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The Obsession With Gdp Growth

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Since the crisis started there seems a near obsession with the simple statistical measure known as GDP.

Does it really affect us as individuals that much?

In particular the BBC and left leaning politicians seem infatuated with a single measure of economic success.

Surely having a 0.something reduction in GDP this year and for the forseable future is better than blowing 2-3 times the potential growth from deficit induced debt.

Is it time to measure something else?

GNP perhaps?

Edited by ringledman

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Since the crisis started there seems a near obsession with the simple statistical measure known as GDP.

Does it really affect us as individuals that much?

In particular the BBC and left leaning politicians seem infatuated with a single measure of economic success.

Surely having a 0.something reduction in GDP this year and for the forseable future is better than blowing 2-3 times the potential growth from deficit induced debt.

Is it time to measure something else?

GNP perhaps?

And you've just noticed this?

There is a global religion built around the most ludicrous index known as GDP. It really is as credible as an old wives tale.

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GDP includes govt spending, therefore it includes the massive debt expansion.

Once you've gone so far the only way to increase GDP is to borrow every greater amounts so you avoid it contracting.

It's become a pointless measure now, but govts are determined to keep it growing and will borrow whatever it takes to ensure it grows.

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In the real world, purchasing power (ie income vs inflation) and employment vs unemployment might seem a better measure of economic health.

However, in the world of economics and politics, where computers tell our overlords what to think, growing GDP means we can pay off all those debts incurred to, er, deliver GDP growth :D

Obviously no one pays any attention to how much debt is required to deliver GDP growth, i mean, why would anyone bother with such frivolous details.

Whats that you say Osborne, we're borrowing 11% of GDP, and its giving us 1% GDP growth?

Yes, mighty fine deal, isnt it Dave?

Every time I hear someone say 'we must get GDP growing again' I am reminded of Jimmy Goldsmith saying 'we have gone from a world where the economy serves us, to one where we serve the economy'

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GDP includes govt spending, therefore it includes the massive debt expansion.

Once you've gone so far the only way to increase GDP is to borrow every greater amounts so you avoid it contracting.

It's become a pointless measure now, but govts are determined to keep it growing and will borrow whatever it takes to ensure it grows.

Debt is Money.

Trouble is the debt is here, the money is somewhere else (china)

I think we can find our way out, but it means years (decades?) of growth not through debt, but through exports.

Given our politicians have spun this false narrative that immigration=growth, and yet we are a nation that needs to import food, fuel, and raw materials, it seems more and more unlikely with every new year of population growth we can achieve such a thing.

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If land and construction costs were somehow to fall to the point where everybody could have a good quality home for £1000, GDP would record this as a terrible event on a par with a war or a plague.

Edited by Dorkins

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I was reading someone's blog yesterday which claimed that American GDP includes the imputed cost that home owners would have to pay in rent IF they didn't own their homes. Of course this money does not exist but is still included in GDP!

Also the imputed cost of services provided for free by banks (cheque books, cards, accounts etc )are also included, of course this would make banking seem worthwhile.

I imagine that without these strange accounting methods the US GDP would soon fall from 15 trillion to below 10.

I'm thinking of going for a p!ss now...the question is if I put it off will the government charge an opportunity cost if I delay it?

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The right measure is of course GDP/capita, but that is not necessarily compatible with a positive return on money.

For example a productive yet shrinking economy (in demographic terms) might well be getting richer in GDP/capita while GDP is falling (japan was in this situation recently). But even in this, on the face of it, good outcome, you'd have an overhang of claims and money which have to result somehow in negative returns to money and possibly capital in general.

However, if you give money holders (and potential investors in that domestic economy) the ability to invest overseas, then if overseas locations are offering positive returns and targeting traditional GDP then they won't invest domestically.

SO the reason we target GDP rather than GDP/capita is because that is what everyone else is doing. Classic prisoners dilemma.

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Since the crisis started there seems a near obsession with the simple statistical measure known as GDP.

Does it really affect us as individuals that much?

In particular the BBC and left leaning politicians seem infatuated with a single measure of economic success.

Surely having a 0.something reduction in GDP this year and for the forseable future is better than blowing 2-3 times the potential growth from deficit induced debt.

Is it time to measure something else?

GNP perhaps?

The problem is, in the post war decades up to the 1970s, there was a strong relationship between GDP and everyone's incomes.

Since then - from the Regan/Thatcher period on - we've seen the top percentiles get more and more of the proceeds of growth. Usually whilst screaming and complaining about how they are 'overtaxed wealth creators'.

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Whats that you say Osborne, we're borrowing 11% of GDP, and its giving us 1% GDP growth?

I agree with you that it is futile thing to do but just a minor correction here:

The borrowing is 11% of the nominal GDP and GDP increases NOMINALLY by 5%ish (RPI at nearly 5% and 1% real growth).

So, still 6% of GDP into a blackhole..

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If land and construction costs were somehow to fall to the point where everybody could have a good quality home for £1000, GDP would record this as a terrible event on a par with a war or a plague.

No. It wouldn't. GDP is not calculated like that.

If I want to calculate the change in GDP from 2009 to 2010, it is done as follows, using an absurdly simplified economy consisting of houses and bread:

In 2009, 10k houses were built at construction cost of £100k = £1bn

10 billion loaves of bread were baked at a cost of 50p each = £5 billion

etc.

Total GDP = £6bn

I repeat the calculation for 2010 - using the 2009 prices.

5k houses built in 2010 at a 2009 construction cost of £100k = £500mill

8 billion loaves were bakes at a 2009 cost of 50p each = £4 billion (the fact that a loaf cost £1 in 2010 is irrelevant).

Total GDP = £4.5 billion (chained from 2009) - i.e. a 33% drop in GDP. Note that this figure automatically strips out any effects of inflation.

Edited by ChumpusRex

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  • 285 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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