Economic growth numbers do not measure prosperity

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GDP is used by governments and analysts as an indicator of a country's property. Therefore, it's not surprising to read this about the Japan earthquake:

"Some analysts are optimistic that the economy will pick up again as reconstruction activity kicks in. "After an initial decline in GDP growth, (Japan's) economic activity will rise driven by reconstruction," said Mr Mohamed El-Erian, who helps oversee more than US$1.1 trillion in investments at PIMCO, a global investment management firm."

Oh, great. Japan's going to have economic growth at last. If an economy needs an earthquake to "save" it, i.e. by forcing them to spend on reconstruction to spur economic growth, clearly, something is wrong with the way the governments and analysts are looking at things.

I've not been to Japan but for those of you who have been there, please tell me whether you think the Japanese are prosperous.

In Singapore, we had very high economic growth last year. But tell me: are you more prosperous? When HBD upgrading projects are done, when dices roll at the casino, who earns the money? GDP measures how much is spent. But the money spent doesn't go into your pocket, then why should we use GDP as an indicator of our nation's prosperity? If prices of HDB flats and food go up we spend more, resulting in higher GDP but are you more prosperous? If a woman, pulls her children out of childcare centres and quits her job to stay home to take care of them, GDP drops but is the family more prosperous?

It's high time we stop thinking of governments as capable or incompetent based in their GDP, and stop thinking that economic growth is always a good thing.


View Satellite Photos of Japan, Before and After the Quake and Tsunami

4 comments:

David said...

Yu-Kym,

I had to read this post several times as it rambles a bit.

Regarding GDP, this number is useful for governments across the globe to compare growth on a compartive basis.

In Japan's case however, money spent on relief and reconstruction will indeed help some industries. Contruction companies, Korean steel mills and heavy equipement manufacturers will gain.

Money spent on reconstruction, will however be money taken from other projects. Many might be on hold or canceled for years to come.

Singapore situation is unique. SG is a small island nation. That imposes unique contraints on growth of the economy.

From what I understand HBD prices are set by the government. Have you or anyone thought of a better method to set housing prices?

Now if one wants to stop seeking economic growth, you have to go the next logical question. At what price does a nation or group of nations slow or halt economic growth?

Why and how could SG benefit from slower growth? BTW governments do not produce any product or profit.

Sort of like marriage, govenments are a social construct neccesary for societies to function.

I will not begin to describe the vast differences between different governments. Some in SG and other nations have made interesting comparisons between the conditions in Libya and SG. From what I have read, (limited) about SG, the freedoms enjoyed in SG are far greater than under Muammar Gaddafi. This tyrant is murdering his people brutally as I type this.

As always Yu-Kym, I look forward when you opine!

David

It's not that I'm so smart, it's just that I stay with problems longer.

~Albert Einstein

Yu-Kym said...

Why do we need growth in GDP? That's the question. It's possible to have better products that cost the same, and therefore no GDP growth. It's also possible to have poorer quality goods or the same goods that cost more, resulting in higher GDP. So, do we really benefit from GDP growth?

David said...

Yu-Kym,

Since you asked. GDP is a good indicator of growth for the majority of workers. Increased earnings tranlates into increased business activity.

Think of this. You likely travel more when you are working and earning. Overseas travel is expensive, one needs a good job to afford such.

Want a better home, auto, or just a new piece of technology, and such is affordable by those working.

You did not answer how we can have better products with no GDP growth.

Fact is, as newer techonlogy comes online, most often more expensive than existing tech, older technology comes down in price.

Apple sold 500,000 iPad2s over this weekend. Is anything wrong with the original iPad or a Galaxy Tablet? No, but many want the latest tech in their hands.

As my email detailed to you, government price controls are almost always conterproductive and introduce addtional costs into the society, meaning you, me and all us consumers.

David

There is no telling how many miles you will have to run while chasing a dream.
~Author Unknown

Anonymous said...

Yu-Kym you have a blinkered, narrow, selective and smart alec view of the Gdp. Clearly you cannot confuse the benefits of public spending during disaster time with normal times. There are severe consequences with excessive public spending during the latter and yet no generous monetary policies are too excessive in Japan to bring back the Japanese economy and alleviate the hardships of its people right now.

Who earns the money? Tell me Yu-Kym, do you think you will manage to get a job so quickly if not for the high economic growth in Singapore last year? From zero (excluding income from your writings) income to a regular salary at end of each month now, do you think you have the makings of a good future (with gym membership and delicious salmon meals) if your career holds straight and true and the economy stays vibrant?

Would you rather that HDB projects remain uncompleted due to lack of funds and the casinos go into the red? Do you think my company and yours will not feel the all round impact of nil or slow income and expenditure growth?

As GDP growth also equates with income growth, would you rather that you have zero income because getting jobs is still highly competitive and general prices still relatively high? If a woman quits her job to take care of her children without an alternative bread winner in her household and there is a drop in the GDP, is this necessarily the fault of anything or anyone else or just the foolishness of her actions and the laziness of her pig of a husband?

Good governments are not only measured by healthy GDPs but also by how they manage to continue and not derail good economic growth. It is fortunate that you are able to denigrate the obvious benefits of properly managed good economic growth now that you have a job. I would ache for all of us if we are now in a depression with no jobs and read you clamour for economic growth whilst our stomachs remains empty.

silli cat