Just after the Kobe earthquake, while real people poked through the rubble of their lives and houses and businesses, government economists with PhDs were debating how much the rebuilding of Kobe would add to Japan’s GDP.
Over in America, in 1992, the GDP was inflated by almost 2% by the work needed to repair the huge damage caused by hurricanes Andrew and Iniki.
On a smaller scale, in Australia, if a bachelor spends $150 per week in a live-in housekeeper, this expenditure inflates the GDP. But if he decides to marry the girl, and gives her $150 per week housekeeping, the GDP contracts by this amount.
Is it any wonder some people think that “GDP” means “Grossly Deceptive Proximations”?
For years now there has been a growing concern feeling of unease in the real world about economic statistics. We hear of “beautiful sets of numbers” and have “turned the corner” so many times we are dizzy, but ordinary people feel their lives are poorer, harder or more precarious. We are starting to wonder if Art Buchwald was right when he said, “As the economy gets better, everything else gets worse.”
Medieval people once looked to the skies for omens, based their prophecies on the entrails of fowls and ensured their future by sacrificing the occasional maiden to their gods. We now look to the ABS for omens, base our prophecies on random number generators in the entrails of computers and see benefits in sacrificing whole industries to the ruling economic god.
There is something sick about a society in which our brightest minds in business, government and the media wait breathlessly for release of the latest GDP figures when even a casual analysis will show that the figures are meaningless.
The only reason for any sane man to listen to an announcement of the latest GDP statistics is so he can decide whether he should act to protect himself from the actions of other fools who believe the figures mean something. (Particularly official fools who may fiddle monetary or fiscal policy).
Why is the GDP such a useless statistic?
Firstly it is a meaningless measure of economic welfare.
The biggest problem is that all government activities are assumed to add to our GDP.
Even if it were granted that all government services were of value (a very dubious proposition) the problem is, how to give them a value. Most are either compulsory, or given away free. The government economists, with just a bit of self interest, subscribe to the Marxist Theory of value that government output is worth what it costs to produce, not what consumers would freely pay for it. Thus GDP calculations assume that all government activities are of net value to the community, and then values them at the government’s inflated cost of production.
So, if high taxes and wage controls cause unemployment to rise and they put on 1000 CES workers to cope, the GDP goes up. Or if government schools become so bad that industry has to introduce remedial teaching, this too is seen as a welcome addition to GDP.
Secondly, GDP does not even manage to measure all those activities that do produce things of value.
For example, all the unpaid non-cash economy slips through the statistical cracks. Housework, voluntary work, odd-jobs, hobbies, barter and the black market, all of which enrich the lives of those it touches, never make an input into the government models.
Also, many private activities which add to the GDP do not add to real welfare. For example, more divorces causes growth of legal services, real estate transactions and government stamp duty receipts, but no one would see the underlying cause as good. Earthquakes and cyclones may be good for the GDP, but are not for the community.
Thirdly, GDP does not measure movements in any of the three major resources of every society — land and natural resources, productive labour, and capital goods. These three giants of the economic determine our wealth, our strength and our future. Unless one or more of these giants is growing, we are heading for poverty or worse.
In the short run, our land and natural resources are pretty stable. In the long run, and under good policies, mineral exploration, re-afforestation and soil improvement will increase our mineral, plant and soil resources. Conversely, poor land and mineral tenures will see these resources raped.
Our stocks of productive labour are also stable in the short run. In the long run, births and immigration can increase them and better work practices can allow them to be more productive. Conversely, stupid government policies can put many of them onto the beach on the dole.
One thing we can do in the short term is to increase our stock of capital goods — plant, machinery, roads, tractors and computers. To do this we need savings. Savings can only increase if consumption is moderated.
But (and here’s the rub) GDP largely measures consumption, even if it is our capital being consumed. And in their futile quest for forced growth, government activities invariably encourage demand (ie consumption) to the detriment of savings and tool accumulation.
Wealth creating growth can only come from production, not consumption. Utopia is an increasing production of valued goods and services per head of population. That can only come if our stock of natural resources and tools is increasing faster than our population.
GDP figures are also so inaccurate as to be meaningless. It is certainly fraudulent to report them to one decimal place (if the ABS were privatised, it would be sued for misleading practices).
The problem with GDP figures is that they are accurate where it doesn’t matter — government statistics and the returns from the industrial giants come in regularly. Government statistics are regularly manipulated (by redefinition or statistical adjustment, for example) and were falsified on a massive scale in the comrade societies. But the important movements are those in small business, as this is where the numbers and the swing factors are found. What are the farmers doing? Is small business optimistic or giving up? These people hate government forms with a vengeance. I personally have never put anything useful in a government census form in my life. Mostly I throw them in the big and ignore their increasingly shrill threats. If it appears certain I will get fined, or go to jail, I fill them out with such cavalier disinterest that I’d sure hate to plan my future on them. I resent the compulsion and the spurious arguments that are used to support their forced collection.
But most of all I see all attempts by government to measure “the economy” as the necessary precursor to their attempts to “manage” the economy. Economic statistics are the lifeblood of government econometricians — those people believe that government spending can be manipulated to produce lasting benefits for all people (instead of the real result — windfall profits to the favoured few, at the expense of all the rest).
For the government to claim that its spending creates growth is like a robber explaining to the violated shopkeeper, “But I’ll spend what I stole back in your shop, so your business will grow.”
Economics was once a science written by Scotsmen in English. It is now a non-science written by Hungarians in mathematics.
It is a leading indicator of our decline that Australia leads the world in expenditure per head on government statistics.
Attempts to measure “GDP” or “the economy” represent the ultimate error of aggregation. It cannot be done in any meaningful or accurate way. At best, GDP forecasts are useless trivia — at worst, dangerous delusions.
The media has a duty to expose such delusions. I look forward to the TV presenter who says, “The quarterly GDP statistics were released today. Luckily no one noticed, and no harm was done.”
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