The reason I bring up the weighting of GDP growth is that there are some “revolutions” which are irrelevant and some “revolutions” which are relevant from whatever perspective you’re judging “craziness”. In particular, it’s absurd to think that the year 2058 will be crazy because suddenly people will be able to drink wine manufactured in the year 2058 at a low cost.
Consider this claim from your post:
When we see slow, mostly-steady real GDP growth curves, that mostly tells us about the slow and steady increase in production of things which haven’t been revolutionized. It tells us approximately-nothing about the huge revolutions in e.g. electronics.
The way I interpret it, this claim is incorrect. Real GDP growth does tell you about the huge revolution in electronics, the same way that it tells you about the huge revolution in the production of wine in the year 2058. It can’t do it globally for the reasons I discussed, but it does do it locally at each point in time. The reason it appears to not tell you about it is because it (correctly) weighs each “revolution” by how important they actually were to consumers, rather than weighing them by how much the cost of production of said good fell.
I think the source of the ambiguity is that it’s not clear what you mean by a “revolution”. Do we define “revolutions” by decreases in marginal utility (i.e. prices) or by increases in overall utility (i.e. consumer surplus)? If you mean the former, then the wine example shows that it doesn’t really matter if a good is revolutionized in this sense for our judgment of how “crazy” such a change would be. If you mean the latter, then your claim that “GDP measures growth in goods that are revolutionized least” is false, because GDP is exactly designed to capture the marginal increase in consumer surplus.
The reason it appears to not tell you about it is because it (correctly) weighs each “revolution” by how important they actually were to consumers...
No it doesn’t. It weighs them by price (i.e. marginal utility = production opportunity cost) at the quantities consumed. That is not a good proxy for how important they actually were to consumers.
I think the source of the ambiguity is that it’s not clear what you mean by a “revolution”. Do we define “revolutions” by decreases in marginal utility (i.e. prices) or by increases in overall utility (i.e. consumer surplus)?
I’m mostly operationalizing “revolution” as a big drop in production cost.
I think the wine example is conflating two different “prices”: the consumer’s marginal utility, and the opportunity cost to produce the wine. The latter is at least extremely large, and plausibly infinite, but the former is not. If we actually somehow obtained a pallet of 2058 wine today, it would be quite a novelty, but it would sell at auction for a decidedly non-infinite price. (And if people realized how quickly its value would depreciate, it might even sell for a relatively low price, assuming there were enough supply to satisfy a few rich novelty-buyers.) The two prices are not currently equal because production has hit its lower bound (i.e. zero).
More generally, there are lots of things which would be expensive to produce today, will likely be cheap to produce in the future, but don’t create all that much value. We just don’t produce any of them, To think properly about how crazy the future would be, we need to think about the consumer’s perspective, not the production cost.
A technological revolution does typically involve a big drop in production cost. Note, however, that this does not necessarily mean a big drop in marginal utility.
Now, I do think there’s still a core point of your argument which survives:
Real GDP growth does tell you about the huge revolution in electronics, the same way that it tells you about the huge revolution in the production of wine in the year 2058.
The thing it tells us is that the huge revolution in electronics produced goods whose marginal utility is low at current consumption levels/production levels.
When I say “real GDP growth curves mostly tell us about the slow and steady increase in production of things which haven’t been revolutionized”, I mean something orthogonal to that. I mean that the real GDP growth curve looks almost-the-same in world without a big electronics revolution as it does in a world with a big electronics revolution. It “doesn’t tell us about things which were revolutionized” in an information-theoretic sense—i.e. we can’t tell by looking at the GDP curve whether or not there was a technological revolution. That still seems basically correct, at least for “revolutions” for which price falls more than consumption increases.
I think there’s some kind of miscommunication going on here, because I think what you’re saying is trivially wrong while you seem convinced that it’s correct despite knowing about my point of view.
Yes it is—on the margin. You can’t hope for it to be globally good because of the argument I gave, but locally of course you can, that’s what marginal utility means! This is modulo the zero lower bound problem you discuss in the subsequent paragraphs, but that problem is not as significant as you might think in practice, since very few revolutions happen in such a short timespan that the zero lower bound would throw things off by much.
I think a pallet of wine that somehow traveled through time would sell at a very high, though not infinite, price. The fact that the price is merely “very high” instead of “infinite” doesn’t affect my argument in the least. Your claim that the two prices aren’t currently equal because of the zero lower bound problem is certainly correct, but it’s a technical objection that can be fixed by modifying the example a little bit without changing anything about its core message. For instance, you can take the good in question to be “sending a spacecraft to the surface of Mars and maintaining it there”, which currently has a nonzero consumption. It’s conceivable, at least to me, that even if the cost of doing this comes down by a factor of a billion, it won’t produce anything like a commensurate amount of consumer surplus.
My problem is, as I said before, that if “revolution” is operationalized as a big fall in production costs then your claim about “real GDP measuring growth in the production of goods that is revolutionized least” is false, because there are examples which avoid the boundary problems you bring up (so relative marginal utility is always equal to relative marginal cost) and in which a good that is revolutionized would dominate the growth in real GDP because the demand for that good is so elastic, i.e. the curvature of the utility function with respect to that good is so low.
How does it not “necessarily” mean a big drop in marginal utility if you get rid of your objection related to the zero lower bound? A model in which this is not true would have to break the property that the ratio of marginal costs is equal to the ratio of marginal utilities, which is only going to happen if the optimization problem of some agent is solved at a boundary point of some choice space rather than an interior point.
Nothing in your post hints at this distinction, so I’m confused why you’re bringing it up now.
When I say “real GDP growth curves mostly tell us about the slow and steady increase in production of things which haven’t been revolutionized”, I mean something orthogonal to that. I mean that the real GDP growth curve looks almost-the-same in world without a big electronics revolution as it does in a world with a big electronics revolution.
Can you demonstrate these claims in the context of the Cobb-Douglas toy model, or if you think your argument hinges on the utility function not having a special form, can you write down a model of your own which demonstrates this “approximate invariance under revolutions” property? In my toy model your claim is obviously false (because real GDP growth is a perfect proxy for increases in utility) so I don’t understand where you’re coming from here.