Gross Domestic Product

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GDP may give the most misleading and irrational concept of the welfare of our country of all the statistics provided by Government. Its deficiencies were pointed out when it was developed in the 1930’s, but apparently ignored. It was more useful when our economy was industrial but in this financial economy it distorts the picture.  It does not tell us if we, and our country, is doing better or worse. It does not indicate if we are adding to our national wealth or dissipating it. It does not even tell us if we are producing as much as we are consuming. It does not tell us if we are just living off borrowed money, Or, if we are living off the sale of our national assets. The truth of the saying “the bigger the lie, and the most frequently repeated, the more people will believe it” applies to GDP.  GDP is repeated many times daily and leads us to assume a bigger number is good. Even when bad.

 

GDP is calculated by adding together: private consumption + private sector investment +  Government spending + Government investment + the excess of exports over imports.

 

The cost of fighting fires, floods and natural disaster increases GDP, but adds nothing of value.  And what about recognition of the value of forests, coastline and infrastructure that is lost. Should there not be a deduction from the GDP number for any decrease of wealth in the year.  The private consumption and Government spending components of GDP reflects decrease of wealth. Since all consumption is causing environmental degradation and climate change, would it not be good for the nation if it decreased?

 

Private sector investment is a figure that is very useful, it is certainly better to increase the productive wealth of our country than consume wealth. How great is the investment ,if twice that value has been depreciated or discarded is not recognized. Government spending and investment have the same effect on GDP of destroying and creating wealth.  The numbers that we should be told is “How much has our common real wealth increased”? Or, how much are we going behind?

 

The other number we should know to tell us how well we are doing is the total spent for imports. That amount now increases the GDP total but  adds nothing to our economy and should be deducted. All that is deducted from GDP now is the excess of exports over imports. Well, what GDP does not tell us, but we deserve to know, is that Canada has a trade deficit with every country with which we trade.  GDP does not tell us how we pay for all the stuff we import and consume. We pay by depleting our natural resources and by encouraging foreing investment to buy our properties or increase our national debt.

 

Our politicians do not seem to understand the limitations of GDP and do not know the factors that really matter.  Perhaps they don’t bother to. For 50 years they have been reelected although our country has gone downhill under their Governance. Working people are worse off while the unproductive financial sector has grown and produced nothing but financial bubbles and recessions. It is time that Gross Domestic Product is replaced by numbers that tell a true story.  When we hear “Gross Domestic Product” ask instead are we increasing our wealth and living well or going behind? 

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