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“Endowe hym now with noble sapience, / By whiche he maye the wolf werre frome the gate, / For wisedome is more worth in all defence, / Then any gold or riches congregate” John Harding 1543 “The xcviii. Chapiter. The Lamentacyon of the Maker of this Booke, and His Counsayle to My Lorde of Yorke, for Good Rule in the Realme of Englande”
If I recall, GDP is an average. The joke goes that when Bill Gates walks into a pub, everyone (on average) becomes a millionaire.
We see this fallacy when people tell us that the National Debt costs us all £40,000 each on average. In practice, people who have no savings or assets contribute nothing to this figure, whereas a millionaire has a £1m of National Debt that is hidden and the “blame” is shifted to those who own little.
Much to agree with
GDP is, by definition, a total; Gross Domestic Product. GDP per capita is the derivative average more useful for many comparisons. Call me a pedant if you like, but we need to keep track of what figures mean exactly, if we are to think straight about them.
I understand that the inclusions in GDP were changed in 1993, as explained by Jacob Assa in his 2016 book The Financialization of GDP: Economic Implications for Economic Theory and Policy, to include financial services as a final output rather than as intermediate parasitic extractive costs.
That change falls into line with the advancing neoliberal financialisation and somewhat masks de-industrialisation of economies to further degrade the relevance of GDP as a metric. Remove financial services (an overhead of doing business) from today’s measure of GDP to compare the pre and post 1993 GDP measurements would be an interesting exercise to show how the figures have been fudged.
“When a measure becomes a target, it ceases to become a good measure”
— Goodhart’s Law
The degrowth movement has extended Raworth’s “doughnut” economics to take full account of the nine planetary boundaries that delimit the safe operating space for economic endeavors:
https://www.researchgate.net/publication/393323587_The_degrowth_doughnut
Well written, as always.
One very minor point though concerning GDP, I’d call it differently:
I think the G doesn’t stand for “gross”, it stands for “ghastly” as long as a single pence / cent / … in it is acquired by illth.
Were I to be asked “What one piece of advice would you give to a young person today” my answer would be “Never let yourself be fooled into thinking life is so simple and uncomplicated that there is just one piece of advice that will make all the difference.”
But our politicians, and those people who believe them, have let themselves be fooled into thinking that there is one economic measure that matters above anything else, GDP, and much of the discussion on this blog is about the consequences of that foolishness.
Box 8, point 2 really is the clincher here: what should shrink and what should grow? That might work as a subheading for Funding The Future.
Thank you
I think the banking system and MMT need a big mention here, and I think this is a good short summary:
Because private banks create most money as interest-bearing credit, modern economies face a structural growth dependency: when credit creation slows, the money supply contracts and recession pressures build, driving resource extraction and ecological overshoot. Sovereign governments possess far greater monetary capacity than households and could mobilize real resources to fund a sustainable transition—constrained only by inflation, not revenue. Political choices and institutional norms, rather than financial limits, currently block this shift.
I know many will be aware of the potential nightmare of the AMOC failure. There is also the potential earlier collapse of the Subpolar Gyre (SPG), which would trigger the wider AMOC collapse. If this happens “The UK basically ends up too cold to crop: from a food perspective the UK would be on the order of 90% food import dependent, even if we used all available land for grazing”. Furthermore “In the post-collapse state, the UK’s weather patterns would be significantly different, bringing extreme conditions that are far beyond those to which people, infrastructure and nature are currently adapted… average temperatures in London could be up to 10°C lower, with even colder conditions further north. Collapse could play out over as little as a decade, if not a matter of years, creating a post-collapse state on far shorter timescales than for AMOC collapse”.
https://archive.ph/gQ8DT
I note what you say, but do not follow your logic, I am afraid.
I ran my summary through AI to try and correct it.
Commercial banks create the vast majority of circulating money ex nihilo when issuing loans. Crucially, banks create only the loan principal—not the additional money required to service the compounding interest. Servicing this collective debt burden demands continuously expanding aggregate monetary revenues, forcing total credit and output to continuously expand to prevent widespread default cascades. This private banking architecture embeds a relentless structural imperative for perpetual GDP growth.
Pursuing endless GDP expansion, however, is ecologically unsustainable. While technological innovation can yield relative efficiency gains per unit of output, absolute decoupling of aggregate GDP from total material throughput, energy consumption, and environmental degradation remains empirically unachievable at scale. Demanding exponential output growth on a finite planet inevitably breaches non-negotiable thermodynamic limits, driving resource depletion, biodiversity collapse, and severe climate destabilization.
Sovereign governments issuing floating, non-convertible currencies operate under fundamentally distinct monetary mechanics. Unconstrained by household-style financial solvency, a sovereign issuer’s limits are strictly physical, ecological, and structural: available labor, raw materials, technical expertise, supply chain throughput, foreign exchange capacity, and domestic inflation risks. Within this framework, taxation and bond issuance do not fund government spending; public money is created directly upon state expenditure. Instead, taxation functions to suppress private purchasing power, regulate aggregate demand, anchor currency value, and clear real economic capacity for public investment.
Consequently, failing to finance a green transition stems from political priorities, institutional design, and real-resource bottlenecks—not nominal financial scarcity. Measuring societal success primarily through GDP forces economic policy to serve perpetual compound growth rather than long-term ecological resilience. Achieving true sustainability requires abandoning GDP growth as a primary goal, reforming debt-based money creation, and strategically deploying sovereign fiscal capacity to mobilize available real resources directly within non-negotiable planetary boundaries.
Noted.
I did a recent infographic on this.
Interest is a diversion of income.
But the conclusions are fair and I have made these points many times, including my 2011 book, The Courageous State
Probably the main (and actually rather good) reason that governments focus on GDP is that it represents their tax base: all the recorded transactions that can in principle be taxed, whether by taxes on income, employment, stamp duty or sales. GDP goes up, or down, and tax revenues are likely to rise and fall in approximate proportion.
Could be taxed does not mean it should be taxed.
And GDP does not include capital transactions.
Well, I Google AI’ed it and the answer seems pretty clear.
how closely does tax revenue track gdp in the uk economy?
UK tax revenue tracks Gross Domestic Product (GDP) remarkably closely because the core tax bases—personal income, consumer spending, and corporate profits—are the primary components of economic activity. For over two decades, the UK’s total public receipts-to-GDP ratio has remained relatively stable, typically bouncing within a narrow band of 34% to 38% of GDP. [1, 2, 3]
⚖️ Why Tax Revenue and GDP Move Together
Automatic Stabilisation: When the economy grows, tax revenues automatically rise as individuals earn more and spend more. Conversely, during shocks like the 2020 pandemic, tax revenues and GDP dropped to very similar degrees, keeping the overall ratio stable. [1]
Consumption Ties: Major revenue drivers like Value Added Tax (VAT) directly mirror real-time consumer spending, ensuring a highly consistent relationship with economic output. [1, 2]
So?
My point remained entirely valid.