I am reposting this from the Commonspace website, which is mainly targeted at a Scottish audience, who published it yesterday afternoon:
ECONOMIC EXPERTS Professor Richard Murphy and Dr Craig Dalzell have joined the Scottish Green Party in responding to the latest Gross Domestic Product (GDP) figures by arguing that better measures are needed if the true state of economic wellbeing — felt in the pockets of the population — is to be reflected.
The Scottish Government published the GDP figures for the third quarter of 2017 on Wednesday, which indicate that the Scottish economy grew by 0.2 per cent in real terms compared to the previous three months. Compared with the last three months of 2016, the economy has grown by 0.6 per cent.
The GDP per person remained the same, with zero per cent growth.
Broken down by industry, the output in the services sector grew by 0.2 per cent, and by 1.2 per cent in the production sector, while output in the construction sector fell by 2.9 per cent.
The Scottish Government has presented the statistics as positive due to the overall growth, while opponents in Labour and the Conservative Party have criticised the SNP for allowing Scotland to “lag behind” the rest of the UK, where GDP since the final quarter of last year has grown by 1.7 per cent.
Speaking to CommonSpace, political economist and tax expert Professor Richard Murphy suggested that both the accuracy of the data, and its usefulness from the perspective of how the economy is impacting on people's wages, are dubious.
Murphy said: “There will, no doubt, be those saying that low GDP growth (and none in terms of GDP per head) is bad news for Scotland. This, though, assumes that, first of all the GDP data is right, and second that GDP matters.
“There is no way we can be sure that the GDP data for Scotland is right because the calculation of GDP requires accurate data on imports and exports from Scotland and all experts agree that Scotland does not have that information.
“In that case whether or not the data is accurate depends upon whether or not a fair proportion of estimates to and from Scotland to the rest of the world, as well as to and from the rest of the UK, are correctly estimated.
“I have my doubts about this and explained why to the Scottish Parliament last year. I suggest that it would be wise to share my suspicions.”
Murphy argued that there are other measures which would better reflect how well the economy is doing in tangible terms: “We now know that GDP is a poor indication of well-being. In particular, the share of wages in GDP has been falling steadily over time whilst that of profits has been rising.
“It is the increase in profits that have pushed up UK GDP as a whole - reflecting the activity of the City of London - whilst real wages have been stagnant or falling when adjusted for inflation. If you want to know what is really happening in Scotland look at employment data, average wages and changes in them, and how this data compares to the UK.
“The Scottish Government would be wise to adopt increases in median pay as its economic goal and stop worrying about the nearly meaningless Scottish GDP measure that is beloved only by those who do not seem to have the best interests of Scottish people at heart.”
The left wing and pro-independence think tank Common Weal has long advocated for economic measures which better represent a progressive approach to the economy, arguing that GDP “tends to reinforce the interests of corporations” and drive a policy focussed on improving short term profits.
Head of research at Common Weal, Dr Craig Dalzell, spoke on the subject before the Economy, Jobs and Fair Work Committee at the Scottish Parliament on Tuesday. He explained his view to CommonSpace: “Since the 2008 Financial Crisis there has been a significant decoupling between GDP and wage growth.
“Where wages used to rise in line with GDP, they have been flat or declining in real terms for the past decade with the difference being largely pocketed as company profits or sent overseas.
“The government would be well advised to focus as much on inclusiveness in the economy as they do on growth in and sheer size of overly simplistic measurements such as GDP.”
This view was reflected in the Scottish Green Party's response to the latest figures. In contrast to the other opposition parties' suggestion that GDP ought to have been higher, Scottish Greens co-convener Patrick Harvie was critical of the measure itself.
Harvie said: “GDP gives a very limited insight into our economy, when the real figures we should be focusing on are stagnant wages, persistent poverty and the failure to promote low-carbon capital investment.
“More equal societies have successful economies, so if we're looking for a brighter future, we should be prioritising investment in local services, fully funding an inflation-based pay rise for frontline workers and bringing forward infrastructure spending on sustainable transport, housing and energy projects.”
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On the subject of GDP, This famous old speech from Robert Kennedy isn’t academic or technical but it is a “must see” for everyone that is not yet familiar with it.
https://www.youtube.com/watch?v=77IdKFqXbUY
https://www.theguardian.com/news/datablog/2012/may/24/robert-kennedy-gdp
Agreed
Thanks for that Marco -it is also a reminder of the terrible paucity of oratorical skills today backed by the passion to communicate that is so egregious in the political sphere. The sheer musicality and inherent rhythm of Kennedy’s speech and it’s structure are compelling in themselves.
Compare that to much of what i can only describe as ‘mouth flatulence’ that we get from supposedly ‘educated’ monsters like Johnson and the unspeakable vacuity of May and her ministers.
It’s great quote from Kennedy, which I also used here:
https://braveneweurope.com/charles-adams-the-measurement-problem-in-political-economy-a-solution
My argument was to replace GDP with median disposable income which is similar to Richard’s point. Will keep pushing it and hoping…..
We’re on a wavelength here Charles…
Charles-interesting article.
You write: ‘We know that money buys freedom but we cannot simply maximise freedom by giving people more money. The only result would be inflation.’
I’m not at all sure we can say money buys ‘freedom’ except in the most topographical sense. Lloyd Blankfein doesn’t come across to me as a ‘free’ man-in fact rather stunted morally and intellectually even if he doesn’t recognise himself.
Perhaps we can say ‘money gives choices’ though at the margins it won’t even do that.
Economics, in the end begs all sorts of questions about the purposes and meaning(s) of life and what ultimately constitutes freedom and these may well be beyond mensuration. The famous Gandhi quote “The world has enough for everyone’s need, but not enough for everyone’s greed” still holds ( I remember this sign being outside the Manchester Quaker Meeting House when I passed it many years ago as a schoolboy).
It’s ultimately a spiritual matter -not sure how science measures that! And by spiritual, I simply mean a perceptual shift which transforms social relationships. Science does us a disservice, when it sees, like Dawkins, reality as a matter of data collection rather than an emergent property of our collective thinking.
Bankruptcy sales and the closure of business count as GDP.
Upward transfers of wealth count as GDP, even when their effect on the economy is contractionary, overall, and sharply so for the majority of the population.
The payment of rents counts as GDP.
The purchase of rents counts as GDP; and it counts as ‘inward investment’ if the buyers are overseas.
An economy in the acceleration phase of a sharp recession can look like an expanding GDP for a surprisingly long time.
@ Richard
There was a brief discussion about GDP on the BBC podcast thinking allowed. Again if people have time it is worth a listen.
Here is a synopsis:
GDP – Laurie Taylor talks to Lorenzo Fioramonti, Professor of Political Economy at the University of Pretoria, and author of a new book which exposes the flaws of an economic system which values this statistic, above all others, as a measure of prosperity and growth. They’re joined by Douglas McWilliams, Deputy Chairman of the Centre for Economics and Business Research
http://www.bbc.co.uk/programmes/b09fy6l6
Thanks
“using appropriximations which may, or may not, be right”
Isn’t this true of all approprixinations?
https://wingsoverscotland.com/the-historical-debt/
On the Scottish theme, Wings has just published some alarming figures on
UK Historical Debt.
I think that too old to be significant
Link to Wings-over-Scotland not working at 14:45 hrs.
However, given the unreliability of all the key data available (GDP, GERS, Import/Export data etc) to the Scottish Government, should its No1 priority be the creation of a Scottish Statistics Bureau to determine and develop accurate data sources and gather the relevant data? Without accurate data, nobody can run effective government for very long, whether as a devolved part of the UK or as an independent state.
Without UK gov’t cooperation such a stats commission makes no sense right now
And Revenue Scotland is still not sure it can identify Scottish resident people…..
SO what of companies?
Let alone VAT records?
Sorry to be naïve about this…but is there any double-counting in GDP statistics?
(I know in theory there ought not to be any but sometimes in official statistics that are generally accepted without much discussion, there may be ‘industry practices’ which are well understood by those involved but would surprise and perhaps shock interested laypeople.)
GDP is calculated in three ways
But the problem is likely to be missed data: the shadow economy is almost certainly not fully covered – but it is a research issue I am looking at and I suspect we will make some progress
This is vaguely related to double counting.
One thing that I have been curious about is the idea that speculative gains in secondary financial markets (includes existing real estate) are not counted as GDP because the assets being traded are not new investment – they are pre-existing assets.
That makes sense. What doesn’t make sense is that the banking and finance business that facilitiates this trade is counted as GDP. This is quite absurd given that a huge proportion of their activity is in the service of secondary markets.
Come to think of it, financial markets and institutions don’t actually produce anything for the most part. They just clip the tickets of those who do. Surely there must be a very big question mark hanging over their inclusion in the gross domestic ‘product’.
Perhaps there should be a separate sub-category: NFGDP (Non-Financial Gross Domestic Product) it may be a better indicator.
Are you aware that prima facie banking is not in GDP because it dos not add value?
Considerable effort had to be made to add it in, using appropriximations which may, or may not, be right?
I will confess that I am not as closely familiar with the technicalities of that as I probably should be.
I will look into it again. I know that banking and the finance sector makes an appearance and for the most part probably shouldn’t. I would be very surprised if the approximations resembled anything that we might call “right”.
Banking is definitely part of GDP.
It comes under the services part of GDP, and the sub-sector “Business services and Finance”.
It’s also an incorrect statement to say that banking does not add value. In GVA/GDP terms it definitely does, even though you might not think it does in your narrow political definition of what banking and finance does.
I said it is part of GDP
I also made clear that effort had to be made to make it so – and if you do your reading you will see why that statement by me is true
The question as to whether it adds value is at the heart of the GDP dilemma it poses
https://www.oecd.org/std/UNA-2014.pdf
page 129. Banking does seem to be included…
Yes, but it takes effort
That is what I said
“Are you aware that prima facie banking is not in GDP because it dos not add value?”
you say banking is not in GDP and does not add value.
“I said it is part of GDP”
Now you say it is. Which is it?
“Yes, but it takes effort”
All GDP measures require a fair amount of effort to collate. So?
Ed
If you knew anything about GDP, if macro, you’d know that prima facile money does not appear in it
But you ckearly don’t
When you do, come back
Richard
So now money doesn’t appear in GDP does it?
First you say Banking doesn’t appear in GDP – which it clearly does. Now you say money doesn’t?
Quiet candidly, I don’t think you actually have any real idea what you are talking about, and just make pronunciations on this blog as you see fit. When people come and point out your errors, you either become rude and simply tell them they don’t know what they are talking about or block them, and if you do try and answer the question (which you normally don’t) you do it with a straw man, and answer a question of your own choosing.
Oh, but what should I know. I’m just an economist who sits there *every day* collating GDP figures for various countries.
OK, where is money in GDP?
It’s a unit of measure? But where is actual money?
And if you were an economist doing what you’d claim you’d know that money, macro and banking have very uneasy relationships with each other which makes me doubt your claim
But what’s happening in the regions! That’s what interested me.
The Tories give aggregate GDP (without inflation) and imply all is well (from +ve GDP numbers).
At a regional level, or local level, GDP data is not available [1] but Gross Value Added (GVA) data is, and recorded for the 12 regions of the UK and local areas.
This House of Commons — “Regional and local economic growth statistics” [1] reports GVA per head per annum change from 2010 to 2015 (6 years). This data is not corrected for inflation.
Making a correction for inflation (RPI and CPI) I found the following:
(1) CPI corrected data (Dec 2009 to Dec 2015, 14.1% assumed).
Only 5 out of the 12 UK regions had +ve GVAs change, with London leading the pack, with an average GVA per annum change of 0.8%. The other 4 ‘winners’ are West Midlands (0.1% GVA p.a.), South East (0.1% GVA p.a.), Wales (0.2% GVA p.a.) and Scotland (0.1% GVA p.a.). Note, Wales starts from the lowest base in the UK with a GVA p.a. at £18,002 (2015 data point).
(2) RPI corrected data (Dec 2009 to Dec 2015, 19.5% assumed).
No regions, including London had +ve GVA growth, with London just missing out.
(3) CPI corrected data.
UK aggregated data; the change in GVA per head p.a. was 0.1%.
(4) Significant losers where Northern Ireland and Yorkshire/The Humber.
This, perhaps is a better way to argue GDP.
Now to the outlier – the London region — it has a high GVA per head of £43,629 (2015 data point) and for example, pound-for-pound London gained 5 times more change (increase) than Welsh people, 2010-2015. If you do a bit more work (the Excel sheet is interactive) you can breakdown London borough-by-borough, similar arguments of significant differences (gains and losses) can be made within London.
1. http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN05795#fullreport
2. The excel spreadsheet linked in ref [1].
Thanks
Richard, I should have added my conclusion ‘The majority of the UK is in permanent recession’ and driven by the politics of austerity.