Thursday, 6 November 2014

Crazy Idea 2 - Stop using irrelevant economic terms like GDP

While I’m on the subject of honesty and plain speaking I’d like to throw GDP in the bin: Gross Domestic Product.

I hear GDP mentioned again and again and its only real use appears to be to deflect attention from the two most important figures Government has to worry about: Tax receipts and spending. In fact, read through the Coalition's 2014 budget and you'll be hard put to find many figures that are not percentages of GDP. (CI001A) Would it really hurt to tell us the actual figures?

Our GDP goes up, it goes down and economists have palpitations. It seems to be of grave concern to our politicians who love to quote the GDP statistics, or at least, the headline percentage change in GDP…

I finally looked up GDP to find out what it meant. It wasn’t reassuring. It is a loosely defined figure that attempts to define what a country is worth. If you were to apply the same equations to your own life and try and obtain a mortgage with the resulting figure, I would expect most mortgage providers to kick you back on the street before you’d even sat down.

The ONS released an explanation of Understanding GDP and how it is measured in 2013: (CI002B)

A quick Google search will show that many are unconvinced by politicians continued use of GDP.

Is GDP a satisfactory measure of growth? (CI002C)

Is GDP growth a poor measure of improving living standards? (CI002D)

Beyond GDP: The Need for New Measures of Progress (CI002E)

While it may be useful for a country that has low debt or has greater Tax receipts than spending, it is of no use whatsoever for countries like our own that spend more than we receive in taxes.

Our GDP could increase 1000% but it makes no difference to anyone when our tax receipts don’t budge.

Of course if the GDP was to increase and tax receipts failed to follow suit that flags up there is a problem but is the problem with a multinational failing to pay tax or is it a problem with the equation?

If the equation (and apparently there is not just one but a hideous amount of them) cannot pinpoint which company is failing to pay taxes then it is of no earthly use whatsoever.

Since so many large companies seem to have been managing to avoid paying tax my suspicion is that GDP is nothing more than a smokescreen.

My second crazy idea is that Government and the media stop obsessing over GDP and concentrate on the only two figures that matter: Tax receipts and spending.


Do post your own ideas or feedback on my crazy ideas in the comments below each post.

As I wrote last week, I am making my 100 crazy ideas freely available. It seems unjust to propose ideas to fix the economy and then prevent people from freely reading those ideas. I will publish the full series once complete but this blog will remain.

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References:

(CI001A; UK GOV; Page 27; https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293754/37630_HC_1104_Budget_2014_Complete_PRINT.pdf)

(CI002B; ONS; http://www.ons.gov.uk/ons/rel/elmr/explaining-economic-statistics/understanding-gdp-and-how-it-is-measured/sty-understanding-gdp.html)

(CI002C; OECD Observer; http://www.oecdobserver.org/news/archivestory.php/aid/1518/Is_GDP_a_satisfactory_measure_of_growth_.html)

(CI002D; Keith Hennessey; http://keithhennessey.com/2010/04/28/economist-debate/)

(CI002E; Boston University; http://www.bu.edu/pardee/files/documents/PP-004-GDP.pdf)

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