Wednesday, 11 March 2009

Meanwhile in the Real Economy

Quantitative Easing - what could possibly go wrong with that? Well at least it is a great time for 18th century style satirical cartoons such as these from the Independent...

It's interesting to see what is actually expected in the economy this year from a GDP point of view

It's probably not the best time to bring it up, but measuring economic health through GDP is itself pretty odd though. Pavan Sukhdev is leading a study into valuing biodiversity for the EU, which is one example of an asset which society does not track, and hence depreciates carelessly. Here's a little video of Pavan explaining this

Pavan points out that GDP was only recently invented during WW2 to track wartime industrial production. As a measurement of activity it only gives you a very limited read on the state of things - it is like measuring your lifetime solely by looking at the number of paces taken. Of course it does report on the levels of activity indicating growing or shrinking in available work. But also also pushes you to a type of myopic economic policy which is fixated on this output rather than more rounded measures. GDP would do very well for instance if you dropped the minimum wage and attracted race for the bottom sweatshop factories. Or if you adopted light touch regulation (ie feel free to profiteer and to hell with any risk, the taxpayer will pick that up) which builds your position as a major banking centre and hence creates jobs and high spending domiciles.

If we valued the true assets of an economy - the education and health of its people, the services provided free of charge by nature, even its culture (London continuing being a creative place has a definite future value) - then you would see a very different league table of nations. Scandinavia would perhaps even outstrip the USA and China over time as it is sparsely populated, has huge forests, and is likely to improve climactically when most of the rest of Europe is facing desertification, has great welfare and human capital for instance the skills level and education in areas like IT is the best in the world. And a very constructive, collectivist culture. Brazil too although it has a more mixed picture on human capital, the amazon should be priced (in its services to mankind) more expensive than Mayfair. Another thing you could value is the degree of self-sufficiency, in energy, water, food and so on. This because when there are crises of supply, the countries which import these have to pay very high prices and/or go without, leading to disruption of the economy and hardships.

Imagine a world where Swedes and the Brazilians were what everyone aspired to become. I quite like the sound of that, personally.


John Grant said...

re those IMF figures, they are probably understating the problems, especially in china:

"the notoriously manipulated Chinese GDP data showing a shocking slowdown in GDP growth to 6.8% yoy, I would eat my hat if the Chinese economy was doing anything other than contracting right now." Albert Edwards Societe Generale

Interesting chart supporting this view comparing gdp and electricity use

There are also figures showing that exports from china fell in last 2 months of 2008 (were previously growing at 17-25%) - but also need to bear in mind the massive stimulus package announced since then

paul macfarlane said...

True, true, true.
True cost accounting requires economists to subtract as well as add, add, add.