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Viv ForbesOur Sacred Land & Other Essays (first published by Business Queensland and Common Sense in 1996), issue no. 120.About the Author»

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.”

(in order of appearance on Economics.org.au)
  1. Lang Hancock's Five Point Plan to Cripple Australia
  2. Put Windmills in National Parks
  3. Magnifying National Disasters
  4. Please Don't Feed the Animals
  5. Buy Birdsville Made?
  6. The Economics of Flood Risk
  7. Touring Bureaucrats
  8. Our slip-shod laws to blame
  9. Why Wind Won't Work
  10. A Profusion of "Prices"
  11. R.I.P. Ron Kitching - pioneer, explorer, author, family man, entrepreneur, scholar
  12. The Carbon Pollution Lie
  13. Closing Down Australia
  14. The Anti-Industry
  15. The Pyramid Builders
  16. Carbon Tax Bribery
  17. Crown Monopolies
  18. Carbon Tax Job Losses
  19. What Next, a Tax on Water?
  20. Carbon Health Warnings Coming Soon
  21. Growth Mythology
  22. The Tax Collection Industry
  23. Propaganda Puts Paid to Proof
  24. The Milk of the Welfare Teat is Watered Down
  25. "Crops for Cars" as Bad as Everlasting Drought
  26. Poll speech sets record
  27. The Emissions Trading Casino
  28. The Contract Society
  29. A Model Ministry
  30. The Five Point Plan to kill the economy with High Cost Electricity
  31. Put a Sunset Clause in the Carbon Tax
  32. Stuck on Red
  33. Time to Butcher "Aussie Beef"
  34. Carbon Tax Lies and Bribes
  35. The Middle of the Road
  36. United against taxes
  37. Call for Govt administrator
  38. Property & Prosperity
  39. "The Science is Settled" BUT Durban Climate Summit Not Cancelled
  40. No End to Fuelish Policies?
  41. The Right to Discriminate
  42. Sell the CES
  43. Free Water Costs Too Dam Much
  44. Creating Unemployment
  45. Viv Forbes Wins 1986 Adam Smith Award
  46. 1985 news item on Tax Payers United, Centre 2000 and the Australian Adam Smith Club
  47. Having the numbers is not the same as having the truth
  48. Who's Who in the Workers Party
  49. David Russell Leads 1975 Workers Party Queensland Senate Team
  50. Caught in a welfare whirlpool
  51. Global Warming Season
  52. Mining in Queensland, Past, Present and Future
  53. WEATHER IS USUALLY UNUSUAL
  54. Political branch formed
  55. Ron Manners on the Workers Party
  56. Viv Forbes on Libertarian Strategy and the Constant Resources Myth
  57. The New Brisbane Line?
  58. Carbon Lies
  59. We Mine to Live
  60. Save the taxpayer
  61. Solving Three Canberra Problems
  62. Vested Interests in the Climate Debate
  63. Carbon Tax Retrospective?
  64. Carbon Price Propaganda Taxes the Truth
  65. Don't Burn Food for Motor Spirit - Feed People not Cars
  66. Two Big Climate Taxes
  67. Greens Rediscover Hydrogen Car
  68. Atlas of Australia
  69. Shutting Out The Sun
  70. Safety Mania
  71. Coal - Sinking in the Swamps
  72. Hobbling the Competition
  73. Cubic Currency Coming
  74. "Dear Government"
  75. Viv Forbes mocks Flannery in 1988
  76. What we have is not a drug problem but a drug law problem
  77. Smoking, Health and Freedom
  78. Privatise Now! while they are still worth something
  79. The Electoral Act should allow voters to choose "none of the above"
  80. The New Federalism
  81. Sunset for Solar Subsidies
  82. The mouse will roar
  83. The Road to Homelessness
  84. Planning & Prosperity
  85. Viv Forbes and Jim Fryar vs Malcolm Fraser in 1979
  86. Quip, Quote, Rant and Rave: four of Viv Forbes' letters to the editor in The Australian in 1979
  87. Australia's First Official Political Party Poet Laureate: The Progress Party's Ken Hood in 1979
  88. Our homeless regulation refugees
  89. Progress Party and Workers Party lead The Australian
  90. Viv Forbes in 1978 on loss-making government, the Berlin Wall and misdirected blasts of hot-air
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Forbes has long been active in politics, economic education, business and the global warming debate, and was winner of the Australian Adam Smith Award “For outstanding services to the Free Society” in 1986.Powered by Hackadelic Sliding Notes 1.6.5