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Mike: are you sure that last graph is right??? That is a stunning rate of increase, trebling as a percent of GDP since 1960. My prior would have been that it was roughly flat. If it is right, all I can say is: Wow!

Seems high to me, but Stephen and I got the same numbers from 1961-2006 (which made it really easy for me to check my work - I could check my work against his).

You have to be careful about interpreting those shares of real GDP. Those are constant-dollar numbers, and the shares will change each time StatsCan resets its base year.

What you *can* say is that real expenditures on M&E have grown more rapidly that real GDP.

Ahh.. okay. That makes sense! Is there a way we can account for that?

Ah. So if nominal expenditure on machinery and equipment kept a constant share of nominal GDP, but the relative price of machinery and equipment fell by two thirds, we would see a trebling. That makes sense. And if computers and hi-tech stuff are in there, that big fall in real price is plausible. But it's still makes me Wow!

Not really. It's a pretty fine point, and lot's of people punt on it - including, obviously, me. I came across a correction on that point long after I wrote that.

BTW, there's also this old post on profits vs investment

Nick - yes. Not accounting for that change in the relative price of M&E leads to things like this debacle.

If you are going to compare profit shares of GDP and investment in m and e share of GDP then you have to look at the latter in nominal and not real terms.

Andrew: why would you want to do that? It's a bit like comparing profits in apples+orange production to investment in apple trees, when the price of apple trees is falling compared to oranges.

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