in a world where people watched television for 30 hours each week. The first television commercial was broadcast in the US in 1941 and Keynes was in England and England was at war. TV didn't become significant until after Keynes died in 1946. The influence of Pavlov and von Neumann have grown in the world since Keynes followed the long run.

Vulcan Technology

Vulcan Economics

John von Neumann's 1944 book with Oskar Morgenstern, Theory of Games and Economic Behavior was a landmark of twentieth century social science. Interestingly von Neumann is also Nfamous in the computer industry. Nfamous because most people never heard of him even though almost all computers are von Neumann machines. Someone joked that von Neumann was actually an outer space alien who had trained himself to perfectly imitate a human being in every way. Computers have affected the economy because they made the management of huge corporate and government bureaucracies possible. They have also triggered rapid stock market fluctuations due to program trading which began in the 80's. Now the cyber-economic influence is global due to the World Wide Web. Human beings are information processors and their behavior can be affected by the information they receive, be it accurate or inaccurate. Plenty of people have a vested interest in hiding important information and in a "free" media saturated society the way to do that is to distribute lots of distorted information. The more things change the more they remain the same.

"All warfare is based on deception." - Sun Tzu, 500 BC

How much did the world change from the publishing of THE COMMUNIST MANIFESTO in 1848 to Marx's death in 1883? The American Civil War was fought and lost, or won depending on your perspective and the transformer was invented in 1876. A pretty good argument could be made that the invention of the transformer was more important than the Civil War. It is an electrical component fundamental to the manipulation of electricity and our modern society could not run without it. Technology has changed society and the workings of the economy. It is the perpetuation of 19th century ideas that partly keeps us from using that technology to solve our problems.

There is no reason why everyone should not know accounting and be able to do it on inexpensive von Neumann machines. This would result in von Neumann technology affecting the von Neumann theory of games. Changing the quality of play of millions of people would fundamentally affect the game. Global von Neumannism could make Marxism and conventional Capitalism obsolete. With all of their talk about globalization why aren't any economists suggesting this?

"Economics is extremely useful as a form of employment for economists." - John Kenneth Galbraith Laughing

ONE LAST BUMP Laughing

psikeyhackr

[1/31/06 = 2966] [9/5/06 = 11745] [10/1/06 = 12,247]
[11/17/06 = 13,077][1/1/07 = 13,814][5/13/07 = 16,488]
[7/1/7 = 17,354][7/30/7 = 17,784]

Guest · Posted: Sat May 28, 2005 9:16 pm Post subject: Re: The Algebra of Economics

He is right. And Credit has replaced Capital. Limitless, timeless, and space-less, free of any regard for labor or manufacturing; M-3 money supply and interest expansions with out a set finite growth boundary.
Wallerstein, Harvey, and Lawler with a little Marx and some few others - and Bush thinks we do not know.

hodgethepodge · Joined: 15 May 2004 Posts: 6097

tough algebra, too many variables to understand...

I used to love linear programming, there you'd be able to talk about some constraints to a problem that involves variables, and actually solve them for the best alternative.

But more so... You state a lot of things I kind of remember from college. There is business and personal use when it comes to taxation. A person can't, or individual can't use depreciation in our tax code, and rightly so. With business comes liability, and there we go, corporations have limited liability, meaning an individual that creates a business would prefer that, hence llc... I remember that, but only to a small degree. But to your point. The system is rigged for rich people to a great extent. In america we have a lot more money than they do in say china... We could build better schools, and we could re-invent the wheel, if we got our house in order...

Again, to your point - I agree 100% capitalism without regulation will bring us back into the dark ages. When we have a chance to build a better america, a better structure that the world can use as a paradigm to achievement and better economics, (the kind of economics that matter, where we actually use resources, real resources in the best way for the betterment of all people), we are going backwards today...

Good Post...

Peace

Clara Listensprechen · Joined: 30 Jul 2004 Posts: 9130 Location: At large

Too many variables is the whole idea. It's derivatives that the market operates on these days. That didn't used to exist, either. Derivatives and index funds, while the index keeps getting diddled with, just to make the Dow Industrials look good while y'all ignore the Utilities and Transprotation Indexes. Nevermind commodities.

I remember when "Mama Bear" Gail Dudac got fired from Wall Street Week With Louis Rukeyser and I never forgot that she was one who found the numbers unbelievable even that far back, while wunderkind Mary Farrell played the numbers racket with more gloss and shimmer.

Gail knew all along what was REALLY going on.
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psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

@hodgethepodge you wrote:

mulp · Joined: 27 Apr 2004 Posts: 17564 Location: merrimack, nh

Good point(s) but you weaken your argument for no reason with incorrect assertions and misleading implications.

I don't believe that you can find any juristition where someone with $10M in cash can legally get welfare or medicaid.

Cars wear out because the materials they are made with wears out. Old airplanes are still flying because the parts that have worn out over time have been replaced. Cars can be kept running by replacing parts almost indefinitely. But the truth is that cars are lasting at least twice as many miles and years today for the decade of the 90s as they did for the decades of the 60s-70s.

sm dairy farmer · Joined: 27 Apr 2004 Posts: 1245 Location: Central NY

psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

@mulp

you wrote:

mulp · Joined: 27 Apr 2004 Posts: 17564 Location: merrimack, nh

agkaiser · Joined: 27 Apr 2004 Posts: 532 Location: Arizona

Economy:
The more people who work for us and the less we pay them, the more money we’ll make. There are some practical concerns which, unfortunately, will limit our profits. If an employee starves, the vacancy may have to be filled. The cost of recruitment and training, if the turnover is too great, may be more than that of paying a living wage to begin with. The calculus of business must be applied to compute the area under that curve. If we ignore the cumulative effects of blindly seeking the greatest profits by securing the lowest cost of labor, we will break the great economic engine that has enriched us. Today’s technology still depends on human employees to provide our material requirements.
There are other limits to profits. The business machine, at this stage of development, must also have consumers to buy products so that increase to our wealth can continue. The consumers must have money to make purchases. When profits are too great they cannot be used to expand the production of goods. There would be no market to absorb that increase. Today we invest that excess money in financial markets. Some of it eventually is loaned to consumers and the system is buoyed up. We must keep this kite flying until we can develop a better way to produce the material goods we need. We’re smart enough to win the race with debt saturation. No one sees the future but we face it bravely, secure in our innovative ability. There is one firm principle that must be upheld at any cost. Wages and salaries must be minimized for the sake of maximum profits. Do not succumb to liberal ideas which would spoil our servants! We will discover a way to replace them before they break free of our control. This is a moral issue beyond all others. Our ability to individually profit by the work of the entire community is the paramount concern.
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when he built a fire on Main Street and shot it full of holes.”
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RB W/Mi · Joined: 27 Apr 2004 Posts: 1718

http://www.socsec.org/publications.asp?pubid=534

The supposed "generational struggle" is really a health-care cost problem.

http://www.atimes.com/atimes/Global_Economy/GE26Dj02.html

In this article in the Asia Times "The $50 dollar oil will buy the US DEBT BUBBLE a little more time".
( Oh gee I can't wait till it bursts! I hope the Fed has Homeland financial Insecurity Dept. ready to go into operation Stop the panic!)

gandhigram · Joined: 27 Apr 2004 Posts: 12950

Thanks for this info RB!!!
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psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

Gregorio wrote:

mulp · Joined: 27 Apr 2004 Posts: 17564 Location: merrimack, nh

psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

One of us is arrogant.

I didn't say I didn't recognize them. You said:

mulp · Joined: 27 Apr 2004 Posts: 17564 Location: merrimack, nh

psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

mulp wrote:

mulp · Joined: 27 Apr 2004 Posts: 17564 Location: merrimack, nh

mulp · Joined: 27 Apr 2004 Posts: 17564 Location: merrimack, nh

moonman · Joined: 27 Mar 2005 Posts: 2052

You are quite right psikeyhackr. Consumer depreciation occurs but is not counted.

The practical solution is to not be an employee. When this became popular in the 70's the IRS changed the rules so that to be a bona fide corporation you must not receive more than 1/3 of your income from one source.

Sadly, all are equal before the law does not mean law is applied equally to all.

Even sadder is that those challenging you are those with whom I am generally in agreement.

If you have a website please post a link. I'd like to follow your progress.
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I think we're all just mass-debating. Moonman 1953-

psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

moonman wrote:

moonman · Joined: 27 Mar 2005 Posts: 2052

psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

I get it. Physics and mathematics don't care about left, right or center. Laughing

http://www.spectacle.org/1199/wargame.html

http://www.spectacle.org/1199/letters.html

http://www.indiapolicy.org/lists/india_policy/2001/Mar/msg00024.html

I've noticed that Marxists don't want to move beyond Marx.
I guess they regard it as HERESY.

psikeyhackr

mulp · Joined: 27 Apr 2004 Posts: 17564 Location: merrimack, nh

psikeyhackr · Joined: 31 Mar 2005 Posts: 3831 Location: midwest, USA

Oh, they couldn't possibly become Maoists?

I hate this nonsense of just naming an ideology after just about anybody. What is Hitlerism? What ideas did he really have other than a rationalization for his neurotic ego power trip. What of significance did Stalin or Mao contribute to human ideas besides having a lot of stupid followers hanging on their every word.

I admit to doing it with "von Neumannism" but he came up with GAME THEORY, worked on the atomic bomb, computer technology, and other stuff in mathematics that I don't understand.

psikeyhackr