Interesting but I am not really sure what it means, it purports to mean most countries are better off. Perhaps they are in some ways but I have doubts.
The author of the article at the head of this thread (Gittins) has told us on several occasions that GDP is a very crude measure of economic performance and that our leaders worship it with unjustified fervour.
In looking at broad aggregate measures of whole economies over time we lose important detail of where the changes have taken place. This matters as you can argue that growth in (say) health and personal care is more value to society than the same dollar growth in (say) mining.
Also the benefits have not been evenly divided. There are those who subscribe to the ‘rising tide lifts all boats’ concept, and they are partially right. But they carefully don’t mention that the boats at the top end have risen more than those at the bottom.
I absolutely agree. Gross Domestic Product (GDP) was developed by Simon Kuznets, and used as a ‘quick and dirty’ wartime tool to ensure maximum push of wartime resources. The expectation was that a ‘better’ measure would be created post-war. That did not happen, because people grew accustomed to GDP.
There are all sorts of what many of us would call ‘negative influences’ that are counted as part of a growing GDP. These include:
Paying someone to mow the lawn because you no longer have time to mow it yourself
Outsourcing child care
Car accidents, and their attendant costs
In other words, GDP does not decide whether money is spent on positive or negative things - just that it is spent.
GDP tends to increase regardless of what our politicians do, and so makes for an easy ‘win’. “The economy has grown!” (without that much-needed detail of whether the growth was good or bad).
It would be easy to compare GNH to political promises. Those promises are being made today, but left unmeasured (allowing politicians to claim achievements that cannot be quantified). An established GNH would require much more work from our politicians to deliver what they promise.
The rising tide does not always lift all boats. In the US, there is a boom in the number of working poor. I heard yesterday that Walmart employees qualify for food stamps due to their low wages! The largest company by revenue on Earth, and its employees cannot pay for life’s basics! This is a sad indictment of the Gordon Gecko-isation of money-making enterprises and of the regular requirement for taxpayers to pick up the pieces while the billionaires waltz away to their next earnings meeting.
We need to find something other than greed for sociopaths to focus their lives upon.
My favourite perspective on that comes from Pope Leo XIII’s Rerum Novarum:
“Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice.”
That was in the 19th Century.
The principle was later embodied in Australia’s Harvester Decision. Although the law was later struck down, the principle stood for the better part of a century in Australian wage-fixing.
Greed may not be good (to quote the infamous Gecko speech), but we’re never going to be free of it. Capitalism harnesses greed and self-interest. That makes for a powerful beast, but vicious.
The value of Capitalism shouldn’t be denied. Nor should its character. The public good demands firm hands on the reins. For the limp wrists we have there at present, we can thank Hayek and those who blindly (and selfishly) follow his teachings.
Almost no government turned to Hayek when the GFC hit - with the exception, perhaps, of Great Britain. ‘Austerity’ there has wreaked havoc, while the countries whose governments suddenly remembered the genius of Keynes and ‘primed the pump’ were saved a large amount of long-term damage.
The US, strangely, chose a ‘third way’ - pouring money into the corporate sector while ignoring its growing poverty levels. Already it and others are forgetting the lessons of the GFC - while the current Australian government denies that there ever was any crisis, and criticises its predecessors for the actions it took to save us from most of the GFC’s effects.
I don’t think we’ll ever have this problem with car accidents, but the other two will soon be exhibits at something akin to a “lost trades fair” … I guess even car accidents we’ll eventually outsource to “Johnny Cab”
I know replying to yourself is a sign of madness but… As an addendum to my view that the east coast gas market only pretends to be an open one, have a look at this article, in particular the refs to APPEA and Santos/AGL. There is much more of the same here. I could have given specific examples myself of the very close cooperation between State and Gas Industry in the past but thought it was drifting too far afield.
We are accustomed to the spruiking of politicians of all flavours that their policies will lead to economic growth. The Reserve Bank specifies an ideal range of annual growth that they set their policies to reach. We are told that free market economics requires, demands, constant economic growth or there will be reduced employment and wealth, and possibly the dreaded recession, or even (shudder) the D word. In this country the requirement for growth is often produced as justification for a constant supply of population growth via immigration. It is taken as an article of faith that not only does our economy require continuous growth to function but it is in itself a good thing. Constant percentage growth per annum is, by definition, exponential growth not linear growth.
As well as increasing the number of workers and consumers growth can come about by increased production and consumption per head. The graph above shows this very clearly, over 70 years most countries have achieved an increase in per capita GDP. For current economists it is mission accomplished.
There is a problem with this never-ending growth that doesn’t get much coverage, economic growth requires growth in requirement for energy and materials. More people and more consumption of cars, appliances, houses, food, etc. which requires more land, water, ore, energy, fertilizer and all the other resources required to keep our society ticking. But the inescapable fact is that all those resources are finite.
In economic heaven economic growth would not require resource growth, the two would be decoupled. The problem is this decoupling has rarely been observed, not for very long and nobody knows how to produce it at will. Yet the free market economy demands that we never get off the growth merry-go-round.
So where are the think-tank papers solving this conundrum, what about the progressive parties that say they are looking for long term solutions? Where is the future planning for the provision of fundamentals like land, water and energy? We cannot even provide reasonably priced housing and efficient transport for the current population yet we must import more people and give baby bonuses to try to keep up the birth rate, to serve the growth machine.
Knowing people who lived through the great depression I wouldn’t wish that on anybody. It is common to believe that we should do anything within our power to prevent that again in future. But what if the only way we know how to do that will lead to a future that is as bad or worse?
To quote Boulding: “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”
How does inflation respond to market forces? Is it a consequence of growth or is it a symptom of something else?
Many of our investment strategies rely on underlying capital growth. The intrinsic value of many assets does not change in real terms, but due to inflation over time they are worth more. This appears to work for real estate as well as infrastructure such as toll roads, big city airports etc.
Given the complexities introduced by wage rate changes, demand, surplus vs rarity, money supply etc is the market ever genuinely able to determine any outcomes?
Is it selective manipulation of these and other influencing factors that drive outcomes? Market forces may be less fact, more a fiction in creating future outcomes.
We could be looking in the wrong place!
p.s. It’s inflation that makes those with ability to create surplus, savings faster than inflation, able to acquire wealth through capital gain and the derived income from appreciating assets. For the rest savings are progressively devalued making asset acquisition a distant dream.
Of course, you can always lift more people out of poverty to become over-consumers, but that is not the policy governments (and corporations) have been following over the last 20 years. Every person laid off is another wealth transfer to the owners of capital (share holders etc.). That wealth will not be spent - one person or a family cannot spend the amounts of money that the top 1% own - and so will not be able to keep the economy stimulated.
The Dark Ages are often viewed as a Europe-wide period of economic contraction and/or stagnation. There is no reason to think that they cannot occur again.
Of course, one of the problems with economic theory involves its basic assumptions. For basic market theory to work, economic models require three things:
Perfect knowledge on the part of all participants
I will leave it as an exercise for the reader to decide whether one or more of these is not existent in our current universe.
Inflation is generally considered to be a response to growth in demand being greater than growth in supply. As long as an economy is growing, there should be inflation. That said, in the 1970s the term stagflation was coined, because economies were not growing but prices were still going up. The major reason for that was the oil shock - when countries in the Middle East realised how much this sticky black crud was worth, and formed a cartel! So demand for oil was still around, but the prices had just gone through the roof and this reduced demand at the set price.
There are a few factors you want to consider when investing.
The Consumer Price Index (CPI) is the major measure of inflation. It measures the movement in price of a ‘standard basket of products’. Of course, it is more complex (and flawed) than that, and anyone whose superannuation is indexed to the CPI finds their purchasing power decreases over their retirement.
The Wage Price Index (WPI) shows how wages are changing. If wages are growing faster than inflation, that is Good. If they are not, then the average person’s ability to buy stuff falls - which is Bad.
Then we have other variations, such as capital inflation vs. wage inflation. One example of this is housing in major cities - where prices have gone through the roof in recent decades. Wages have not kept pace, and so the average person can afford less ‘house’ than the average person 20 years ago.
Finally, for investors, the key number you want is your return as a percentage of your investment. If that number is greater than the CPI and WPI, then you’re ahead. To be clear, inflation is a red herring - except that you need to beat it simply to tread water.
Example time. You have invested $100 in shares. Your gross return is $2, but the investment manager charges $1/year so you only get $1 - a 1% return on investment (ROI). If annual inflation is less than 1%, and the WPI is less than 1%, your investment has made a ‘real’ return. If either of those numbers is greater than 1%, you’re losing out.
It is somewhat more complicated than this, of course. We have taxes, tax breaks, and all sorts of other distortions.
Finally and most importantly: I am not an investment adviser and I am not your investment adviser. Seek professional help when investing money, and remember that the Sydney Harbour Bridge is still not for sale!
Accepted, although there is an assumption there that an Investment Advisor can help. My experience suggests that they are best equiped to help themselves.
Observation is a powerful tool, and at least as reliable as any economic theory or rational. If economic theory was reliable there would be no calls for new theories and no debating the validity of the old ones.
So inflation can be our enemy, but without it many of our investment strategies would fail us? As you indicated it is all very complex and over time there are different explanations of individual inflationary trends.
Arguably nations acting as a cartel or any group of organisations is more a political if not also criminal action. The response is a market condition. Market forces have been disrupted by a greater force, Political Determination?
It still appears to me we are looking in the wrong place for cause. We blame the market for the effects, where the market simply represents opportunity.
FWIW during the 1980’s oil crunch I lived and worked in the ‘oil patch’ in Big Oil City (aka Houston TX USA). The Gulf was like a car park full of tankers waiting to offload their crude, but it was not being offloaded. A cynical person (none here for sure) might think it was a false shortage contrived by big oil to push up prices and garner political backing through creating an artificial shortage. Nah, it was just coincidental I am sure.
Funny, that. No politicians need apply to ‘assist’, either.
Of course transferring an asset to the market almost never works out cheaper. “The market” is profit driven so any increase in efficiency will then be outweighed by highly remunerated CEOs and management. Then there are shareholders.
Don’t even get me started about ‘savings’. We all pay more. That is always the same. The fact he bastards tell us otherwise is only to fool those amongst us who can easily be fooled time and time again.
So what’s the definition of an imbecile? ‘Fooled once pity me. Fooled twice pitiful me’?
I have long been of the opinion that the field of economics is more art than science. It dresses itself up with a lot of numbers, but its predictive value is at best tenuous. Maybe it could be grouped with some of the softer sciences, like psychology and sociology, rather than left as a ‘dignified’ field of study for the rich and powerful to use to explain their wealth and power.
As for the Nobel Memorial Prize for Economics - what were they thinking?
Nations make and break laws at a whim. Just look at the most murderous nation in modern history - that has never faced the International Criminal Court (and refuses to recognise it). OPEC has power, and so can act as a cartel without meaningful challenge. Its only problems come from within - when member nations want to sell more than their allotment. OPEC and its members regularly announce their ‘target price’ for oil.
Don’t you mean:
(The non-presidential version is generally stated as “Fool me once, shame on you; fool me twice, shame on me”.)
“The Prize in Economics is not one of the Nobel Prizes, which were endowed by Alfred Nobel in his will.”
“Swedish human rights lawyer Peter Nobel … criticizes the awarding institution of misusing his family’s name, and states that no member of the Nobel family has ever had the intention of establishing a prize in economics.”
That entry goes on to outline some not-very-surprising links between extremist economists and authoritarian regimes.
I was aware of that. It is why I referred to ‘they’, and the fact that it is a ‘memorial prize’.
As for the family’s criticisms, they are entirely correct. Nobel established his prizes for those who confer the “greatest benefit on mankind”, feeling horrified by the unforeseen devastation cause by many of his inventions (including dynamite). While the field of economics has achieved some good, application of its theories has also caused disaster and the death of millions.
The prize (and associated assumed Nobel ‘imprimatur’) has been awarded to Friedrich Hayek and Milton Friedman - among others. Both of these were theorists whose theories in application have caused immeasurable misery. Friedman, for instance, praises the ‘free market’ of 19th century Britain; the market of Dickens’ novels, and enormous levels of poverty and inequality. (Other writers have noted that the creation of ‘free markets’ always requires strong government interference, such is the public distaste for the obvious problems such policies cause.)
Interestingly, Nobel lived and died in the United Kingdoms of Sweden and Norway, and so the prize panels are split between the two now-separate countries.
Deservedly so. Labor has abandoned its roots, and joined the Liberal/National parties in following the path of destructive ‘free’ ‘trade’ agreements which are replacing government power with corporate power while having little if anything to do with free trade.
It has been written with more than a little truth that the differences between the coalition and ALP when in government are the amount of zeal behind how they do similar things and the degree to which they do them.
In opposition it is also true they take fairly similar positions in attacking government.
It is a much of muchness no matter who is where and Tweedledee and Tweedledum have earned their names for a reason. But at the end of the day the coalition appears to show overt disdain for open, democratic, and honest process, and that differentiates it from the ALP as well as from good government. Re this thread the coalition appears to have gone far out of its way to protect business, business interests, and favoured institutions as its job one.
The first to wake up will likely become our honest and open government and get the voters on side because of substance and ‘fair go’ delivery rather than the hollow spin and catering to special interests as we have become numbed to.
Like bullying the board of the ABC into trying to sack a journalist over an opinion piece that they didn’t like? Well off-topic, I know, but characteristic of the mindsets from which our problems spring.