The myth of GDP
Business confidence across the UK does seem to be steadily building. And perhaps the success of the Help to Buy mortgage scheme and the recent high numbers of new car registrations suggest that, even more importantly, consumer confidence is also increasing. So much of economic activity in mature western economies is occasioned by consumption spending to satisfy wants as opposed to fundamental needs that it would be inconceivable that there could be any recovery without increased consumer confidence.
And a key indicator of this fledgling recovery, we are told, is the increase in quarterly GDP percentages. Quarterly GDP statistics play an interesting role in economic emotions. In many respects they are a feedback loop – measuring and both reinforcing.
But what if we are measuring the wrong thing? What if we are putting too much reliance on GDP for our sense of well being? What if it is a fundamentally flawed, incomplete and inaccurate estimate of economic activity? What if, as Bobby Kennendy noted, it measures everything except those things that make life worth living.
None of these questions or charges against GDP are new. But a recentarticle in the Independent which considers the flaws of GDP as a totem for our economy adds to the discussion because of the nature of who has written it.
Food for thought
Just because we have always done something in one particular way does not mean that we should condemn ourselves to always do it that way into the future.
Ironically, the principle of a slavish following of tradition and established practice, is arguably the antithesis of how a capitalist economy should work.