Inventories and GDP Accounting–A Blast From the Past
With all the talk about the pitfalls of GDP accounting (when it comes to natural disasters), I thought it might be good to dig up my article on the absurdity of the mainstream approach when it comes to inventories.
It might be hard for it to “click” at first with some of you, but if you can get what I’m saying, you will be blown away by what the mainstream guys are doing. Here’s a choice quote:
What’s really strange is that the change in inventories [in the 4th quarter of 2009] was fairly small. So the real “contribution” was not even the change in inventories, but the change in the change. In other words, we have moved the analysis one more step into absurdity by explaining the creation of real goods and services by referring to the second derivative of something (inventories) that does not have the power to create goods and services.
If you totally understand what I’m saying in that quotation, then you’ve gotten my point.
I totally understand what you are saying. In fact, its something that is becoming so prevalent (to my own personal experience with economics) that I’ve been feeling more and more disheartened with economics in general.
Knowing zero about economics and being introduced to the Austrian school via Ron Paul back in 2008 was exciting. Progressing my knowledge via mises.org and all the literature by Mises, Rothbard, Hayek, Woods, Hoppe, yourself and many more was a truly enjoyable and enriching task.
I now find myself spending 99% of the conversation arguing over the effect of a second derivative of something that “obviously isn’t a great measure of wealth” even though everyone acts like it is.
As you wrote, “The most destructive ideas in academia are those that are technically defensible but nonetheless encourage erroneous intuitions.”
I feel like so much of the conversation in economics in general, is over these technically defensible ideas. It just seems like madness. So I’m no longer “blown away by what the mainstream guys are doing”. I’m just exhausted and frustrated that it goes on and on with so much time and energy wasted on being sucked into these technical debates once what they are doing is pointed out.
I’ve been enjoying reading The Enterprise of Law by Bruce Benson, I think I’m going to go back to doing that now!