Realist, not conformist analysis of the latest financial, business and political news

This GDP Stuff Really Matters, You Know?

Gross profiteers

It’s a commonplace among the mouth breathers these days that Gross Domestic Product doesn’t really matter. That economy, it’s all just money, for rich people. We need, instead, to concentrate upon what really matters to people, adopt new targets for how to make the world a better place.

Which is to entirely miss the point of what GDP is but then we’ve already agreed they’re mouth breathers. As to what it is, it’s a measure of the value added in the money exchange part of the economy. It doesn’t include things that are not monetised, anything from a mother’s love through to the swapping of allotment cucumbers for cauliflowers. However, it does include what it says it includes. The value added by those exchanges and activities that are measured by monetary exchange.

By design, so this is not something that can be argued about it is a definition, GDP is all production – more exactly, all value added in production -, all incomes and or all consumption. Everything that is produced is consumed, all costs of production are, in the end, and income to someone and so on. Production=income=consumption. Another way of saying the same thing is that your real income is what you can consume and that has to be produced so that you can do so.

That’s just what it all is. And as such it’s important. Because if that GDP falls by 25% then that means – we usually do start to measure it from this end – that production has fallen byu 25%. So, there’s 25% less for us all to consume and therefore our incomes are 25% lower. Again, that’s just the way that it works. And no retreating into touchy feelies instead of the cash nexus either. For we buy many things that are not mere hyperconsumption out of what is produced. As the official warnings are making clearmaking clear:

Humanity is set to go into reverse due to the coronavirus pandemic’s “triple hit” on education, income and health, the United Nations has warned.

According to an index which measures humanity’s progress, the current crisis is on course to trigger a setback in ‘human development’ for the first time since the concept was introduced in 1990.

The measure, used as a benchmark to compare progress year-on-year in more than 180 countries across the globe, takes into account the health, education and living standards. Though imperfect the aim is to provide a more rounded picture of development, encompassing wellbeing as well as the economy.

But the human development index (HDI) could suffer a “steep and unprecedented decline” this year, according to a report simulating the early impacts of the coronavirus pandemic by the United Nations Development Programme (UNDP).

Among the things produced in that GDP – and thus consumed and so part of our incomes – are that health care. Which is perhaps 10% of a rich economy. And education – maybe another 5 to 10% dependent upon definition. Plus the work we do to reduce inequality, that’s part of an economy. Welfare, raising people up out of being poor, that’s a part of GDP. We’ve got to have had the production before we can distribute the incomes, right?

GDP goes down 25% then we’ve that 25% less to spend/consume/produce all of these things. It really is true that if UK GDP has fallen by 25% then there’s a 25% cut in the real budget of the NHS to come. And if that don’t panic the mouthbreathers then nothing will, right?

GDP is important, not because it is that amount of mere money but because it’s a measure of what we’re able to do. And if there’s less then there’s less we’re able to do – human life has just got worse. GDP does actually matter.

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Leo Savantt
Leo Savantt
4 years ago

Those poo-pooing GDP tend to be those who believe that a drop in GDP is unlikely to seriously impact on them, which makes them both selfish and of course wrong.

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