“Real GDP growth has been lower globally over the last forty years than it was before PCs. All this stuff that claimed to make us more productive just redistributed wealth rather than make us all more wealthy.” (Aswath Damodaran, quoted by Steve Hanke) Aswath Damodaran never understood profit, and consequently, the relationship between productivity, real and nominal GDP. The proof is given in table AXEC235c ⇓. Microfoundations are methodologically false; therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1-3. Under the initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 5. The price is the dependent variable here. In the initial state, the price is equal to unit wage costs W/R. The workers get the whole product O. Here, consumption good output is real GDP. The profit Qm for the business sector as a whole is zero in line 11. If the condition of budget balancing is lifted, the market clearing price is given by P=:ρEC*W/R. This formula replaces the silly Supply-Demand-Equilibrium cross. It is generalized in lines 15-21. In the most elementary case, the following relationships hold. If the productivity R increases, consumption good output O (undifferentiated real GDP) increases in line 2. Under the condition of market clearing, the price P falls in line 5. The nominal GDP, here Ec, stays the same under the condition of budget-balancing, i.e., Ec=Yw. Profit is still zero in line 11. In sum, in the elementary case, a productivity increase does not show up in an increase in nominal GDP and not in an increase in macroeconomic profit Qm. However, in real terms (i.e., real GDP=O) 'it makes us all more wealthy '. Aswath Damodaran got these interdependencies wrong. It's an entirely different thing, of course, if the starting condition L=constant is lifted.
— AXEC (@EgmontHandtke) November 8, 2026
November 8, 2026
Occasional X: How it works (DXXXVIII)
