How did the world get so fixated on GDP?

vivatifosi

Quite an interesting article in the Guardian regarding the primacy of GDP as an indicator of economic health:

http://www.guardian.co.uk/commentisfree/2011/aug/10/gdp-growth-japan

A small extract from a lengthy article:

We need to change how we think about the economy. Japan has now laboured through nearly two decades of flatlining GDP. A miracle of growth transformed it from defeated power in 1945 to the world's second-largest economy. Then, in the 1990s, the growth stopped, never to convincingly return. Yet living standards in Japan are among the highest in the world. Unemployment is half that of the US; life expectancy five years longer. Average real incomes are the same as Germany's, and inequality lower. Japan's environmental impact, particularly through the import of raw materials, remains high. But it is not simply the economic basket case it is often presented as.

Personally I like the elegant simplicity of Keynes's formula, but it does raise interesting questions. Well worth reading the whole article.

Thrugelmir

The media.

Its the current holy grail.

Japan had its own credit bubble. Not domestic property though. The banks owned shares in the Companies they lent to. As the share prices boomed so did the value of the collaterall and so did the money lent by the banks. In effect the banks bacame the market. So when Companies suffered so did the banks. Big time.

Think UK. Apply same principle to LloydsHBOS, NRAM and the new Northern Rock. Between them they are owed 41% of total outstanding mortgage debt. Going to take a whole generation i.e. 25 to 30 years to wash this debt through the system and reduce it to a more manageable level.

mbga9pgf

Japan is in deflation. Try 0pc growth in an inflatory environment and you are screwed.

DiggerUK

If you don't manufacture goods, you don't produce anything of value.
Produce nothing of value, then you don't produce wealth.
If you don't produce wealth, then you produce poverty.

If you start with a pile of cash, move it through a bank, then through another service industry, then through a tax haven, then back to your bank, then allow a smart @rse accountant to make sure no tax is paid, all you end up with is a bigger pile of paper.

Paper profit yes, wealth creation not.

It's not a fixation on GDP, it's what classical economists called 'Labour Theories of Value'
Dismiss them at your peril.
..._

Loughton_Monkey

My own theory is that GDP tended to become the 'headline' measure in Western economies at just about the same time as Balance of Payments became negative and so we all got poorer and poorer.

In a business analogy, GDP is turnover, and Balance of Payments is profit. You have to be an idiot not to know that turnover is usually 'good', and it's far better to have a big one rather than a small one. Until, that is, you are making a loss, in which case it does you no good. This is quite simply the main reason UK (and the West generally) continues to get poorer.

Against this, we have the fixation that increased GDP is 'good'. I don't disagree, but what this does is simply churn the [diminishing] wealth faster and faster around the population. Think about this more analytically and it's easy to examing other things going on. Some people 'sell' the argument that trade/commerce within the country, which creates all the 'swishing around' serves to give everyone a slice of the pie. It certainly gives HMRC a huge pile to spend on increased benefits...

The more educated people, however, notice (although it's obvious) that although faster velocity and service industries give more 'opportunity' to all for getting their fingers on some of the money, it is clearly going to accumulate not in the hands of the poor, but in the hands of the rich, the already rich, and the clever. Hence thos who mistakenly think high GDP spreads it around, in actual fact it spins it more and more into the hands of the few. The 'wealth gap' between the haves and have nots will always increase with GDP.

Osbourne could massively increase GDP. He should pass a law that makes it illegal for wives to do housekeeping* or child minding without charging husband for it through legitimate invoices. Meanwhile, parents would charge children full rent, but pay them all minimum wage for mowing the lawn or doing the washing up...... All of this would do nothing whatsoever to anyone's wealth, but would massively increase GDP, plus create a huge amount of paperwork.

Imagine I get £30K a year pension. I'm an idle git. I eat a simple diet of beans on toast and gin & tonic. Otherwise, I sit on my fat @rse all day watching television. Never go out. Don't even own a car. Spending £15K a year, so am accumulating £15K a year.

My next door neighbour earns £40K, plus another £10K renting out a room. Drives a good car. Always out clubbing, drinking, shopping, and spends £45K a year.

In a sense, his 'GDP' is much more than mine. How come I'm three times wealthier? How long, do you think, before I can wake up, get revitalised, buy his BMW off him, use it to go clubbing, wining, dining, and touring Europe in the best hotels while he has to learn to eat beans on toast?

Just because a Government's finances are infinitely more complicated in 'detail' does not mean that the basic principles of a corner shop don't apply. Those principles do apply, and I would suggest that higher turnover will do us no good until we start selling goods for more than they cost.... and stop all the 'shoplifting' going on!

*Edit: Just as an aside, I would point out my strongest possible objection to the idea that women should be paid for doing housework. If I had to pay, I'd employ a man and have it done properly.

DiggerUK

Loughton_Monkey wrote: »

.....Just as an aside, I would point out my strongest possible objection to the idea that women should be paid for doing housework. If I had to pay, I'd employ a man and have it done properly.

Staying away from perimenopausal axe wielding feminists could be a wise course of action.

But I should point out, that I am not now, nor have I ever been, a life style guru.
..._