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.