GDP Is A Poor Measure Of Economic Growth - Politics - Nairaland
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| GDP Is A Poor Measure Of Economic Growth by nanomole: 1:56am On Nov 18, 2012 |
I have always wondered how and why GDP is okay as a measure of growth. It is even worse to use it in Nigeria where some economically moribund states claim to have more GDP than others who are actually performing economic activities. The case of Nigeria confirms that GDP is merely calculated based on the amount of money received from the FG N in which case large (yet internally unproductive) states receive more that smaller, very productive states. For example: Oyo state (large, receives more money from the fed, economically zero) vs Anambra (small, receives less from the fed, full of economic activity) The true measure of economic growth is in the article below which exposes the farce that use of GDP for that purpose is. The facts on the ground tell a better story than some theoretically, often artificially inflated GDP values. Nigeria has a greater GDP on paper than Botswana, but Botswanans have a far superior living standards than Nigerians. What do you take: paper greatness or a real, palpable one? 1 Like |
| Re: GDP Is A Poor Measure Of Economic Growth by nanomole: 1:56am On Nov 18, 2012 |
Emphasis on Growth Is Called Misguided Sign In to E-Mail Reprints Share By PETER S. GOODMAN Published: September 22, 2009 Among the possible casualties of the Great Recession are the gauges that economists have traditionally relied upon to assess societal well-being. So many jobs have disappeared so quickly and so much life savings has been surrendered that some argue the economic indicators themselves have been exposed as inadequate. In a provocative new study, a pair of Nobel prize-winning economists, Joseph E. Stiglitz and Amartya Sen, urge the adoption of new assessment tools that incorporate a broader concern for human welfare than just economic growth. By their reckoning, much of the contemporary economic disaster owes to the misbegotten assumption that policy makers simply had to focus on nurturing growth, trusting that this would maximize prosperity for all. “What you measure affects what you do,” Mr. Stiglitz said Tuesday as he discussed the study before a gathering of journalists in New York. “If you don’t measure the right thing, you don’t do the right thing.” According to the report, much of the world has long been ruled by an unhealthy fixation on swelling the gross domestic product, or the quantity of goods and services the economy produces. With a singular obsession on making G.D.P. bigger, many societies — not least, the United States — failed to factor in the social costs of joblessness and the public health impacts of environmental degradation. They allowed banks to borrow and bet unfathomable amounts of money, juicing the present by mortgaging the future, thus laying the ground for the worst financial crisis since the 1930s. The report is more critique than prescription. It elucidates in general terms why leaning exclusively on growth as an economic philosophy may yield unhappiness, and it suggests that the incomes of typical people should be weighed more heavily than the gross production of whole societies. But it sidesteps the thorny details of slapping a cost on a ton of pollution or a waylaid career, leaving a great mass of policy choices for others to resolve. Some Americans may reflexively reject the report and its recommendations, given its provenance: it was ordered up last year by President Nicolas Sarkozy of France, whose dissatisfaction with the available tools of economic assessment prompted him to create the Commission on the Measurement of Economic Performance and Social Progress. Tuesday’s briefing was held in an ornate room at the French consulate. The official French statistics agency is already working to adopt the report’s recommendations. Mr. Sarkozy plans to bring it with him to the G-20 summit meeting in Pittsburgh this week, where the leaders of major countries will discuss a range of policy issues. But whatever one’s views on the merits of European economy policy, and wherever one sits on the ideological spectrum, these appear fitting days to re-examine how economists measure vital signs — particularly in the United States. By most assessments, the American economy is now growing again, perhaps even vigorously. Many experts expect a 3 percent annualized rate of expansion from July through September. As a technical matter, the recession appears to be over. Yet the unemployment rate sits at 9.7 percent and will probably climb higher and remain elevated for many months. In millions of households still grappling with joblessness and the tyranny of bills, signs of health served up by the traditional economic indicators seem disconnected from daily life. This was precisely the sort of contradiction Mr. Sarkozy sought to unravel when he created the commission, tasking it with pursuing alternate ways of measuring economic health. To head the panel, he picked Mr. Stiglitz, a former World Bank chief economist whose best-selling books amount to an indictment of the Washington-led model of global economic integration. Mr. Sarkozy also selected Mr. Sen, a Harvard economist and an authority on poverty. The resulting report amounts to a treatise on the inadequacy of G.D.P. growth as an indication of overall economic health. It cites the example of increased driving, which weighs in as a positive within the framework of economic growth, as it requires greater production of gasoline and cars, yet fails to account for the hours of leisure and work time squandered in traffic jams, and the environmental costs of pollutants unleashed on the atmosphere. During the real estate bubble that preceded the financial crisis, the focus on economic growth helped encourage overbuilding and investment in real estate. Mr. Stiglitz argues that the single-minded focus on growth gave American policy makers a false sense of assurance that their policies were virtuous, as they allowed financial institutions to direct virtually unlimited sums of money into real estate and as consumer debt levels built with unrestrained momentum. Credit enabled spending, and spending translated into faster growth — an outcome that was intrinsically good, and never mind how long it might last or the convulsions that would accompany the end of easy money. A growth-oriented policy encouraged homeowners to borrow as if money need never be repaid, and industry to produce products as if the real cost of pollution were zero, Mr. Stiglitz added. “We looked to G.D.P. as a measure of how well we were doing, and that doesn’t tell us whether it’s sustainable,” he said at the briefing. “Your measure of output is grossly distorted by the failure of our accounting system. What began as a measure of market performance has increasingly become a measure of social performance, and that’s wrong.” Instead of centering assessments on the goods and services an economy produces, policy makers would do better to focus on the material well-being of typical people by measuring income and consumption, along with the availability of health care and education, the report concludes. Many of these prescriptions will no doubt resonate with policy makers and ordinary people. Indeed, the difficulty comes in turning these general principles into new means of measurement. The report notes that its authors concur on the big picture, but diverge on the methodologies to be employed when it comes to factoring in the value of a better education and cleaner skies. The old mode of measurement has taken a beating, and yet the new one, it seems, is still a work in progress. |
| Re: GDP Is A Poor Measure Of Economic Growth by akintun: 3:21am On Nov 18, 2012 |
If d fact dat Oyo state has a higher GDP Dan Enugu state is giving u sleepless night, why don't u give us a better EI. D two states, just like d whole Nigeria are under developed, so I don't know ur problem. If Enugu state was dat developed I'm sure Slot computers with 25 branches nationwide would have at least decided to locate a branch in Enugu state. 1 Like |
| Re: GDP Is A Poor Measure Of Economic Growth by obitwo: 7:55am On Nov 18, 2012 |
GDP is most certainly a strong indicator of economic growth. I'm shocked someone will naively bring this up Background The gross domestic product (GDP) is the godfather of the indicator world. As an aggregate measure of total economic production for a country, GDP represents the market value of all goods and services produced by the economy during the period measured, including personal consumption, government purchases, private inventories, paid-in construction costs and the foreign trade balance (exports are added, imports are subtracted). Presented only quarterly, GDP is most often presented on an annualized percent basis. Most of the individual data sets will also be given in real terms, meaning that the data is adjusted for price changes, and is therefore net of inflation. The GDP is an extremely comprehensive and detailed report. In fact, reading the GDP report brings us back to many of the indicators covered in earlier tutorial topics, as GDP incorporates many of them: retail sales, personal consumption and wholesale inventories are all used to help calculate the gross domestic product. Various chain-weighted indexes discussed in earlier topics are used to create Real GDP Quantity Indexes with a current base year of 2000. (For further reading, see The Importance Of Inflation And GDP.) Must Have Penny Alerts What it Means for Investors Real GDP is the one indicator that says the most about the health of the economy and the advance release will almost always move markets. It is by far the most followed, discussed and digested indicator out there - useful for economists, analysts, investors and policy makers. The general consensus is that 2.5-3.5% per year growth in real GDP is the range of best overall benefit; enough to provide for corporate profit and jobs growth yet moderate enough to not incite undue inflationary concerns. If the economy is just coming out of recession, it is OK for the GDP figure to jump into the 6-8% range briefly, but investors will look for the long-term rate to stay near the 3% level. The general definition of an economic recession is two consecutive quarters of negative GDP growth. While the value of both exports and imports are included in the GDP report, imports are subtracted from total GDP, meaning that all consumer purchases of imported items are not counted as contributions toward GDP. Because the U.S. runs a current account deficit, importing far more than is exported, reported GDP figures have a slight drag on them. A related measure provided in the report, gross national product (GNP), goes one step further by only counting the value of goods and services produced by labor and property within the United States. (To learn more, read Current Account Deficits.) The "corporate profits" and "inventory" data in the GDP report are a great resource for equity investors, as both categories show total growth during the period; corporate profits data also displays pre-tax profits, operating cash flows and breakdowns for all major sectors of the economy. The biggest downside of this data is its lack of timeliness; investors only get one update per quarter and revisions can be large enough to significantly change the percentage change in GDP. The Bureau of Economic Analysis (BEA) even supplies its own analysis of the quarterly data, presenting several useful documents that condense the massive release down to a manageable and readable size. They also provide an annual analysis of data that segments results down to the industry level - a very useful tool for both equity and fixed-income investors who are interested in particular industries related to their holdings. Must Have Penny Alerts Strengths: GDP is considered the broadest indicator of economic output and growth. Real GDP takes inflation into account, allowing for comparisons against other historical time periods. The Bureau of Economic Analysis issues its own analysis document with each GDP release, which is a great investor tool for analyzing figures and trends, and reading highlights of the very lengthy full release Weaknesses: Data is not very timely - it is only released quarterly. Revisions can change historical figures measurably (the difference between 3% and 3.5% GDP growth is a big one in terms of monetary policy) The Closing Line While quarter-to-quarter figures can show some volatility, long-term trends in GDP growth remain the single most conclusive piece of information on the economy as a whole. This indicator is a must-know for investors in all asset classes. Read more: http://www.investopedia.com/university/releases/gdp.asp#axzz2CYRo3VBE |
| Re: GDP Is A Poor Measure Of Economic Growth by obitwo: 8:14am On Nov 18, 2012 |
nanomole: I have always wondered how and why GDP is okay as a measure of growth. It is even worse to use it in Nigeria where some economically moribund states claim to have more GDP than others who are actually performing economic activities. The case of Nigeria confirms that GDP is merely calculated based on the amount of money received from the FG N in which case large (yet internally unproductive) states receive more that smaller, very productive states. How can you sit in a cave in Umuahia and say Oyo state is economically zero? Do you know how many factories are situated in Oyo State to start with, taking advantage of the low tax and cost of production as well as the state's proximity to Lagos? It's the simple reason why Oyo State's GDP is almost four times the GDP of Enugu |
| Re: GDP Is A Poor Measure Of Economic Growth by Nobody: 10:33am On Nov 18, 2012 |
I think the OP is trying to say that GDP is a poor measure of overall economic well-being of the average citizen, and I agree with him. GDP figures don't tell us how well an INDIVIDUAL is doing. That's why the average Nigerian can hardly feed himself and his family or get a good job, while the economy is "growing" at over six percent. |
| Re: GDP Is A Poor Measure Of Economic Growth by Ilaje44(m): 11:15am On Nov 18, 2012 |
HNosegbe: I think the OP is trying to say that GDP is a poor measure of overall economic well-being of the average citizen, and I agree with him. GDP figures don't tell us how well an INDIVIDUAL is doing. That's why the average Nigerian can hardly feed himself and his family or get a good job, while the economy is "growing" at over six percent. And that is the reason you also have GDP per Capital to determine the wealth of a country per head. This can also be complimented with the gdp per capital offset with the PPP (purchasing power parity) to determine the REAL value of the per Capital income of a country. A still better indicator of the wellbeing of a country's population is the Gini's coefficient of the per Capital gdp. It determines the SPREAD of Wealth within the population. So you see, the GDP is a recognized measure of economic development of a country. Aside the GDP, there are also other refined economic indicators. It is therefore not farfetched using the GDP and the GDP growth rate to determine the level of economic activities in a country. The problem with Nigeria is however the very big shadow ecomony that is not considered in the Statistics i.e. the rampart unregistered petty trading and businesses. |
| Re: GDP Is A Poor Measure Of Economic Growth by akintun: 11:24am On Nov 18, 2012 |
A GDP growth of 6% in Nigeria is equivalent to a depression. D state of our economy needs a minimum of 15% growth in GDP. |
| Re: GDP Is A Poor Measure Of Economic Growth by Nobody: 12:23pm On Nov 18, 2012 |
Ilaje44: The last point on the informal economy is a valid one. Many Nigerian small-scale, street corner businesses are not captured in our GDP computations, because we have not been able to accurately measure them and integrate them into the mainstream economy. That is why I respect economists like Hernando de Soto who have done a lot of work with regard to the value of the informal economy and how countries can leverage on the vast potential contained therein. Addressing the point you made about GDP, it will interest you to note that even GDP per capita still doesn't adequately capture the economic well-being of the common man. Let's take Equatorial Guinea as an instance. That country has the highest GDP per capita figure in Africa and the 20th highest in the world ($36,515), which on face value is actually comparable to figures in Europe. But travel to that country and see how the average citizen lives. Almost all the wealth (which mainly comes from oil, anyway) has been cornered by the ruling class led by that thieving lootocrat called Teodoro Obiang Nguema. For me a better model of capturing the average wealth of the common man will be one that adjusts the GDP per capita by the level of income inequality (the Gini coefficient). So in Equatorial Guinea's case we would multiply the GDP per capita by a factor of 1-Gini (since a higher gini means higher inequality). Given that the country's Gini is about 65%, our adjusted GDP per capita will be $12,780, a much lower figure which will more accurately approximate living conditions. 1 Like 1 Share |
| Re: GDP Is A Poor Measure Of Economic Growth by Ilaje44(m): 11:14pm On Nov 18, 2012 |
HNosegbe: We are saying the same thing! Maybe I was not able to put it better in English. I would have been able to explain it better in German, but how many people understand German on this forum? The Gini coefficient adjusted GDP per Capital as I said is a very good measure of the Spread of wealth in the population. However, the title of this post says "...Measure of Economic Growth". The Gini coefficent handles only the aspect of Inequality but does not say anything about growth. A very important determinant of Growth - not Wealth - remains the change in GDP. |
| Re: GDP Is A Poor Measure Of Economic Growth by urahara(m): 1:26pm On Mar 17, 2019 |
How convenient for the only sub Saharan African country with a high per capita to he ruled by thugs ? This is a country that could have been like Saudi . It seems black Africa has bad luck . |
| Re: GDP Is A Poor Measure Of Economic Growth by grandstar(m): 3:51pm On Mar 17, 2019 |
I've always doubted the non oil export figures normally brandished by official statistics of about $5b Travel all over West Africa and you discover made in Nigeria products. The country's products can be found as far as Zimbabwe apparently. For instance, the illegal re-export of subsidised petrol is never includes in statistics. The export of Nigerian foodstuffs is mostly carried out informally. Weekly trailer loads of made in Nigeria are sent all over West Africa from the markets in Lagos Island. I suspect non-oil exports maybe as high as $15billiom. Still small for Nigeria's size bit far higher than the brandished statistics 2 Likes 1 Share |
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