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Feb
23

‘GDP’ STATISTICS ARE ‘A SWINDLE’ By CAMERON DUODU




Dr Joseph Stiglitz, Professor of economics at Columbia University, is one of the most influential economists of the 20th and 21st centuries. He was awarded the Nobel Prize for economics in 2001 — which about says all there is to say about the respect in which he is held by his peers. But more important, he has had a ringside seat to assessments of the economies of most countries in the world. For he is a former Senior Vice President and Chief Economist of the World Bank.

The best thing I like about him is that he is relatively accessible. Whether he has read the late British philosopher, Bertrand Russell, or not, is not known to me. But he seems to follow Russell’s advice about writing clearly, which is that one must first write an “academic” book which few people — or preferably no-one — can understand. Then one must use the ability to write densely as a licence to write so clearly and simply that even a child can understand what one is saying. Thus, although Bertrand Russell’s subject was an abstruse one — philosophy and the principles of mathematics — he wrote books that sold in their hundreds of thousands.

Similarly, Stiglitz, in many of the articles of his that I have seen, eschews the jargon in which a great deal of the discussion on the economy of the world currently takes place. This jargon makes sure that ordinary folks hardly understand anything that economists say. Economists resort to that tactic because economics affects the lives of all of us, and if it was discussed in simple terms, we would all understand it and probably engage in never-ending demonstrations of one type or another, against ‘The Establishment’ or the powers that be (wherever we happen to live).

We would know that our governments constantly make the wrong choices when it comes to spending our tax money. We would question everything the Ghana government, for instance, said — from why there are occasional shortages of petrol in Ghana (even though there is always enough foreign exchange to send huge delegations to conferences abroad); how much the Tema Oil Refinery owes and why; to why the government keeps insisting that the economy “grew” by so much percent last year (even though we know that some people who were employed last year are now unemployed, and that certain things whose prices we could afford last year have now so shot up in price that they have fled from our reach.) As write right now, I know a young friend of mine who is worried sick about hw to pay his Uni” (University to you and me) fees. When I was his age, people were paid allowances while they were t “Uni”. They are charging him now, and yet if you look at the GDP [Gross domestic Product] figures of Ghana and say, the 1960’s, you will find that the figures have quadrupled or quintupled or whatever.

Well, now, Professor Joseph Stiglitz has given the economists’ game away. Writing on the London Guardian’s website, Prof Stiglitz asks: “Striving to revive the world economy while simultaneously responding to the global climate crisis has raised a knotty question: are statistics giving us the right signals about what to do?”

He explains that “in our performance-oriented world, measurement issues have taken on increased importance:.” He adds: “what we measure affects what we do.”

Stiglitz outlines a frightening scenario: if we have poor measurements, what we strive to do (say, increase GDP) “may actually contribute to a worsening of living standards.”

Why do I say that this is a “frightening scenario”? The answer is that as long as I can remember, GDP growth has been held up by economists as the single most important sign that a country’s economy is “improving”. That is why the NPP and the NDC have been quarrelling, in recent months, about whether the economy of Ghana achieved a GDP growth of x percent in previous years or y percent. But Stiglitz shows that it is a time-wasting argument. The really important questions are not being asked at all.

Until Stiglitz came out with his near-revolutionary concept, all arguments about a country’s economic performance were supposed to be closed by the GDP growth figure. If it was high, then the country was ok. If the growth rate was low, then the country was in the doldrums. If calamity happened and the economy achieved zero growth, or even negative growth, then it was time to put our hands to our heads and wail aloud. I have always questioned this in my mind. When I used to visit Eastern Europe and China in the days of communism, they used to trot up enormous figures of GDP growth and the growth of other areas of production. But I always had to carry toothpaste and soap with me because what they were producing was crap. Ghanaian students who could travel to West Berlin and bring back ladies tights and Marks and Spencer bras and undies could get under the skirt of many of the beautiful girls there. No wonder some of them used to get beaten up regularly by the young men in their host countries.

Well, now, Stiglitz assets with all his authority that the pursuit of GDP growth may result in our being “confronted with false choices, seeing trade-offs between output and environmental protection that don’t exist. By contrast, a better measure of economic performance might show that steps taken to improve the environment are good for the economy. The big question is whether GDP provides a good measure of living standards“ (he adds). “In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens’ own perceptions..”

I never” I really didn’t expect to hear a professional economist admit that citizens’ own perceptions of how the economy is working are a valid way of determining whether the economy is performing well or not! The economists always said it was up to the government to decide for us whether the country should buy guns ior butter but that we could never have both! And it is not just an ordinary economist who is admitting it, but one who has won the Nobel Prize for economics.

What this means is that the World Bank and the IMF in particular, whose monetarist reports on countries’ economies have assumed holy writ, must go back to the drawing board. For as long as one can remember, they have held up GDP growth as the be-all and end-all of economic performance. They owe a lot of countries an apology for leading them up a garden path. Structural adjustment, in particular, has been forced down the throats of many countries, with a view to helping them achieve GDP growth. But it was a half-mirage, at the very least. We ended up doubling or trebling our external debts, and paying beyond the norm for our imports, what with the devaluations we were made to endure.

Listen to more of what Stiglitz has to say:

“The focus on GDP creates conflicts: political leaders are told to maximise it, but citizens also demand that attention be paid to enhancing security, reducing air, water, and noise pollution, and so forth – all of which might lower GDP growth. The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognised. But changes in society and the economy may have heightened the problems, at the same time that advances in economics and statistical techniques may have provided opportunities to improve our metrics.

“For example, while GDP is supposed to measure the value of output of goods and services, in one key sector – government – we typically have no way of doing it, so we often measure the output simply by the inputs. If government spends more – even if inefficiently – output goes up. In the last 60 years, the share of government output in GDP has increased from 21.4% to 38.6% in the US, from 27.6% to 52.7% in France, from 34.2% to 47.6% in the UK, and from 30.4% to 44.0% in Germany. So what was a relatively minor problem has now become a major one.”

Professor Stiglitz adds: “Likewise, quality improvements – say, better cars rather than just more cars – account for much of the increase in GDP nowadays. But assessing quality improvements is difficult. Health care exemplifies this problem: much of medicine is publicly provided, and much of the advances are in quality. The same problems in making comparisons over time apply to comparisons across countries. The US spends more on health care than any other country (both per capita and as a percentage of income), but gets poorer outcomes. Part of the difference between GDP per capita in the US and some European countries may thus be a result of the way we measure things.”

The full text of Professor Stiglitz’s article can be found at

http://www.guardian.co.uk/commentisfree/2009/sep/13/economics-economic-growth-and-recession-global-economy/print

It is worth visiting the site not only to read the article itself but to read the comments on it, some of which are even more explicit in their condemnation of how we have been fed on a diet of false economic notions all these years.
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