My theories – post 1

One of my earliest posts (On money) was about a misconception of money.  Actually, it was about a misconception of Gross Domestic Product.  Since that lofty day a couple of years ago, I have matured my thinking a little bit and have come to some conclusions:

1)  I didn’t know then what I know now.  And that was probably a good thing.

2)  I think I agree with my wife, that I think too much.

Okay, here’s the real post.  I’m starting to write all of these theories down so that I don’t start forgetting them and I can begin to create the drafts of my longer works that will outline everything.

First, we need to determine one thing:  What is it that keeps a society going?  Is it culture (art, music, recreation)?  Religion?  Just laws?  Meaningful employment?  I suggest it is none of these thing.  In fact, the answer is much simpler:  food.

Yep – food.  That is the basis of society.  Food.  If there is no food (and by food I include water), then there are no people.  No people, no society.  Can people survive without carpet?  Yes, they have dirt floors or no floors at all.  Can people survive without cars?  Yes, they can use bicycles or walk or not go anywhere at all.  Can people survive without a banking system?  Yes, they simply use barter.  Can people survive without entertainment / religion / laws?  Yes, they can, as long as there is food.  Therefore, I postulate that the minimum requirement for a society to continue is to have an adequate food supply.  Without food, people die.  Without television, people do something else.  Like make more food.

So then, what good is money?  And why are we even considering it?  Well, according to my above post, money is just a useful proxy for food that our society produces.  And currently we use this measure called “Gross Domestic Product” to determine if our society is prospering or not.  Let me get some things off my chest, first, and then we can move on to discussing money vs. food.  Some criticisms.:

First, the GDP itself is useless unless we look at it per person.  That is, say your GDP went up one year  by a nice even amount of 5%.  Great, as long as your population didn’t grow by more than 5%.  You know why?  Because lets say your population grew by 10%.  Now, instead of being 5% more productive (as measured by GDP), every person in that society just got 4.5% less productive (1.05 / 1.10 = 0.955).  This is because the total amount of salaries must be spread around a larger base.  Imagine you have a pat of butter that needs to be put on a piece of bread.  Spread it nice and thick, in the base case.  Now, make the bread bigger, and make the butter just a little bigger.  It won’t be as thick, now, nor as satisfying.

Second, the GDP is useless unless it is adjusted for inflation.  So, let’s say prices rose last year by 5%, but the GDP rose only 3%.  Now, again, you’re a couple of % down because costs rose faster than the collective salaries of the people buying stuff.  So only when your GDP is increasing at or above the level of inflation will you actually be bettering your society.

But wait, don’t forget about the population!  So the real measure that we would need to look at to determine whether we, as a society, are better off today than a year ago should be our inflation-adjusted GDP per person.  Have you ever heard that statistic? Me, neither.

And, unfortunately, it’s still not the right measure of our productivity.  What is?  Find out next time.

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