Thing: https://x.com/clashreport/status/2109319745724182805

R1:

Let me just re-hash what I've already written about this in The Bad Economics Handbook, which I shamelessly admit this post is an advertisement for. There are 61 R1s contained therein.

The less interesting and obviously true thing Mr. Melons is saying here is that if you pay someone to dig a hole and pay them to fill it back in, GDP increases, all else equal. The same is true of paying someone to rebuild a wall or fix your car. We're just counting the market value of final goods and services, and there's no magic rule that says you don't count stupid products (otherwise the BEA wouldn't count sales of rainbow fluorite used to cure cancer).

Does this show that GDP is a useless measure? No. He's sort of regurgitating the classic broken windows fallacy made famous by another (much smarter) Frenchman and economist, Frédéric Bastiat. In normal times, close to everyone who could be employed is employed doing various things people value. If nobody's breaking windows, nobody is working as a glazier who fixes broken windows. If suddenly you start going around breaking windows to try to increase economic activity, you're just going to force the glassblower guy who makes vases to pivot to fixing broken windows instead, and now vases are scarcer. In this situation, GDP is probably mostly unaffected. It won't go up. Worse, if you attempted to scale up this idea to try to raise GDP by smashing every window in the country, you might actually reduce GDP by making every AC in the country ineffective, gravely disappointing the ghost of Lee Kuan Yew. Going around smashing cars into walls has the same problem but worse, since much of the country would no longer be able to complete their commute. Obviously, GDP doesn't fall automatically if you smash windows since the primary effect is to eliminate real wealth, which it doesn't measure, but there are going to be second-order consequences of this kind of thing that get picked up in GDP. Bastiat was making this point about the real economy (GDP hadn't been invented at the time he was writing) but it's the same general idea.

Empirically, self-reported life satisfaction rises pretty consistently as GDP per capita goes up. This should be obvious, since GDP per capita is essentially just a measure of income (see: GDP vs GNI), and most of the time people are choosing to buy things like houses and food instead of dug holes or the opportunity to watch Ben Bernanke eat literal bullshit.

There's some questionable but kind of plausible truth to dig-holes-ism where hiring people to dig holes probably wouldn't show up in GDP figures if we're just valuing government activity at cost and paying people however much they were paid to do whatever they did before they joined the Bureau of Digging Holes. But this doesn't actually happen in real life! The services governments provide are generally things people like to some degree, like education (which is still valuable even if you think it doesn't add much to human capital, since it functions as a form of daycare). It'd be better to somehow count government spending at its hypothetical market value rather than at cost, but not counting it is worse.

David Sacks has made a similar remark about paying people to dig holes, but empirically, real GDP growth without government is pretty close to real GDP growth as it's currently measured (though it was completely different in the WW2 era), so all of this is kind of a moot point. Government activity probably isn't as valuable as it is on paper, but eliminating it from GDP entirely doesn't do much, especially if what you're looking at is movement of GDP over time or differences in GDP per capita across countries. I'd concede that on paper, the Bureau of Digging Holes could increase GDP if you spent a lot on it, but this sort of thing has never posed a meaningful problem for the usefulness of GDP as a measure.

The exception to the rule that paying people to dig holes will do ~ nothing to GDP is when the economy isn't at full employment due to some kind of aggregate demand shock, in which case you could arguably make people better off and raise real GDP by paying the unemployed to start digging holes. But most of the time this isn't true. It's also worth mentioning that obviously neither Keynes nor any economist believes that the optimal policy during a recession is literally to pay people to dig holes. Keynes was just giving an illustrative example!

There are plenty of actual problems with GDP, but your choice of measuring stick doesn't matter all that much, unless you're comparing countries that are already pretty close to each other in terms of living standards. Besides self-reported life satisfaction, life expectancy also correlates positively with GDP per capita, as does pretty much anything good. To repeat the obvious meme you've probably seen a thousand times before: "GDP is bad. I prefer [thing correlated at 0.9 with GDP]."