A century or so ago, the oppressive actions of the elite with respect to the poor or less powerful were justified with reference to Divine Law. A god had decreed that this was the way things should be, and eternal damnation would be the fate of those who dared question it.
Today, few Westerners (outside the more primitive parts of the USA) would subscribe to such a doctrine, but now a new, and even more fearsome, god can be invoked to support the powerful. That god is "the economy" and almost form of exploitation can be justified with reference to it.
The NHS, or care for the elderly, "costs the economy £x million per year" and should therefore be cut back. "The economy" cannot support reasonable pensions, higher education, reductions in polluting emissions or indeed almost any public benefit. The economy has to grow all the time, or the most awful fate will befall us all.
How do we know this? Well, like the old ones, this new god has its attendant priesthood, of economists, bankers and their "financial correspondent" acolytes, and they never cease to tell us what the economy needs.
Where the priests of old relied on Biblical quotations to support their claims, this new priesthood uses the unchallengeable force of economic statistics. Chief among these signs and portents is the supposed size of the economy.
If "the economy" has grown in a given quarter, then all is probably well. But if that growth is less than a percentage point, or - even worse - is zero or negative, then the priesthood has to demand sacrifices of the wider public to placate their god.
What is truly amazing is that in general, we all acquiesce in this situation. How many of us take the trouble to question this divine status of economic statistics? Yet the whole edifice is constructed on an arbitrary and partial set of indicators, compared to which the original Ten Commandments are almost a model of completeness and logical consistency.
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An early conflict between God and money: Jesus throwing the money-lenders from the temple.
What is the GDP?
The key indicator of the essential size of the economy is Gross Domestic Product (GDP), or its near relation, Gross National Product (GNP). This GDP is the number that has to grow all the time, or the great ogre Recession will appear to destroy us all. Yet what does GDP actually represent, and how is it measured?
The official definition of GDP is the sum of private consumption, total investment, government spending and net exports. Private consumption is defined as all the purchases made by households of things like food, televisions, cars and holidays. Total investment is the money spent by firms on new plant, machinery, land or factory premises, and also money spent by consumers buying houses.
Government spending is all those things that government buys on our behalf – spending on roads, hospital buildings, education and so on.
Net exports is the difference between the money gained by exporting goods and services and money paid for imports of these.
It all seems very clear and logical, but once we start to look in more detail, a lot of difficulties become apparent, and the awe in which these numbers are held begins to look much less explicable. Different sources appear to suggest different items are, or are not, included.
For the UK, there are officially three main ways in which GDP is measured:
- as the sum of all the Value Added by all activities which produce goods and services. Gross value added is the difference between output and intermediate consumption for any given sector/industry. That is the difference between the value of goods and services produced and the cost of raw materials and other inputs which are used up in production.
- as the total of incomes earned from the production of goods and services.
- as the total of all expenditures made either in consuming finished goods and services or adding to wealth, less the cost of imports
Source: statistics.gov.uk/about/glossary/economic_terms.asp
In theory, all three measures should add up to the same number, but they always differ somewhat, and close inspection of the published figures shows that the numbers quoted also change over time.
A figure announced to great fanfares in one week may subsequently (and much more quietly) be changed as more or better data are obtained.
Considering that so many economists trumpet GDP as a measure of national wellbeing, there are also some strange anomalies present. If there is a serious pollution incident then the expenditure on cleaning up the pollution counts towards GDP. Pollution incidents that require cleanup are, in GDP terms, positive, so one way for Governments to ensure growth in GDP is to encourage regular major incidents!
Other damage to our living environment that is not "cleaned up" may represent a real loss in human wellbeing, but does not have any economic component so conveniently does not get measured as a cost in the GDP calculations.
We also have problems in the way that components of GDP are interpreted. Although GDP is defined as including Government spending, it is currently fashionable to regard any spending that is not instigated by individual consumers as being almost inherently evil.
So while commentators may be bemoaning a drop, or even a less than expected rise, in published GDP, they will also be claiming that this means that Government spending should be cut "to allow real economic growth".
By-and-large, nobody argues with this bias any longer. It is also assumed that any expenditures on goods and services, or monies paid out as wages and salaries are proportionate.
Maybe they are, but my feeling is that £1million paid out to an investment banker has a lot less value to human wellbeing than £1million paid out in wages to a vastly larger number of hospital cleaners, nurses or teachers. This topic is the subject of an interesting recent report by the New Economics Foundation, Valuing What Matters.
The actual GDP, and the rate of change
Perhaps the biggest failing inherent in our fetishising of the economy comes from a basic human difficulty in distinguishing between the actual amounts of something and rates of change of these amounts. This means that commentators often confuse growth in GDP with GDP itself.
How often do we hear the statement that GDP (rather than the quarterly change in GDP) has risen to x% this quarter? This confusion leads to another fallacy that, in the long term, may be the most damaging aspect of the whole mess.
Take it to the limit
Growth in which there is any form of multiplication of the current value by a number greater than one means that whatever is growing will, in theory, ultimately reach a size that is astronomical. Any population of organisms where each organism gives rise over its lifespan to more than one surviving offspring would ultimately exceed the mass of the whole Earth.
In reality, of course, populations all living organisms either reach some stable level which can be supported by their surroundings without damaging them, or, quite often, their numbers crash spectacularly.
Our monetary GDP is not an organism, or even a physical entity, but the transactions that it supposedly measures have their origins in physical objects. So ultimately, GDP must reach a point where the physical manifestations of the measured transactions are limited by the available resources of the Earth. Yet this inherent limitation is conveniently ignored, and we are constantly told that "growth is good" (echoes of the 1980s Thatcherite cry that "Greed is good" and all the horrors that entailed).
So next time you are listening to a financial pundit talking about the economy, or politicians claiming how much better the economy would perform (i.e. how much more rapidly the official numbers would grow) under their party's stewardship, pause for a moment.
Ask yourself what the numbers really mean. Ask whether the promises of everlasting happiness from everlasting economic growth are anything more than political sloganeering, or special pleading from sectors of the population who are creaming off more of the underlying monetary flows than is perhaps their due. I suspect the answers might not be as clear cut as economists and their apologists would have us believe.
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Head on
Recently, I came across few articles which question the appropiatenss of GDP as the sole factor of a countries well-being. GDP measures the health of a country's economy...and just that. It doesn't tell us about health, happiness or even wealth of a nation. Combined with appalling levels of inequality, it could be argued that the GDP just tells us about the well-being of certain elites.
It's also plain wrong to compare GDP rates of industrial countries and developing countries. When the economy of an industrialized nation grows 3%, it's citizens get on average and in theory still richer than those of a country with, say 9% growth. No one can expect the US having grwoth rates like China or India! Those two countries are also good examples of inequality. Despite such growth rates, the majority of their people still live in appalling poverty.
GDP is not entirely useless, it's just insifficient. It tells that there's something going on in the economy, but not in society. The use of GDP as measure of a society's well-being is due to entanglement of economists on politicians, and the erosion of trust of the people in their economic future. People are so anxious of losing jobs that this leads to a priority in job creation, to which politicians claim to cater. Thus, politicans focus on economic, not societal, data and policies.
Comments on: "The economy: A 21st century God?"
na2546 has started a thread discussing The economy: A 21st century God?.
You made some interesting points.
One thing that I find interesting is that the extreme hoarders, of the tokens of the economy.
Are willing to ride out our depression, no matter how long it takes.
I suspect that it will take them longer to deplete their resources then ours. But there are exceptions.
Making me wonder if some other avenue should be opened up for our survival.
I have done some research and there is no way anyone, could possibly be worth the sums of money they are collecting, and wielding.
Their time is just not that valuable, especially considering they are doing things that seem less then admirable, for their money.
They do seem to be willing to purchase our possessions for pennies on the dollar though. So that we can eat. So perhaps there is a bright side to it?
Sincerely,
William McCormick
I always hear GDP in the news without any understanding it. This article has explained it so well and now I would be able understand what people are talking about when GDP is mentioned. The article is packed with so much information and is so educative.