GNP vs. GDP

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On the 4/26 show, someone called in to complain about the switch from GNP to GDP, saying GDP is no good and GNP is great.

Frankly, I see no difference

http://research.stlouisfed.org/fred2/graph/?s[1][id]=GNPC96

GDP - how much stuff is produced in the US (includes Toyota plant in California)

GNP - How much stuff US nationals/corporations produce in the world.

Clearly, GDP is the preferred measure, but it turns out there's not much differenence over time. GNP is less than GDP, but it doesn't appear like there's a big change over time.

Dr. Econ's picture
Dr. Econ
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Just don't switch to GOP.

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Laborisgood
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Quote Dr. Econ:

On the 4/26 show, someone called in to complain about the switch from GNP to GDP, saying GDP is no good and GNP is great.

Frankly, I see no difference

http://research.stlouisfed.org/fred2/graph/?s[1][id]=GNPC96

GDP - how much stuff is produced in the US (includes Toyota plant in California)
GNP - How much stuff US nationals/corporations produce in the world.

Clearly, GDP is the preferred measure, but it turns out there's not much differenence over time. GNP is less than GDP, but it doesn't appear like there's a big change over time.

Dr. Econ,

The difference is huge and very relevant.

1) The difference between GDP and GNP becomes greater, to the degree that your economy is foreign owned.

You can see this in developing nations where the IMF managed to get the governments to privatise state owned enterprises, and those enterprises and mines end up in the hands of the Chinese, Indians, etc. Everything the Chinese and Indians do in that country counts as GDP, even if they send all the profits straight to Switzerland or Mumbai, making it completely inaccessible to the country, and destroying any multiplier effect.

2) GDP becomes less relevant, to the degree that corporations can hide profits oversees and are not taxed over their profits.

With corporations being allowed to set up headquarters in tax shelters (Bahamas, Switzerland, etc.), their profits become unavailable for taxation, massively reducing tax revenues, and thereby basic services, road maintenance, etc.

3) Destuctive Effects Count As GDP Growth

When BP cuts corners and creates a massive oil spill, the US taxpayer is left to pay for the cleanup. Because that cleanup happens within the US borders, all that money also counts as GDP. A foreign company buys a nuclear plant, the plant melts down, makes part of a state uninhabitable, losing hundreds of billions of dollar. The cleanup costs are 10 billion dollars - that also counts as GDP growth. In other words, the costs of companies externalising pollution, etc. when born by the taxpayer, counts as GDP growth.

On the other hand, GNP is the economic activity of all of a country's nationals, at home and abroad. It includes for instance remittances made by nationals of developing nations, which is good, but it would also count their income when working abroad, which (beyond remittances) is irrelevant to the domestic economy.

I would suggest a Domestic GNP, the economic activity of all of a country's nationals within the nation's borders, as a more accurate measure of economic growth. Or even better, a Sustainable Domestic GNP, which would deduct any negative activities like foreign investments made by locals, tax evasion, proceeds from crime, etc. as a proper measure of real economic growth in a country.

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MrK
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Jul. 31, 2007 4:01 pm

Mrk wrote:
["1) The difference between GDP and GNP becomes greater, to the degree that your economy is foreign owned."

Who cares? I looked at the graphs of GDP and GNP and there's not much difference.

If you want to know about foreign ownership, then get data on foreign ownership. GNP doesn't tell you about the purchase of assets anyway, so it's a poor measure of foreign ownership.

Profit accounting may be of interest, but it is not that large in countries like the US.

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Dr. Econ
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Jul. 31, 2007 4:01 pm

The worst part of both is that they measure the "gross" national/domestic product and not the production of wealth v. waste or sustainability v. consumption. Nothing drives the gross better than a big wreck on the freeway. All those people getting home safely would be nothing, but when you get to add up the police, fire and ambulance, then deal with the hospital bills and the lawyers, boy do we have an economy!

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DRC
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Quote DRC:

The worst part of both is that they measure the "gross" national/domestic product and not the production of wealth v. waste or sustainability v. consumption. Nothing drives the gross better than a big wreck on the freeway. All those people getting home safely would be nothing, but when you get to add up the police, fire and ambulance, then deal with the hospital bills and the lawyers, boy do we have an economy!

Bingo, it's broken-window-theory economics at it's finest. Apparently Japan should be thankful for their disaster, surely it will bring "economic growth", lol.

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Cheesebone
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Cheesebone, it is always the bottom line for me. The reason I like public power and Single Payer is that they are about value for investment and bang for the buck. If you want to look into environmental economics, you will find a very exciting revaluation of the bottom line. If people understood value for the investment instead of the experience, they would never buy lottery tickets or go to the Casino.

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