Oops on Com­mod­ity Prices

Epistemic status: Casual

Some pa­tient and thought­ful folks on LessWrong, and, ap­par­ently, some rather less pa­tient folks on r/​Sneer­Club, have poin­ted out that GDP-to-gold, or GDP-to-oil, are bad proxy meas­ures for eco­nomic growth.

Ok, this is a coun­ter­ar­gu­ment I want to make sure I un­der­stand.

Is the fol­low­ing a good rep­res­ent­a­tion of what you be­lieve?

When you di­vide GDP by a com­mod­ity price, when the com­mod­ity has a nearly-fixed sup­ply (like gold or land) we’d ex­pect the price of the com­mod­ity to go up over time in a so­ci­ety that’s get­ting richer — in other words, if you have bet­ter tech and bet­ter and more abund­ant goods, but not more gold or land, you’d ex­pect that other goods would be­come cheaper re­l­at­ive to gold or land. Thus, a GDP/​gold or GDP/​land value that doesn’t in­crease over time is totally con­sist­ent with a so­ci­ety with in­creas­ing “true” wealth, and thus doesn’t in­dic­ate stag­na­tion.

Yes. The de­tailed dy­nam­ics de­pend a lot on the par­tic­u­lar com­mod­ity, and how elastic we ex­pect de­mand to be; for ex­ample, over the long run I ex­pect GDP/​oil to go way up as we move to bet­ter sub­sti­tutes, but over a short period where there aren’t good sub­sti­tutes it could stay flat.

Com­menters on this blog have also poin­ted out that the Dow is a poor meas­ure of the value of the stock mar­ket, since it’s small and un­nor­mal­ized.

These cri­ti­cisms weaken my pre­vi­ous claim about eco­nomic growth be­ing stag­nant.

Now, a little per­sonal story time:

Nearly ten years ago (yikes!) in col­lege, I had an econ blog. My big brush with fame was hav­ing a joke of mine hat-tipped by Megan McArdle once. I did most of the re­quired courses for an econ ma­jor, be­fore even­tu­ally set­tling on math. My blog, I real­ized with dis­may when I pulled it up many years later, con­sisted al­most en­tirely of me agree­ing with other econ blog­gers I en­countered, and im­it­at­ing buzzwords. I cer­tainly soun­ded a lot more main­stream in those days, but I un­der­stood — if pos­sible — less eco­nom­ics than I do now. I couldn’t use what I’d learned in school to reason about real-world ques­tions.

I think I learn a heck of a lot more by throw­ing an idea out there and be­ing cor­rec­ted than I did back when I was not even ask­ing ques­tions. A shy per­son can­not learn, an im­pa­tient per­son can­not teach” and all that.

Ad­mit­tedly, my last post may have soun­ded more know-it-all-ish than it ac­tu­ally de­served, and that’s a prob­lem to the ex­tent that I ac­ci­dent­ally misled people (des­pite my dis­claim­ers.) I ac­tu­ally tried, for sev­eral years, to be less out­spoken and con­vey less con­fid­ence in my writ­ten voice. My im­pres­sion is that the at­tempt didn’t work for me, and caused me some emo­tional and in­tel­lec­tual dam­age in the mean­while. I think verbally; if I try to verb­al­ize less, I think less.

I think the M.O. that works bet­ter for me is strong opin­ions, weakly held. I do try to learn from know­ledge­able people and quickly walk back my er­rors. But real­ist­ic­ally, I’m go­ing to make er­rors, and dumber ones when I’m newer to learn­ing about a topic.

To those who cor­rect me and ex­plain why — thank you.