G.D.P. - what does the big picture look like? - macro money geek question.

[McDuck]

How do they calculate New Zealand's GDP? (Where and how are the measurements taken?)
What is it really Measuring?

and other interesting questions like...
" Are the big Australian Banks operating in New Zealand contributing to our GDP and how"?

[MikeO]

How do they calculate New Zealand's GDP? (Where and how are the measurements taken?)
What is it really Measuring?

and other interesting questions like...
" Are the big Australian Banks operating in New Zealand contributing to our GDP and how"?

Hi McDuck
You will most likely find plenty of information on the Statistics New Zealand website. Essentially though the UN has a published national accounts framework (System of National Accounts) that provides the basis of measuring these type of things. The National Accounts department of Statistics NZ is responsible for the measurement

In short Gross Domestic Product can be measured in two ways:
1. The production method - estimate the total 'value added' by all NZ industries and add it all up
2. The expenditure method - estimate the total value of final consumption, investment and government spending and subtract net exports. If you have studied economics you will recognise this as aggregate demand (C+I+G+X-M)

Stats NZ do this in nominal (i.e. current prices), and also real terms (effectively a volume index - effects of inflation removed).

Australian owned banks operating in NZ do contribute to GDP. They provide a financial service and the value of that service would be included in Gross Domestic Product. Not sure exactly how they would measure it and no doubt the Banks probably foul it all up by shifting their profits to minimise tax but in theory the value of the financial service they provide is part of GDP.

[McDuck]

Hi Mike.

Thank you for the refreshingly direct and comprehensive answer.

I hear that GDP is one of the most important numbers around.

So while I have great respect for the art of modern statistics, I get cautious when I see people use the word "estimate".
That word being similar to the word "guess"..in my way of looking at the world.

But since I'm only in the early stages of forming a global "waterflow" model for money, a rough approximation is fine.

It's topical here, that the idea of GDP was invented by Royal Society Founding member William Petty in 1652, to defend landlords against taxation for war.

and to get a sense of scale for the source of my flows, its nice to see that the USA moves about at aprox 18 Trillion GDP.
while New Zealand jiggles about at aprox 200 Billion GDP.

Whether or not all that jiggling about is of much use to its citizens is yet to be looked at.

And what the GDP of google is, or what country the "cloud" is in, are some other very interesting points.

[Perry]

GDP has some interesting quirks in its basics.

Let's say that you and your neighbour come to an agreement to mow one another's lawns for $30 a week.

Thereby, GDP increased by $60 a week.

Productivity?

Residential property investment is seen as non-productive by some people. Those same people often have problems providing current and cogent examples of productive investment.

Could childcare centres be seen in the same light as PI?

They allow dad and mum to go to work, to pay the mortgage, to the Aussie banks . . . .

Productive?

Once, it was only necessary for dad to do the forty-hour weekly toil. Mum looked after the home and children.

[McDuck]

Hi Perry.

Yes indeed.

Does the way GDP is measured capture all economic activity?
I know for example that black underground money can account for up to an extra 30% on top of GDP in some countries.

And what about foreign owned companies operating in New Zealand?
How do the money flows get passed through those, and how does that movement register (at particular measuring points in the hydraulic model)?

I really want to find an honest way to consider what is really in the New Zealand flow of money, and if it's working for us.

[Perry]

I really want to find an honest way to consider what is really in the New Zealand flow of money, and if it's working for us.

No matter what you find out, I suspect that the answer to that question will be a resounding no.

[McDuck]

That's what I hope to understand Perry.

I doubt that all money flow is harmful, or that all money flow is beneficial, but knowing the mix would be great.

One thing directly to your point, William Petty was one of the first people to talk about creating little loops of faster flowing money.
This idea we now call the velocity of money - he thought you needed banks to do this.

They measure it as how many times a dollar changes hands during a known period of time.
Since some of those exchanges could be totally useless nonsense,..
I'd like to see it measured as the GDP increase for each dollar added to the supply.
I know that GDP is a suspect figure, but hey, it gives you some sense of whether or not all that jiggling is getting you anywhere.

I expect its why they hate me carrying cash around in my pocket and are trying to get all this pay wave and electronic payment stuff happening.
It's not to make stuff easy for consumers, it's to get more revolutions out of each dollar for the banks.
It does cause inflation just like money printing though..