GDP Lightens Up
GDP measures the value of the economy’s output of goods and services.What do you think we
would learn if, instead, we measured the weight of the economy’s output?
From Greenspan, a (Truly)Weighty Idea
Having weighed the evidence carefully, Federal Reserve Chairman Alan Greenspan wants you to know that the U.S. economy is getting lighter Literally When he refers to “downsizing” in this instance, Mr. Greenspan means that a dollar’s worth of the goods and
services produced in the mighty U.S. economy weighs a lot less than it to, even after adjusting for inflation. A modern 10-story office building, he says, weighs less than a 10-story building erected in the late 19th century. With synthetic fibers, clothes weigh less. And the electronics revolution has produced televisions so light they can be worn on the wrist. By conventional measures, the [real] gross domestic product-the value of all goods and services produced in the nation-is five times as great as it was 50 years ago. Yet “the physical weight of our gross domestic product is evidently only modestly higher than it was 50 or 100 years ago,” Mr. Greenspan told an audience in Dallas recently When you think about it, it’s not so surprising that the economy is getting lighter. An ever-growing proportion of the U.S. GDP consists of things that don’t weigh anything at all-lawyers’ services, psychotherapy online information But Mr. Greenspan has a way of making the obvious sound profound. Only “a small fraction” of the nation’s economic growth in the past several decades “represents growth in the tonnage of physical materials=-oil, coal. ores. wood, raw chemicals;’ he has observed. “The remainder represents new insights into how to rearrange those physical materials to better serve human needs The incredible shrinking GDP helps explain why American workers can produce more for each hour of work than ever before [It] also helps explain why there is so much international trade these day “The downsizing of output.” Mr. Greenspan said recently, “meant that products were easier and hence less costly to move, and most especially across national borders.” …
“The world of 1948 was vastly different,” Mr. Greenspan observed a few years back. “The quintessential model of industry might in those days was the array of vast, smoke-encased integrated steel mills … on the shores of Lake Michigan. Output was things, big physical things.” Today. one exemplar of U.S. economic might is Micros?ft Corp .• with its almost weightless output. “Virtually unimaginable a half-century ago was the extent to which concepts and ideas would substitute for physical resources and human brawn in the production of goods and services.” he has said Of course. one thing made in the U.S. is heavier than it used to be: people. The National Institutes of Health says 22.3% of Americans are obese, up from 12.8% in the early 1960s. But Mr. Greenspan doesn’t talk about that.produced in the United States has grown on average 3.2 percent per year. This continued growth in real GDP enables the typical American to enjoy greater economic prosperity than his or her parents and grandparents did. A second feature of the GDP data is that growth is not steady. The upward climb of real GDP is occasionally interrupted by periods during which GDP declines, called recessions. Figure 2 marks recessions with shaded vertical bars. (There is no ironclad rule for when the official business cycle dating committee will declare that a recession has occurred, but an old rule of thumb is two consecutive quarters of falling real GDP.) Recessions are associated not only with lower incomes but also with other forms of economic distress: rising unemployment, falling profits, increased bankruptcies, and soon Much of macroeconomics is aimed at explaining the long-run growth and short-run fluctuations in real GDP. As we will see in the coming chapters, we need different models for these two purposes. Because the short-run fluctuations represent deviations from the long-run trend, we first examine the behavior of key macroeconomic variables, including real GDP, in the long run. Then in later chapters, we build on this analysis to explain short-run fluctuations.