For many years, governments have focused upon GDP, but with our current global demographics collapse , GDP growth is no longer a relevant means to measure economic health, and it’s time politicians chose a more appropriate yardstick to beat themselves over the head with. Or perhaps it’s time for politicians to acknowledge their powerlessness to affect anything more than what they have for breakfast.
Really, Who Cares?
First of all, who cares about GDP? Apart from politicians and statisticians who want to demonstrate the success or failure of a particular pet policy of the day, does anyone else really care about GDP? Of course you care if the economy is doing well, but can you even tell when it is supposed to be? The fact is, some people thrive in recessions and others lose it all in the bullishest of bull markets; it seems there’s no accounting for individual freedom to make self-informed choices in life. So for a nominal GDP statistic, you could still be living in an area where everyone is doing great business. When you pick up the papers and read about the lives of those wretched others, how much of that do you think has anything to do with you? Not very much, so mind your own business.
There was a long period of time Before GDP (let’s call it BG). People lived their lives, grew up, married, bought houses, had families and grew old blissfully unaware of the means politicians use to justify their existences. With significant global change making its presence felt, isn’t it time the OECD had a cold hard look at Gross Domestic Product, and replaced it with something altogether more befitting of a 21st century world?
I put to you that using GDP as an economic target is not only fallacious, but in our current times it is outdated; out of sync with our new normal fundamentals; an ageing population where one in four is over the age of 55, an increasing environmental awareness, and the realisation (by the younger generation at least) that money on its own doesn’t make you happy, and an impending monetary disaster based upon a mountain of debt (aka our debt based money system). People want to enjoy their lives, to live in more harmony with each other and the planet. In such a frame, why the incessant need for growth growth growth, at the expense of everything else?
Masters of the Universe, or Misguided Fools?
GDP is a hangover from industrial revolution thinking, and our debt based money system which is designed to increase competition and productivity (except with money currently worth nothing, it only encourages highly leveraged speculative activity).
Annual GDP growth as a benchmark of economic activity was given weight by the baby boomer generations. The real boom effect is observed when vastly more children are born and enter their years of maximum consumption. This economic boom coincided with central banks’ tinkering with the economy, giving them the (false) impression that they somehow initiated the success, and could pull strings to repeat the effect.
This reasoning is a bit like a stock broker working in the 80’s thinking that he was a top trader because he was making vast amounts of money, or someone buying and selling property between 1995 and 2015 thinking that they had made great investment decisions. In both instances individuals were just carried along by the crest of the greatest ever bull market in credit, and their success was down to the underlying market conditions, and nothing to do with any action anyone took. A trained monkey could have made a fortune as a stockbroker in the great bull years, and in fact, many did. Central banks have this idea that their tinkering has a beneficial impact, but it doesn’t. The economy is what it is. But when central bankers think their actions have an effect, so they look to see what those effects are by studying spurious statistics; things like GDP.
A Tipping Point
What we have seen since the tipping point of the median baby boomers entering the age of 55 in 2013, is a natural drop in consumption spending, as these boomers save for their retirements. Government controlled central bank ‘stimulus programmes’, in an attempt to keep the golden years of baby boomer consumption going, have injected trillions of new debt into the economy. But you can’t create demand by printing money any more than you can encourage someone who’s eaten their fill to eat more from an enormous buffet, no matter how delicious and exotic the food on offer.
This is what central banks and their misguided leaders are currently finding out, at great cost to their respective economies; you can’t fake demand. You can print more money and give it to banks to play with, and they will just blow up speculative bubbles in property stocks, and derivatives. But the real economy, where the people who can’t counterfeit money live and work, only receives the ‘benefit’ of inflation of the assets the money flowed into, which amounts to an increased cost of living. None of which helps them spend more money, or pay more taxes.
Are They Mad?
Central Bankers really should all be taken away and assessed for soundness of mind. They patently all believe that they have the power to control, manipulate and steady fluctuating markets. But they can’t, and any attempt to tinker just makes things worse. The economy would have fared far better if it was just left alone by the likes of Greenspan, Bernanke, Yellen, Carney. One of their most destructive policies is zero interest rates or ZIRP.
There is a current policy popular with central bankers called ZIRP or Zero Interest Rare Policy. ZIRP may look to be a helpful load off all debtors shoulders, and it does indeed do that, but those with the biggest debts are the financial institutions and the government.
ZIRP favours those with access to credit over those without, making the rich richer, and the poor poorer. Termed by some as an Interest Rate Apartheid; rich people get access to credit at very low interest rates, the very rich (and bankers who conjure the debt into existence) get to play with money at near zero percent interest. Everyone else gets charged more, and thrifty savers are punished for their prudence. Sound fair?
The Bank of England and the Fed have a money printing machine, but it is still debt money, and so needs to be repaid (as Greece is finding out). So the cheap money has to go to work. What do banks do with it? Whatever brings them the best return, which usually means some form of speculation. Derivatives and asset bubbles are two of their favourite ’investments’.
ZIRP also creates zombie institutions and zombie households. Like a modern day Greece, saddled with a debt they cannot repay, the solution is to default on the debt and start again! Wipe the slate clean. Instead the printing presses run, and anyone with savings has the value of their savings deposits shrinking along with the debts of the individuals who overborrowed. Does it sound fair? This point raises a question about the nature of debt money, and how it works most effectively (saving and hoarding should be discouraged to keep money velocity as high as possible)
We need governments in the Western world to acknowledge that with the baby boomers retiring, we must let their legacy statistic “GDP” do likewise, and find a more fitting means of assessing how well we are doing. There will only be a fall off in national income as the boomers retire. A better way to guide economic policy might be to do things which will actually encourage a better quality of life for all.
If you’ll indulge me, I have a few suggestions.
1. The Will of the People
What we’re talking about here is true democracy, not the crony capitalism and crony political system we have at present. Not a political party getting a tiny fraction of the vote and then doing what they see fit, often against the wishes of the voting public. Politicians need to wind their necks in, and start serving us the people, behaving as the public servants that they are supposed to be. A cryptographic voting system based on Blockchain technology would allow individuals to vote for the specific issues they wanted to see enacted, and public servants (our emasculated friends the politicians) would carry out the majority vote within their constituencies. There would be no more focussing on GDP figures to justify the government’s economic decisions. The people would be making the decisions and the politicians would merely be carrying them out.
We would still vote for individuals, locally elected representatives to carry out our wishes, and these poeple would be selected based upon their moral fibre, their character and their sense of fairness and justice. Not upon their policies, or who they know. They would be required, and would be willing to carry out the will of the people.
A lot of members of the public aren’t ready to take on this level of responsibility for their lives, having been content to outsource their decision making to politicians for many years, but once they got the hang of it, and started engaging in the democracy of their local areas, they wouldn’t look back.
2. The Death of Party Politics
The introduction of an alternative voting system (which addresses specific issues rather than political parties) will remove the politicians’ mandate to appease their funders, and put a stop to their Punch and Judy show. Current politics, and the economics which comes out of it, is all geared towards big business, banking and finance who lobby the government (pay them in exchange for legislation which benefits their cause, i.e. makes them richer) and in return they have laws passed and reform takes place in their favour. For their payment, they are given titles in the Queen’s Birthday honours, regardless of their level of integrity of public service.
Under our new voting system, the people would vote directly for their chosen policies, social, economic etc. There would be no election campaign to pay for, fewer brown paper envelopes in exchange for favourable policy, or CBE’s. The politicians wouldn’t be able to enact any law, or hand out honours to dodgy “funders”, without first seeking the mandate of the people.
For example, if people wanted to prevent commercial banks from creating the UK money supply (something which seems perfectly reasonable), it could be voted on cryptographically and enacted into law, and never mind what happens to ‘The City’, or ‘GDP figures’ or ‘London’s reputation as the global hub of money laundering’. Things would have to change, whether the banks liked it or not.
If society felt the need to prosecute certain individuals who broke the criminal law? Not fines for bank fraud, jail sentences. We could vote for that. How about banning the use of derivatives and other questionable financial ’products’ of mass destruction? You got it. Want to have a system which promotes home ownership for young families over rent-seeking buy to let landlords’ return on investment? You got it. Want an economic system geared towards having a happier (and therefore healthier) population? We can do that too. Let’s use happiness as the measure of success instead of our old destructive yardstick, GDP. When governments use GDP as their measure of success, business gets priority over the man on the street, and there’s something very wrong about that.
3. Promote ‘New’ Economy.
People, mostly those who work in politics and economics, think of GDP as productive flow of cash, but little differentiation is given to activities which truly expand the economy, versus those which are rent-seeking. As rent seeking has become largely what the UK economy is about, it’s not surprising. Creating a new business or product increases economy, lending money into existing assets, or zero-sum game bets, doesn’t. Building a new house does add to the economy, and leaves behind more than was there to begin with, increasing the economic value of the world, employing individuals etc.
Financial (rent-seeking) activities and entrepreneurial activites are viewed as the same by government when calculating GDP, when they shouldn’t be. New ventures should be counted, and rent seeking activity of the banking sector, if not penalised, should as least be seen as it is, a tax on the real economy, and subtracted from the real GDP figures
If banks were only allows to lend out 1/3 of their newly created money into residential mortgages, and if exchange rate derivatives and their (wholly distasteful) ilk were banned, banks would be forced to put their newly created money into productive new ventures, ideas which might actually make the world a better place. Your house would also be much cheaper to buy.
The UK could create new demand by actually producing products that people want to buy. Take a look at Apple. It makes over half of its profits selling iPhones. Phones. That’s a lot of phones, and a lot of money, but it works because those phones are desirable and sell all over the world. Even the guy sweeping the streets has an iPhone. What do we do in the UK? We let banks create money, lend it to the likes of you and me to buy property at ever higher prices, and then extract interest payments from us, and gamble with derivatives with essentially free money so they can pay themselves their million pound bonuses. When their gambling goes awry, they come back to their rich parents (Mark Carney and Janet Yellen) who slap them on the wrist and pay off their debts. Nice setup.