37

If I go for a haircut, am I causing the GDP to rise because consumption is rising?

ROHAN PAUL
  • 479
  • 1
  • 4
  • 3

6 Answers6

38

Existing answers are correct, yes, you are increasing GDP.

GDP is a crude measure of how much is spent during a year. This is used as a proxy for living standards (the thinking goes: if an economy is spending more, there's more economic activity and it's probably doing better).

But the logic doesn't always hold, for example:

Consider a scenario where you break my window and I break yours, and we both pay the glazier \$100 each to fix our windows. Our living standards are unchanged, despite the fact that our actions increased GDP by \$200!

ə̷̶̸͇̘̜́̍͗̂̄︣͟
  • 129
  • 5
stevec
  • 671
  • 4
  • 14
  • 1
    @eggyal that's true. The example only illustrates how GDP can go up despite wealth actually going down, hence how GDP should be treated with great caution when it's used as a proxy for other things like standard of living etc. Perhaps a simpler example would be one where the glazier is a sole trader and breaks their own window and pays their own business to fix it. Then GPD goes up $100 yet noone is better off (and the glazier is down on time and a glass panel; hence worse off). – stevec Sep 02 '20 at 05:44
  • 8
    Does that mean that with high-frequency trading, we can increase the GDP by a factor thousand in a matter of seconds? – gerrit Sep 02 '20 at 07:01
  • 7
    @gerrit no, but only because of the definition of GDP excludes financial assets (see point 4 here). The definition excludes financial transactions because its goal is to measure the value of a year's worth of final production (so including them would distort that a lot as you point out) – stevec Sep 02 '20 at 07:16
  • Arguably your ability to pay for someone to replace your windows is a measure of living standards. – Zibbobz Sep 02 '20 at 12:38
  • 7
    @Zibbobz your ability to pay to replace broken windows is not a totally unreasonable way to estimate your living standards. The amount of money you have actually paid to replace broken windows is a less reasonable way to estimate your living standards, for pretty much anyone who doesn't own a glass skyscraper. – James_pic Sep 02 '20 at 16:52
  • @James_pic: But then you need to consider: Who's buying most of the glass in the economy, the large skyscrapers, or the private individuals? If the former, then it may still make perfect sense to account for the glass produced, because on the whole, it's more right than wrong. This extends to other markets, of course. – Kevin Sep 02 '20 at 23:50
  • Your last paragraph is flawed. Buying a pane of glass doesn't increase GDP. Hiring the glazier to install it means they're not available to perform other labor. Most of that $100 does, in fact, represent value creation that would have occurred without the window braking. – Acccumulation Sep 03 '20 at 03:28
  • 2
    @Acccumulation the broken windows example illustrates that a higher GDP doesn't imply a better standard of living. Perhaps an even simpler example could be I pay you $100 to dig a hole and fill it in and you pay me to do the same. Then GDP is up $200 yet noone is any better off. In such a case GDP measured activity, but did it successfully measure producttivity? Such examples give us reason to be cautious in relying solely on comparing GPD as a measure of productivity / progress. – stevec Sep 03 '20 at 03:38
  • I just explained how it doesn't, and you completely ignored my point, and just changed the subject to another example, for which you'll probably just ignore me once again if I explain how that one is flawed. You also misspelled "no one". – Acccumulation Sep 03 '20 at 03:47
  • 1
    @Acccumulation the examples aren't meant to be water tight. But.. if we assume that the owners of the homes and the glazier all had no economic activity planned for the time they're breaking/fixing windows, and that the home owners already had a spare pane of glass sitting around.. then the $100 each goes directly to the glazier for their labour, and there's no opportunity cost to GPD (since we're strictly assuming the glazier would not have engaged in the production of final goods and services during that time in this hypothetical). Then I think the example is water tight. What do you think? – stevec Sep 03 '20 at 04:15
  • 10
    Your broken window scenario reminded me of this joke : An accountant and an economist are walking through a forest... They encounter a frog. – Eric Duminil Sep 03 '20 at 07:51
  • 1
    @EricDuminil that’s brilliant – stevec Sep 03 '20 at 08:11
  • 2
    @EricDuminil Ha, but they are better off, they have provided entertainment for each other. Each of them valued seeing the other licking a frog at >= $100, and licking the frog themselves at <= $100, so it was a win-win. – JBGreen Sep 03 '20 at 22:05
  • 2
    @EricDuminil Reminds me of those people on Patreon who give money back to some of the people giving them money in order to inflate the income numbers on both of their accounts. – nick012000 Sep 04 '20 at 06:06
  • @stevec, I suggest that you edit your answer by replacing the Broken Windows example by the Dug and Filled example. Broken Windows is a good one. But the latter is better because there are no other actors and no obvious externalities and perhaps fewer unsaid assumptions. (Comments are best used to collaborate to improve the answer eventually.) – Jirka Hanika Sep 04 '20 at 07:03
  • 1
    Or the satirical (but official, legal) German political party DIe Partei ("The Party") selling bank notes for money in order to generate revenue in their books! (link is in German) They actually sold a 100 Euro bill for 80 Euros because their revenue in the books is the base for public party funding by the government, which is a 1:1 funding (for each Euro of revenue, they get an additional Euro from the government). They are sold out :-( – Peter - Reinstate Monica Sep 04 '20 at 07:56
20

Yes, it would (unless you get your haircut at the gray market). GDP is statistics that measures the value of all final goods and services created in a specific period of time.

Because it is a statistics it can only be measured if the transaction is done in a proper market. In a gray economy - economy that is not illegal like the black market but also not official, getting a haircut while paying person indirectly with favor or by giving them money unofficially as to avoid taxes, the haircut would not be counted. However, otherwise, it is included.

csilvia
  • 2,735
  • 1
  • 7
  • 24
  • 7
    But if this grey market only represents technical accounting difficulties, this doesn't fundamentally exclude it from GDP. There must be ways to estimate the size of grey market, and then it could (and should) be included in GDP. – Zeus Sep 02 '20 at 03:59
  • 1
    @Zeus but GDP is not a theoretical measure it’s a statistical measure. Grey economy is part of output - GDP wants to measure output - but it is just measurement. And yes you are correct there are ways of estimating size of grey economy or even housework etc and there are output measures based on adjusted GDP for these things - but ‘vanilla’ GDP as a statistical measure does not include them at all. – 1muflon1 Sep 02 '20 at 09:16
  • 4
    @1muflon1 isn't it both? Like, you could say that if you give birth at home and don't tell the government and keep your child secret from everyone (don't do this btw) then they're not included in population. But actually they are included in population, it's just that the people who are counting the population missed them, so the actual population doesn't equal the published population. – user253751 Sep 02 '20 at 09:34
  • @user253751 sometimes in literature GDP is being equated to the theoretical concept of output because in a theoretical model where there are no issues of gray markets, non-market production and so on they must be the same. But GDP by itself is just a measure, so doing so it’s bit of an abuse of terminology- it’s not unjustified because then when one tests those theoretical models GDP/GDPpc will be always used for measuring that output but it’s also not correct to say that GDP as a statistical measure intends to include grey market activity- if that would be so we would just include estimates – 1muflon1 Sep 02 '20 at 09:42
  • @user253751 but your analogy precisely showcases my point. For example, in some countries national population statistics might on purpose exclude undocumented migrants. Even though in the theoretical concept of population we might all agree that any person should be included a practical measure might do exceptions left and right. Again all economists would agree that gray market or even illegal activity that produces goods and services is part of countries output. But a statistical measure might exclude them- if statistical offices would want they could already add est. of gray activity to GDP – 1muflon1 Sep 02 '20 at 09:49
  • 1
    @user253751 “population” is a defined term. The people included are only those who meet the relevant definition for the specific instance of population being applied. To the shame of the country Australia did not include First Nation people in the political population for much of the 20th century. The Confederate States did not include enslaved people. Any statistic is a measure of what it measures. Whether that aligns with reality is arbitrary. – jwpfox Sep 02 '20 at 12:31
  • 3
    @Zeus that's right. It's like asking whether pollution emitted by a factory that falsified its environmental impact statements is still real pollution. It's more difficult to track and investigate but that doesn't make it any less real. – Robert Columbia Sep 02 '20 at 14:16
  • 2
    @jwpfox anyone who defines the population as anything other than the number of people is simply wrong. Now. It can be possible to divide up the population in different ways. You could say First Nations people are part of their respective First Nations(?) and not part of the country of Australia. So you include them in a different population group. But you must include them in the population of the landmass of Australia at least. Because they live there. Anything else is just dumb. – user253751 Sep 02 '20 at 16:25
  • I am very confused, the normal definition of 'gray market' is a market where goods are bought from an unofficial supplier (but completely legally and counted in GDP). How could you get a haircut legally but unofficially? There is no gray area when it comes to buying goods or services. It's either the black market or the normal market. – David Mulder Sep 02 '20 at 16:59
  • @user253751 Your assertions are solid common sense. They don’t reflect how things are actually done, however. – jwpfox Sep 02 '20 at 19:52
  • @DavidMulder I believe "gray market" was being used as a synonym for "cash market." If you pay cash for your haircut and no one reports the transaction for taxes or whatever, it can't be represented as part of GDP. – Grault Sep 03 '20 at 00:37
12

Yes, the haircut will contribute to the gross domestic product of the country; ‘haircut’ is like any other service that you might avail. However, you will not add, sometimes, the entire amount paid. One will deduct the cost of intermediate goods consumed, to prevent the problem of double counting.

Sahaj
  • 307
  • 2
  • 10
1

Any voluntarily transaction (such as going for a haircut) increases GDP. The logic is simple: A sells a good for 100 to B because A values the good to less than 100 while B values it to more than 100. The difference between A's and B's valuation of the good increases the GDP. If A had valued it to more than 100 and/or B to less than 100, A would never have sold it for 100 and/or B would never have bought for 100.

A side note: people are wrong about what GDP is. It is not limited to the legal part of the economy, although it is, for obvious reasons, easier to estimate. It is common that economists try to calculate the full GDP by, by different methods, estimating the grey and black economies. The GDP definition is agnostic for how economic activity takes place.

d-b
  • 205
  • 1
  • 5
  • 5
    No this is completely incorrect. You are confusing GDP with welfare- your answer would apply to welfare not GDP. This is the definition of GDP: “is the total monetary or market value of all finished goods and services produced within a country’s borders in a specific time period.” https://www.investopedia.com/terms/g/gdp.asp. What you describe here is not GDP by any standard economic terminology. In fact non-voluntary transactions such as government mandated purchases of insurance are part of GDP etc. – 1muflon1 Sep 02 '20 at 10:07
  • 3
    This does appear to be about welfare (economic surplus) rather than GDP. For example, if you get a haircut that's worth $$20$ to you (where you'd walk if it cost a penny more) vs. a $$10$ cost to the barber (where they'd walk if a penny less), then that haircut increases welfare (economic surplus) by $$20-$10=$10,$ regardless of the actual price paid. By contrast, the GDP increases by whatever price is paid (presumably somewhere between $$10$ and $$20).$ – Nat Sep 02 '20 at 12:47
  • "Any voluntarily transaction (such as going for a haircut) increases GDP." Buying a stock doesn't increase GDP. – Acccumulation Sep 03 '20 at 03:00
0

The answer is yes and no in some cases , in developing countries these type of activities are performed by self employed individual with low capital , and mostly payments done in cash ,and these individuals ( most of them doesn't have tax liability , never file returns , and are not registered, unregulated under state or central authority ) . This activitiy fall under informal sector in developing countries unless they get registered under the respective authority . The informal economy is that part of economy which is not reported in official statistics such as the gross domestic product of a country. The informal economy is not taxed, and includes the black market. In developing countries over 70% of the people work in this form of economy. They are self-employed, because it is difficult to find an employer to hire them. People working in this form of economy have no social benefits or social security, which are usually only given by the state to those who have made tax contributions. Examples include food and flea markets, street vendors, laundromats and the like, mostly in rural or informal areas. It is considered informal since these businesses are rarely registered at national or regional levels, are cash-based and thus do not pay taxes and usually do not have formal arrangements with employees.

Cherry
  • 19
  • 4
  • If anyone are down voting the answer give reason why you think this answer is wrong , because the answer I gave is legitimate one – Cherry Sep 07 '20 at 16:13
-3

Let's first talk about potatoes. Suppose a farmer grows some potatoes and sells them to McDonald's for \$200,000. So this constitutes \$200,000 towards GDP. Clearly, the primary cause of that \$200,000 of value existing is the farmer's work. If McDonald's hadn't bought the potatoes, the farmer could have sold them to Burger King. However, when you look at the tally for the GDP, the sale is what will be listed as what the \$200,000 is coming from. So if you're just looking at what the final event that preceded the increase in GDP is, it's the sale. But it's the farmer's work that is actually the primary cause of the value coming about. So if you ask "Did McDonald's buying the potatoes increase the GDP by $200,000", the answer depends on what you mean by "increase".

Now, back to the haircut. The applicability of the above may be harder to see, because the potatoes existed before the sale, while the haircut doesn't exist until you get it, but the same principle exists. The ability of the cosmetologist to give you a haircut exists before you get a haircut, and you are using that ability up, just as McDonald's is using up the potatoes. Just as those potatoes could have gone to Burger King, the haircut could have gone to someone else. If you pay \$20 for a haircut, you are using up \$20 of value. That's \$20 of value that isn't available to someone else, someone else that could have paid \$20 instead. If someone else had gotten the haircut, the same \$20 would have been added to the GDP. And so the net effect of you getting a haircut is not to increase the GDP by \$20, because it's money that would have gone towards the GDP anyway.

When you engage in economic activity, you move the demand curve (if you're buying) or supply curve (if you're producing). In doing so, you possibly move where the equilibrium price is, and/or how much is sold at that price. It is how much that effect is that is the net effect of your actions on the GDP. So if we're talking about the net effect on GDP, getting a \$20 haircut probably increases the GDP much less than \$20 (one would have to know the elasticities of the curve to know for sure). If you're just interested on the immediate effect, then it increases it by the full \$20.

If someone has a problem with this, I think basic common decency demands that they present their issues in a civil manner, and not post dishonest, nonsensical comments, or merely downvote without any comments at all

Acccumulation
  • 779
  • 3
  • 5
  • I see your point now. You're asking the important question "Compared to what?" – stevec Sep 03 '20 at 04:16
  • I guess to throw a spanner in the works, one could argue the cosmetologist may have been able to perform two haircuts in the time it took to cut the OP's hair (two customers both wanting very quick-to-perform haircuts could have walked right in during that time, and walked out when they couldn't get their hair cut right away and decided not to get their hair cut at all, and not to engage in economic activity in that time), thus the OP getting a haircut could have a negative impact on GDP in opportunity cost terms. It all depends on what assumptions we're going by. – stevec Sep 03 '20 at 04:23
  • 3
    No this is simply incorrect - GDP can be calculated multiple ways - almost commonly by spending approach where all spending is counted, and second most common income approach where all income is counted. Under spending approach $20 spending on final good as haircut will increase GDP by $20. Under income approach the |$20 are still counted only they are through persons income. You are confusing GDP with some other economic concepts – 1muflon1 Sep 03 '20 at 16:02
  • @1muflon1 You are wrong. I explained how you are wrong. You did not address my argument why you're wrong at all. You are being quite rude. – Acccumulation Sep 03 '20 at 18:41
  • @Acccumulation what argument? you did not made any. – 1muflon1 Sep 03 '20 at 18:43
  • @1muflon1 I very clearly did. I said that getting a haircut takes away resources that would otherwise go towards someone else getting a haircut. What is your problem? If you don't find my argument convincing and wish to present a counterargument, that's one thing. But to come here and flat out lie and claim that I didn't make an argument at all is unacceptable. – Acccumulation Sep 03 '20 at 18:55
  • @Acccumulation oh you meant in your post. But I already explained why the argument in your post is flat wrong. GDP is not about resources. GDP is literally sum of all spending or income on final goods and services at a given point of time (which are economically equivalent). Your answer is not about GDP at all. $20 spending increases GDP by $20 dollars regardless whether it redirects resources from other parts of economy. GDP is an aggregate measure that don’t capture distribution of resources across economy and the distribution between different tasks does not matter for its calculation – 1muflon1 Sep 03 '20 at 18:59
  • What is with all these rude economists on StackExchange? – barbecue Sep 03 '20 at 20:03
  • @1muflon1 You said "This is simply incorrect" and " the argument in your post is flat wrong" but what specifically is wrong? Are you saying that there's no such thing as opportunity cost? Are you saying haircuts don't cost $20? It's impossible to know what exactly your objection is by reading your comments, and you start talking about resources, a word that never even appears in the answer. I find your comments both rude and meaningless. – barbecue Sep 03 '20 at 20:10
  • Yes, saying "flat wrong" is rude. You seem to be under the impression that being honest means you are not being rude. That's not how it works. Rudeness has nothing to do with correctness, it's all about tone and emotion. Humans are emotional beings, and unless the person you're talking to is extraordinarily devoid of emotion, they will attach emotional import to the things you say. If you say "Your argument is flawed" that is more polite. Saying it's wrong is less polite. Saying it's "flat wrong" is rude.The more you emphasize the wrongness, the less polite you are. – barbecue Sep 03 '20 at 20:24
  • Let us continue this discussion in chat. – barbecue Sep 03 '20 at 20:24
  • @1muflon1 How stoic you are when saying something rude does not affect how rude it is. You ask "So how is politely saying flat wrong rude" which means you don't understand the issue. I suspect this is a language thing. A good test for rudeness is to look at the reactions of people to your words. If you see negative reactions, that's a clue that you are being rude. You do not get to decide the rudeness of your own words, that's a judgement made by other people. You can, however, learn to adjust your words to reduce the chance of being seen as rude. – barbecue Sep 03 '20 at 20:38
  • @barbecue but people at conferences are always extremely polite especially during presentations. When I was talking about conferences I don’t mean the drinks after I mean the conference itself. Furthermore you yourself stated that what is rude depends how people react to it. Since at conferences nobody reacts to flat wrong in a way of being offended then we can conclude it’s not rude within the profession – 1muflon1 Sep 03 '20 at 20:43
  • @1muflon1 you seem to be having a real problem accepting even the remotest possibility that everything you say and do might not actually be perfectly polite. Your rudeness may not be deliberate, but that doesn't matter. It's rude anyway. Unnecessarily emphasizing a negative thing about another person when a less emphatic option is available is ALWAYS RUDE. – barbecue Sep 03 '20 at 20:45
  • @1muflon1 When you present at a conference, you are speaking to an audience, not engaged in a back-and-forth discussion with one person. Context matters. – barbecue Sep 03 '20 at 20:51
  • @1muflon1 you're right about one thing, me pointing out you being rude is also rude. It's a balancing act. Any time you make a statement that is negative about a person, it's automatically impolite to some degree. To avoid rudeness you must moderate the tone you use when making the statement. – barbecue Sep 03 '20 at 20:53
  • @1muflon1 You are not at an economics conference. You are in a conversation with a stranger. Please try to understand that these are not identical situations. This is rapidly deteriorating as you repeatedly try to reframe the argument so as to make yourself correct, and we are getting farther and farther from the original point. I will restate it one last time. If you want to point out someone's incorrect statement, saying that it is :"flat wrong" is more rude than saying it's "wrong" which is more rude than saying it's "incorrect" which is more rude than saying it's "flawed" etc. – barbecue Sep 03 '20 at 20:55
  • @1muflon1 trust me, if my intention were to troll, I would not spend so much time writing thoughtful comments. I've tried to take this to chat several times but for some reason it's not working. – barbecue Sep 03 '20 at 20:57
  • @1muflon1 again you show that you simply don't understand the issue. Rudeness is not about grammar. It is not about correctness. It is not about being right, or following rules. It's about tone, emotion, and response. I first thought this was a language issue, but apparently not. You're obviously fluent in English. I can only put this down to a cultural difference. Trust me when I say this, if you walk up to a random stranger in the US and say "You're flat wrong" it will be considered rude. – barbecue Sep 03 '20 at 20:59
  • @1muflon1 When I say "trust me" I mean that I know from many decades of experience and extensive social interactions as a native English speaker in the US, that telling someone they are "flat wrong" is rude. Since you believe I'm wrong, there's no point in further discussion. The fact that your experience at scientific conventions is different is irrelevant. This is not a scientific convention. It's a public forum on the internet, with all visual and audio cues which humans rely on to determine emotional import stripped away. It's also a forum which specifically asks you to BE NICE. – barbecue Sep 03 '20 at 21:12
  • @1muflon1 As I said before, clearly it's a cultural difference. The fact that you don't believe me is your problem, not mine. I'm done attempting to improve the quality of your commentary. Obviously I've been wasting my time and yours. I hope you eventually discover that it's possible to be more polite and have a better impact on others. – barbecue Sep 04 '20 at 15:11
  • @1muflon1 and thus my original point is thoroughly proven. Again, I hope you eventually learn better. – barbecue Sep 04 '20 at 15:15
  • @1muflon1 the fact that you think I've insulted you but refuse to consider that you might have insulted others proves what I've been saying all along. You don't realize that you are being rude to others. – barbecue Sep 04 '20 at 15:23
  • @1muflon1 since you believe I have insulted you I will apologize for that misunderstanding. My purpose has been to try to improve your communication and make your comments more helpful to others and less abrasive. I have never tried to mkae fun of you or provoke you, and I am not trolling. I am sorry if you are offended. I wish you would also be sorry for offending others, but I cannot do anything about that. – barbecue Sep 04 '20 at 15:25
  • @1muflon1 I'd be happy to have a discussion about this with you and explain my point of view but these comments are not the place for that. I am not sure why the move to chat option isn't working. – barbecue Sep 04 '20 at 15:29
  • @1muflon1 OK we will resume there – barbecue Sep 04 '20 at 15:39
  • @Acccumulation our disagreement aside, do you think I was trying to be rude to you by saying: the argument in your post is flat wrong. GDP is not about resources. GDP is literally sum of all spending or income on final goods and services at a given point of time (which are economically equivalent). Your answer is not about GDP at all. $20 spending increases GDP by $20 dollars regardless whether it redirects resources from other parts of economy. GDP is an aggregate measure that don’t capture distribution of resources across economy and the distribution between different tasks does – 1muflon1 Sep 04 '20 at 18:25
  • not matter for its calculation"? if so I am sorry but I still would like to know your opinion. – 1muflon1 Sep 04 '20 at 18:25
  • Also could moderators please move the off-topic discussion into chat? I proposed to delete them to user when we moved our conversation to chat so I deleted mine but then afterwards user said that moderators should move it. – 1muflon1 Sep 04 '20 at 18:32
  • I think the basis of your disagreement was that 1muflon1 considered "someone gets a haircut ceteris paribus" - which is the standard approach with these questions, while Accumulation considered "A gets a haircut instead of B". In the second case, GDP would indeed be unchanged. However in the first case GDP is changed; if everything cost as much to produce as they charged for it, then there would be no value added, GDP would be 0 by definition. – Giskard Sep 04 '20 at 19:57
  • @Giskard but exactly this is the point because the user says it adds little. Under ceteris paribus which is the standard approach taken when talked about GDP it would be $20. But let’s suppose we don’t take this ceteris paribus approach and use the second case. In that case any increase in GDP will be zero and not small amount - I think that this user is confusing this with different concepts - maybe multiplier I can’t completely pinpoint which because it could be multiple things. However, the answer is simply incorrect under either view. – 1muflon1 Sep 04 '20 at 20:05
  • @1muflon1 What is rude about your comments is that you are posting a comment supposedly in response to my answer, but you don't address the argument in the post. Getting a $20 haircut does not CAUSE the GDP to go up by $20. It is COUNTED as increasing the GDP going up by\ $20, but the OVERALL effect is not to increase the GDP to go up by $20. If Alice pays $20 for a haircut, the GDP will not be $20 greater than if Alice didn't. Alice getting a haircut increases the GDP by the amount that doing so moves the demand curve, thus changing the equilibrium point. – Acccumulation Sep 05 '20 at 00:05
  • Your claim that the GDP is not about resources is absorb. That is EXACTLY what it is about. Spending is simply a MEASUREMENT of resources when the resources are TRANSFERRED. It is the resources themselves, not the transfer, that is the ultimate CAUSE of the GDP. If a surgeon performs $400k worth of surgery in a year, the surgery is the ultimate cause of the GDP going up by $400k. That a particular person received the surgery rather than another is not an important factor. – Acccumulation Sep 05 '20 at 00:09
  • @Acccumulation but this is where you are simply wrong and I am addressing that. Irrespective where demand at any single individual market is the total aggregate demand is given at any period of time. If you want to talk about this then you should say haircut does not increase GDP by even a cent because there always is some GDP at any given time period. If GDP in 2020 is 200 then any change in consumption patterns will not increase it in that sense at all because it will always be 200 but this is 1. Non standard interpretation 2. Even under this interpretation your answer is not correct – 1muflon1 Sep 05 '20 at 00:09
  • Because you claim it will increase by a little bit. – 1muflon1 Sep 05 '20 at 00:09
  • @Acccumulation I am not sure if you are aware of this but GDP is given as Y=C+I+G in a closed economy. 1. From standard perspective changes to GDP are considered ceteris paribus and hence $20 haircut would increase GDP by $20 that is how GDP is calculated - that is simply fact you can verify by looking into metadata of any statistical office for example BEA for US. But let’s suppose you reject the ceteris paribus common interpretation. Well then haircut will not change GDP at all not by little! Because in that case the demand increase in the haircut market is exactly offset by – 1muflon1 Sep 05 '20 at 00:18
  • Demand decrease at some other market. And under that non standard view change in GDP would be always exactly zero and nothing in the world would be able to increase GDP. In any given time there simply be some given Y. So even if you wanna go this road your answer is still wrong. In my first comment I focused perhaps too heavily on the standard interpretation but under any interpretation it’s not correct. – 1muflon1 Sep 05 '20 at 00:21
  • @1muflon1 Yet AGAIN, you are making claims that are clearly refuted by my argument, and you are refusing to address my refutation. First, my claim is that a single person choosing to engage in $20 of consumption does NOT mean that total consumption has increased by $20, because they are consuming resources that would otherwise be consumed by someone else. I have said this over and over again. I have also said, over and over again, that increasing demand moves the demand curve, which moves the equilibrium point. – Acccumulation Sep 05 '20 at 00:22
  • What I am saying is that GDP is primarily driven by supply, not demand. So you saying that my logic would mean that GDP never increases is wildly fallacious. An increase in the supply of resources would increase GDP, because THAT'S WHAT GDP IS. GDP is a measure of the resources supplied. Also, I'm not disputing that purchases are what are MEASURED when calculating GDP, I'm disputing that they are the CENTRAL CAUSE. – Acccumulation Sep 05 '20 at 00:28
  • And your comments are highly incoherent. For instance, when you say "If you want to talk about this then you should say haircut does not increase GDP by even a cent because there always is some GDP at any given time period." that doesn't make any sense. The first part does not in any way follow from the first. Either you don't understand logic or your English skills are insufficient to express the point that you're thinking of. – Acccumulation Sep 05 '20 at 00:28
  • @Acccumulation because due to the definition of GDP even if you don’t spend your income because you save it it will be counted in I since investment must be equal to savings. Hence under this unorthodox view GDP would never be increased by anything but just because it already exists and any change in consumption pattern would just affect distribution of GDP across the economy not GDP itself. But again you don’t say this in your answer in your answer you say it will increase GDP by a bit which is simply not correct no matter how you slice the issue. – 1muflon1 Sep 05 '20 at 00:29
  • Okay lets do it point by point. 1. GDP is defined as: Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. investopedia.com/terms/g/gdp.asp (or see Blanchard et al Macro textbook). Hence I am sorry but demonstrably your statement that "GDP is a measure of the resources supplied." is a false statement. If you have any proper academic source or source from government institution calculating GDP supporting your claim please provide it. GDP does not measure resources supplied – 1muflon1 Sep 05 '20 at 00:33
  • "my claim is that a single person choosing to engage in $20 of consumption does NOT mean that total consumption has increased by $20, because they are consuming resources that would otherwise be consumed by someone else." - fine this would be the non-standard interpretation of consumption. But have it your way, but then GDP is changing exactly by 0. If you choose to consume $20 haircut at expense of $20 ice cream yes the demand for haircut increases but demand for ice cream decreases and aggregate demand remains unchanged
    • – 1muflon1 Sep 05 '20 at 00:39
  • and this is where you make a mistake. You are claiming that if one spends $20 on haircut instead of ice cream that will somehow increase aggregate demand - but it does not. Aggregate demand is still the same. Only demand at one market increases which is exactly offset by demand decreasing at another market. You are confusing microeconomcis with macroeconomics here. If we would be discussing microeconomic analysis what you are saying would be correct. Again you dont need to believe me just look it up in any macro textbook. Blanchard et al or the one from Krugman or whoever you prefer – 1muflon1 Sep 05 '20 at 00:41
  • Let us continue this discussion in chat. – Acccumulation Sep 05 '20 at 00:45
  • @Giskard I'm saying that, to first approximation, everything has an opportunity cost equal to its price, and that locating GDP production solely in the final sale transaction is nonsensical. There is a lot of economic activity that underlies someone getting a haircut. Attributing the economic value solely to a specific person's decision to get a haircut is silly. – Acccumulation Sep 23 '20 at 19:37