I'm not sure increases in efficiency result in increased GDP.
To make that as clear as possible - imagine someone created low priced robots tomorrow that could make all your food, entertain you, build you a house etc etc for the one time fee of $100. They were incredibly efficient, consuming $10 worth of energy every year.
And what would people now do with all their free time?
They'd start to build other stuff. GDP would probably go through the roof, because if you measure the value of all that stuff in "old dollars" it would be incredible. And now in "new dollars" it's a tiny amount, but it also frees up human labor to do all sorts of new stuff, and these "new dollars" are so much more valuable.
Money is a tricky social constructed phenomenon. When there's such a shocking big change to technology as you propose, there has to be something to account for the difference in what it can purchase.
All this other stuff is, by current calculations, sub optimal. So all this other stuff would likely add to less than current GDP. And since current GDP has been replaced by 10's of dollars, total GDP would likely be much lower.
But, if your point is that it's not clear then yes, but that's my point.
People aren't buying much of anything in my scenario. The robot does everything you need. No transactions required. GDP only counts transactions.
Maybe consider this, sort of the opposite of my fantasy robot - GDP may well rise if the air got so polluted we had to buy fresh oxygen. An entire industry would exist, transactions would occur. Drugs might exist to cure sickness from the dirty air. Or consider cigarettes - a nice addition to GDP numbers.
If you are saying there are weaknesses to measuring GDP, sure, it's kind of a crappy measure. A terrible one. But still a useful one. All models are wrong, etc etc etc. I certainly don't fetishize GDP or assume that people only spend money on positive things for themselves or others.
But in your second scenario, the pollution of the air would have been a big drop in GDP, a ton of negative externalities that were not counted. And improving the air would be of value.
The most convincing flaw about GDP and trade, to me, is about real labor, productive value to society, that has or has not been captured by GDP. For example, child care. Child care by a stay at home parent is not captured by GDP, but child care that is paid for is a massive expense, one that many families can not afford at all. So that is uncompensated labor that should probably be included as part of our GDP. Child care is being produced, but not in exchange with others.
But if we invented magic robots that did everything an individual needed, I don't think that would reduce trade much. We would still be interacting with each other, buying each others' art, trading living locations, etc.
How would the air pollution cause a drop in GDP?? GDP measures all end user sales of goods & services. It isn't some general idea of good and bad. Fresh air currently adds zero to GDP, there is no market. Dirty air would create a market.
This is true if the change could happen overnight, but in reality that is never what happens. It will take a considerable amount of time to reach this end state where robots are cheap and plentiful. How this will start out is with limited production with high profits on the robots that is eroded over time as production capacity comes online and a stock of robots is built up. This will give the displaced labor time to adjust/pursue other jobs/create new industries to employ the freed up labor. This is why GDP has never fallen off a cliff solely because of technological improvement (and indeed has so far eventually increased with technological improvement).
A surprising amount of modern thought falls victim to the trap of only looking at the shock size and not accounting for the likely adjustment duration (I'm especially looking at you environmentalists talking about sea level rise over a century).
Yep, it's a crazy hypothetical. It's perhaps a bad attempt to show that efficiency and GDP aren't the same thing. GDP is simply measuring transactions by end users.
well, to be clear, I'm saying it is only true that efficiency gains don't cause higher GDP under very stringent scenarios that broadly have not happened. while GDP and efficiency aren't the same thing, they are extremely highly correlated with a bit of a lag. The situations where people thought GDP will fall and stay down with a technological change have so far been completely wrong because the calamity comes from assuming something is instantaneous that can't be instantaneous and it is a very common thought process error these days.
I don't think this is knowable. Efficiency can result in various things - less labor required, higher quality goods and services for the same cost, more convenience, less uncertainty (and probably others i can't think of off hand).
Your claim has been true for labor to this point. Not sure it's a given going forward.
Goods and services have gotten better in a way which isn't captured by GDP because the price for the good/service hasn't gone up.
efficiency results in one thing: more stuff for the same cost as before (or put another way the same stuff as before for less money).
And yes, this is definitely knowable because the one thing efficiency results in causes a wealth effect for all consumers (and/or a wealth effect for capital owners to the extent they can capture the gains from efficiency vs having them competed away causing lower prices and a wealth effect for consumers) and a negative income effect on the subset of workers no longer needed because of the efficiency gain. For an efficiency gain to not cause a GDP increase eventually the income effect has to swamp the wealth effect for all time, which has never happened and is unlikely to happen any time soon, as there are no signs of any abatement in consumption demand that would cause a wealth effect to not cause a consumption increase (this is especially true given the incremental nature of efficiency improvement implementation over time primarily because of various productive limitations on adopting new tech. The more time people have to grow into a higher consumption state the more likely and easier it happens.)
This is a repeat of the same claim regarding labor.
And even then there are holes in this position. Efficiency often won't lead to a wealth effect. In many industries (Buffett highlights textiles frequently, but it's also true of agriculture, many consumer electronics, cars) the competitive dynamic is such that increasing efficiency just lets the company stand still. Cars and TVs for example have become significantly better over 40 years(not all due to efficiency, but a good amount) and the prices haven't much changed, due to competition. The companies in question are still earning low returns on capital despite their efforts. I don't feel richer because my $600 TV is 60 inches v 30 inches, and I don't go spend more money because of it.
GDP has holes like this. It's literally just measuring end user transactions.
Idk, it seems like one of those things that is hard to predict. Would gdp actually fall off a cliff? There would be a lot of steps that would have to happen along the way. Plus the premise isn’t really rooted in any kind of reality, so it may be a flawed argument to begin with. Just my $0.02
Agreed, except in the current economy they would always go with the highest pricing they can get away with. Capitalism promised “efficiency” with regard to use of resources by always throwing a market mechanism at a problem and assuming the best. In reality, companies realized they could profit a lot more if rules were written in their favour and buying lobbyists/politicians was a bargain. So what “the markets” found was a way to maximise externalities to keep as much profit for themselves as they could (like always). And sadly this obsession for growth and wealth will lead to so much suffering due to all those externalities, especially related to the acceleration the stable climate breakdown.
To make that as clear as possible - imagine someone created low priced robots tomorrow that could make all your food, entertain you, build you a house etc etc for the one time fee of $100. They were incredibly efficient, consuming $10 worth of energy every year.
GDP would fall off a cliff.