[OPE-L] GDP and the "whole economy"

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Wed Oct 17 2007 - 10:50:23 EDT

The ideology that "GDP = whole economy" has actually filtered into US government documents. Thus we can read, for example, a somewhat garbled White House utterance such as:

"As a percentage of the economy, the deficit is now lower than the average of the last forty years."

What they mean to say is "The total federal budget deficit, considered as a percentage of GDP, is now lower than the percentage of GDP which this deficit represented on average across the last forty years."

In Switzerland, the people at BIS (Bank of International Settlements) are not so sure about the "GDP=whole economy identity" however, because they realise - even if Marxists do not - that there exists a whole circuit of income-generating activity which is not adequately captured by GDP data, and which is difficult to analyse from national accounts data generally. 

Mr William R White, BIS Economic Adviser and Head of its Monetary and Economic Department, indeed emphasized in 2006 the need for "integrated stock and flow accounts", and for better surveys of household asset and liability valuations. He states among other things:

"...we should try to establish greater consistency between bodies (and sectors) reporting financial statistics (such as the issuance of debt securities and FDI) and non-financial statistics (such as consumption and gross fixed capital formation) to facilitate analysis of how the former impinge on the latter. (...) In the area of valuation, it must be noted that the statistics currently collected on the prices of both residential and non-residential structures are still inadequate in many ways. Moreover, in many countries, historical data is almost non-existent. When one considers the role played by such prices in economic cycles, the absence of such data is almost shocking." http://www.bis.org/speeches/sp060830.htm 

Slowly the realisation is dawning in bourgeois economics that the stock of assets external to production in the more important OECD countries is greater than the stock of assets inside production, and that financial transactions not captured in GDP generate large personal incomes and debts. The gigantic buying power of the rich enables them to buy up non-productive assets globally and make money from them, thus causing a flourishing trade in them.

It would be worth writing a whole paper just on GDP ideology - not from the leftist point of view that "it does not measure housework or natural resource depletion or happiness", but simply from the point of view of what it does measure, and how people falsely claim it measures something else, in popular and academic discourse. 

Incidentally, in an interesting 2005 "post-Keynesian" analysis of surplus money capital, FT writer Martin Wolf has only the official statistical aggregates to go by, and therefore he becomes trapped in an analysis which results in a rather lame conclusion: 

"... the global savings rate ran at the exceptionally high level of 25 per cent of global output last year... The private sectors of the eurozone and Japan, which generate one-third of world gross domestic product at market prices between them... are running substantial surpluses of income over expenditure... The US has been accommodating the excess savings of the rest of the world... The most important conclusion of the analysis is: reduce the excess saving, particularly in emerging market economies. It cannot make sense for these relatively poor countries to devolve the task of borrowing and spending on to the vastly richer US. If the people of emerging economies are to lend on a vast scale to any governments, it should surely be to their own governments, which should be able to find better use for the funds now being poured into foreign currency reserves. As the rest of the world starts to shrink its excess savings, the US should expand its savings as well, largely by reducing the structural fiscal deficit. In the short to medium term, the best way for surplus countries to reduce their excess savings is via fiscal expansion. In the long run, however, what is needed is financial sector reform that encourages their citizens to spend a little more enthusiastically." http://www.ft.com/cms/s/0/00b05180-dba8-11d9-913a-00000e2511c8.html?nclick_check=1

Lacking any more profound analysis of "dollar hegemony", the rather banale conclusion is that some countries simply save too much, and they should be spending more, for the sake of economic balance. In other words, the analysis remains stuck in the neoclassical paradigm which depicts a zero-sum game between consumption and saving, meaning underconsumption = excess saving, while overconsumption = reduced saving, where equilibrium means a balance between consumption, saving and investment. Completely ignored is, WHO the savers and consumers are, and the DIFFERENT TYPES of saving, consumption and investment there are. But that is precisely what the official statistical aggregates obscure, because they are designed on the assumption that social classes (or qualitatively different income classes) do not exist.


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