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Monday, December 9, 2019
Home Letters Brian Plummer criticizes the use of Gross Domestic Product (GDP) indicator

Brian Plummer criticizes the use of Gross Domestic Product (GDP) indicator

Dear Editor,

Throughout the world, the Gross Domestic Product (GDP) of a country is used as the most important indicator of a country’s economic progress. One shortcoming of GDP is that it is based on activities that are detrimental to the long-term economy, like over-fishing, deforestation, strip mining, and murders.

GDP inventor Simon Kuznets was adamant that his measure had nothing to do with wellbeing.

GDP was a measure created in the manufacturing age as a means of fighting the Depression and is not capable of giving sensible signals about complex modern economy. Former president Nicolas Sarkozy commissioned a panel led by Joseph Stigiltz, a Nobel economist, to look at the effectiveness of GDP.

Sarkozy concluded that it created a gulf of incomprehension between experts sure of their knowledge, and citizens “whose experiences of life is completely out of sync with the story told by the data”.

GDP is good at quantity and bad at assessing quality. If my food at my restaurant improves, it does not affect the GDP. If my car runs good, that’s bad for the GDP. It’s better for the GDP when I have to pay a mechanic. It increases the GDP if I crash and have to buy a new car, or if my family has to spend to bury me if I die.

GDP has nothing to say about distribution. Averages are misleading. A rise in GDP can be caused by 1% of the population’s income increasing astronomically, while the vast majority of the population’s wages remain constant. This is a global trend, and Belize is not exempt.

GDP measures only cash transactions. Voluntary work or house work, which is invaluable to a society, is not measured, but prostitution and transactions that are a product of drug dealing are measured.

GDP is not a measure of wealth; it is a measure of income. It does not indicate whether a country can do the same next year. It lacks a balance sheet. Companies have balance sheets as well as income statements, but a nation doesn’t.

Does that make sense?

GDP tells us something about a country’s economy, but other measures are needed — measures of wealth, equality, leisure, and it needs to be adjusted for negatives like pollution and homicides.

Belize needs a more comprehensive measure of development and economic activities. Bureaucrats and politicians are guided by the public acceptance of data, so a better measure is needed.

We have been using GDP as the major guiding metric for 38 years, and still, about half of Belizeans are in poverty. Let’s improve and increase other measures of success, such as increase in the labour participation rate and real increase in median income.

Yours truly,
Brian Ellis Plummer

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