Spending is Not Growth: The Case Against GDP

[xchrom]

http://www.commondreams.org/view/2013/08/09-5

Gross Domestic Product (GDP) is a measure of final market value of goods/services produced by a country in a specific time period—nothing more, nothing less. It is easy, however, to fall under the misconception that GDP is a reliable indicator of economic growth or of a country’s well-being.

One of the core problems with GDP is that it only adds. That is, GDP calculates any kind of spending as improving the health of an economy—a limitation that is clearly problematic.

As an example, how does GDP account for an economic disaster? The oil spill British Petroleum (BP) caused in the Gulf of Mexico in 2010 is a perfect example of the limitations of GDP. The transactions made to replace assets damaged or destroyed by such a disaster are not differentiated in final GDP scores, to the tune of about $20 billion in the 2010 oil spill.

Not to mention, an oil spill negatively affects the local economy in so many ways that GDP does not account for: for instance, fishermen losing their jobs and livelihood, restaurants temporarily closing or going out of business entirely, and tourism in the area rapidly declining. Moreover, the local ecosystem is completely thrown off balance and damaged, sometimes irreparably, for many years to come.

[Igel]

1. Keynes would not be pleased with the index.

Destroying and rebuilding is growth, or at least stimulus.

The problem with all indices is that the users need to understand them. People don't understand what "recession" means as a technical term; they don't understand how unemployment stats are calculated. The unemployment rate is a mystery to them--they just think they understand it, and that makes them easy to manipulate. There are a lot of other indices and numbers used by experts. But all these numbers are meant for experts to use. Lay folk look at them and are outsiders.

The GPI looks like another such number but it's intended for layfolk. Moreover, the layfolk will understand it no more than they understand U6 and GDP and other such arcana. It's intended to make manipulation of the low-information voter and consumer easy (like those who don't understand GDP or what the unemployment rate means). If you can get people to think the GPI is really important, and then tell them you can boost the GPI by pursuing and achieving a goal that most people wouldn't be behind otherwise, you've won. You've manipulated them to your own ends. Some will understand it and disagree--and be silenced by those who understand it and agree. Esp. if there's a power discrepancy between the two groups. The vast majority will just accept that if those they like say it's important, well, when has appeal to authority ever proven incorrect?

There are many such indices. Some measure social well-being in terms of wealth inequality. Others in terms of educational or income disparity. Others look at racial tensions or specific measures of happiness. Some look at social stability. Some build in fudge factors for press openness or technological availability. Each one focuses on the social traits and numbers that its creator thinks are most important and weights them in accordance with its creators values, the goal being to maximize specifically those values.

However, the low-level indices are already in use by experts but they're mostly frustrated--they are Philosopher-Kings who know how to properly order society, but they're disregarded in a democracy. They don't need these funky composite indices and wouldn't much use them--or they already use them and don't require that others buy in. However, what they produce is a way to have a small number of people change society in ways that they like, typically by manipulating people. I call that an oligarchy supported by popular ignorance and its completely compatible with the outward trappings of democracy. However, if you dispose of popular ignorance, eradicate it, suddenly you find that you don't need the composite indices anyway. They can use the low-level indices. Odds are, they won't agree with many of the experts.