Carleton University economist Nick Rowe is an incredible teacher. His success, I believe, is due to his intelligence, his curiosity and – most of all – to his patience. I am always impressed by Nick’s patience and respect for those who comment on his posts, even when the comments make little or no sense. Here is a somewhat trivial recent example: an interchange Nick had last Sunday with ‘Peter N’, a person who seems to know something about accounting, but nothing about economics. Peter N insists that the term GDP (gross domestic product) is not meaningful, being “neither a stock nor a flow”.
Peter N writes (among other things): GDP … is neither a stock nor a flow …. (12:01 PM)
Nick Rowe responds: Could you explain what you mean by GDP being neither stock nor flow? Are you referring to measuring it in discrete vs continuous time? (01:26 PM)
Peter N writes: GDP is the integral of value adding flows for a defined period. While you could define a GDP flow (and IIR Keen does) I don’t see how you could measure it, given the complexities of imputation and reconciliation.
It certainly isn’t a stock. You can treat it as one if you want to compare it to itself over other periods or with its sector totals, but a true stock has a value at any given point in time, and this value is quantity, not a rate.
This distinction is made more important by the peculiar nature of GDP. Because it combines results from (at least) 3 different forms of accounting and contains a significant component of imputations, it’s difficult to compare it with stocks at known times. The result of accruing across the different systems is only meaningful compared with other examples of itself. (02:14 PM)
Nick Rowe responds: Peter N: OK. I would say that GDP is strictly a flow, but if you measure any flow in discrete rather than continuous time it becomes a stock, rather than a flow. A PITA theoretically, but not a big deal. GDP is a flow. Stats Canada measures a discrete time stock approximation to that flow. (02:17 PM)
Nick Rowe, “Can you please read a first year textbook?“, Worthwhile Canadian Initiative, 29 July 2012.