There are various estimations of the fall in GDP as a result of these lockdowns. There are some even saying that it’s all a jolly good idea as emissions fall and nature returns.
There is though a slight problem here as all too many don’t quite understand what GDP is.
Now, GDP isn’t everything, of course, but it is everything economic. More importantly, it’s precisely and exactly equal to all production, or all income, or all consumption — each of the three equaling either of the other two by definition.
If GDP falls by 25%, that means that there’s a quarter less production. It means that all incomes, all added together, must have fallen by 25%. It means that we can only consume, in aggregate, three-quarters of what we used to. It really does mean that there are only three beef patties to put into two Big Macs instead of four.
Forget money and modern monetary theory and trying to take more cash off the rich and all that. This isn’t a money nor monetary problem. There is simply 25% less being produced. Therefore everyone – in aggregate of course – has to consume 25% less.
There is no way around this. OK, well, there is, which is that we cease the lockdown, power up the economy again in that good old way and get back to where we were. Other than that there is no way out of this. There’s 25% less stuff being made therefore there’s 25% less stuff that we can consume.
Again, money doesn’t change this. It also doesn’t matter what we do with tax, benefits or redistribution. There’s a quarter less to go around, all together and as a group we can simply do, have, eat, ride on or go to watch three quarters of what we used to.
This includes 25% less NHS, a quarter less government and everyone’s real income, in aggregate again, is now only three quarters of what it was.
Which brings us to that lovely question. If public sector wages do not fall then all of that pain is dumped on the shoulders of those in the private sector. Which would be most unfair, obviously we all agree.
So, we’re a quarter poorer. When do those paid for by the exactions from our fiscal hides get that 25% pay cut then? And if not why not?
OK, sure, it’s not going to happen but anyone want to come up with a convincing explanation to enlighten us over the last two words of the preceding question?