An interesting article by Larry Elliot in the Guardian this last week.
Yet the idea that success can only be measured by gross domestic product has become a fetish. When growth accelerates, it is a time for national celebration. When growth remains unchanged it is a cause for concern. When growth falls it is a time for the newsreaders to put on a long face.
Hence the response to last week’s budget, in which the Office for Budget Responsibility shaved around half a percentage point off its growth forecasts in each of the next five years. This was seen, unambiguously, as a very bad thing indeed. Commentators (me included, I hasten to add) vied with each other to find new ways of describing just how terrible it was.
Now, make no mistake, when it comes to the UK economy there is plenty to be concerned about. It is a worry that for the past decade Britain has had to work so hard just to stand still. It matters that people are taking on more debt to finance their spending habits. It is not a great idea to be investing so little and importing so much.
But it is absurd to believe that GDP provides the best – or even an accurate – picture of how well the country is really doing. Since the financial crisis, GDP has been going up, largely due to the increase in the size of the population. GDP per head is a better measure, but even then takes no account of how the growth is being divvied up. In recent decades the fruits of growth have largely been snaffled by those at the top.
GDP acts as a yardstick for things that can be measured in monetary terms, so it goes up if the defence sector exports more arms, if the City embarks on an orgy of speculation, or if betting shops double the number of fixed odds terminals. Simon Kuznets, the economist who first came up with the idea of GDP, had a point when he said it should exclude harmful things, such as military spending and advertising.
We can see the problem in Cornwall – more traffic – more congestion and pollution, but GDP up; more roadworks to accommodate more housing and more traffic – but GDP goes up!
We need to measure what is important and adds to wellbeing and the quality of life not just any activity that adds to GDP!