What is GDP?
GDP is treated as the holy grail of economic management. Its status is like a deified being – ethereal, airy, and untouchable. You may be able to photograph it, but you may not benefit from it that much.
- A lot of GDP growth comes from the resources industry;
- Most GDP growth in generated in Sydney and Melbourne – between them they generate around 70% of the economic growth. In Sydney three key-regions deliver around 24 % of economic growth – the inner northern suburbs, the Ryde area and the Sydney CBD.
What do most people think GDP is?
If you asked many people what GDP is, their explanation they may say: It’s to do with economics or economic growth. However, what it is specifically and what it does, well that response may draw a blank.
GDP is seen as a measure of a government’s economic competence, yet it ignores critical factors. Loudmouth politicians and commentators megaphone their belief in GDP. It’s rather like bodybuilders comparing muscle size.
However, what does it tell us about economic performance and progress? It tells you a lot if you’re a banker or business person but relatively little if you’re an ordinary person.
So what does GDP count and fail to count?
- It’s a useful tool for central bankers. It helps them to know whether to hit the interest-rate brakes or press the accelerator;
- It impacts on interest rates and the cost of borrowing;
It ignores women’s work in the home and leisure;
- It counts remediation work from natural disasters as a positive;
- GDP looks backward and not to the future, so it’s not entirely useful for financial markets;
Says nothing about the quality of government services;
- GDP is tone-deaf to the reality of people’s lives. For example, it doesn’t consider the costs of withholding education, nor does it consider the quality of government services.
- Credit Suisse report emphasises that GDP says there’s no value in capturing economic issues faced by the government. Health, environment, and inequality, issues that would probably be regarded by many as an integral part of the economy, are absent.
So how do I benefit from this economic growth that they talk about?
The answer to this question varies greatly. It varies depending on your economic circumstances. Do you run a company that performs remediation work in the event of a natural disaster? If so, disasters are a financial boon for you. Moreover, they make economic growth look better!
However, if you are like an increasing number of Australians who have not had a wage rise, you’re not alone. Many people, on individual contracts, struggle to secure a wage rise for a simple reason: You can’t negotiate with your boss.
Sure, some employees successfully, albeit rarely, negotiate with their employers. They tend to have extraordinary skills that consequently attract better pay.
However, the reality for many Australians is that income growth is way below GDP growth. Thus, although the governments spruik it, the reality is the GDP figures sit uncomfortably with the reality of many people’s lives. Some people are doing very well from the GDP as an economic measure.
What other measures of economic progress exist?
Unfortunately, there is no one replacement measure for GDP. However, it could be used in conjunction with one of the following alternative measures.
The limited utility of gross domestic product has long been recognised. Robert Kennedy once said of it: “It measures everything except that which makes life worthwhile.”
So, if its usefulness is so limited, why do we still use it? We can only change the economic indicators when policymakers prioritise genuine measures of economic performance.
One way to do this is to use different economic indicators. One of these alternatives is the genuine progress indicator (GPI). It looks at, rather than ignores, critical aspects missing from Australia’s current economic progress indicator. Therefore, unlike GDP, it considers the negative effect of income inequality on welfare. It also considers household work, a gaping hole in the current arrangements.
A GPI would look at the environment, as well as the costs of crime and pollution. Also, it looks at the contribution of volunteers.
Sadly, GDP concentrates on a bunch of things that of no use to ordinary people. And like some of Australia’s economic indicators, for example the unemployment rate, GDP gives a partial snapshot.
It’s arguable that to restore confidence in the Australian political process we need to address our us of dated economic indicators. Otherwise negative feelings with continue to ferment among those who feel as though they’ve been left behind by the economic fast lane.
It’s also not enough to point the finger at the losers. Blaming others for problems not of their making, may feel satisfying, but not only does solve any problems, it also dodges the central role of politicians in the political process. That is, that under the system of representative democracy – they’re supposed to be there for you. If something is not working, if something going right – it’s in all our interests to find out what and fix it.
And one of the most important things politicians need to consider fixing first are our economic indicators. No not just the unemployment that fails to detail the high number of people who’ve given up looking for work. We also need to find another broader range of indicators, like the Genuine Progress Indicator (GPI) that will give us a clearer vision of how the Australian economy is really performing. This would be more preferable than the massaged picture on offer at the moment.