I have published this video this morning. In it, I argue that GDP – which measures our national income - does, as the late Robert Kennedy said, value everything except the things that really matter in life. So why is Rachel Reeves trying to maximize it when there are so many better things for her to do?
The audio version of this video is here:
The transcript is:
Rachel Reeves is determined to deliver growth for the UK. It's an incredibly conventional goal for a politician, most especially from Labour. I can remember Gordon Brown bragging about his achievement in delivering ten years of successive growth while he was Chancellor, as if this was the most important thing that he had ever achieved.
But let's just ask what growth we're talking about? Both Gordon Brown and Rachel Reeves were referring to the same thing, and that is the Gross Domestic Product of the UK, which is deemed to be our national income.
Now, the measurement of GDP, as it's called, has many problems inherent in it. For example, some of the figures are made up. About 10 per cent of our GDP, or national income, is made up of the figure that owner-occupiers of houses are deemed to pay themselves as a consequence of living in their own properties. It's a totally fictional number because, of course, owner-occupiers do not pay themselves rent for the right to live in their own properties. It's nonsense to claim that they do. But it is said that unless we include such a fictional number in our GDP, then we can't compare our GDP with that of Germany, where very many more people do rent, and as a consequence, their GDP would otherwise appear to be higher. So, this is all about a silly bragging game.
But nonetheless, that implies that well over £250 billion - nearly £300 billion pounds in fact now - of our GDP, well it's totally made up, fictional, nonsense, rubbish. You put in whatever word you like.
But even if we leave that problem aside, there's another very big issue with GDP. Because what it measures is our income when measured in pounds. The trouble is that the vast majority of things in life that actually create our well-being aren't measured in pounds. The late Robert Kennedy, the brother of President John F. Kennedy, very cleverly summarised this in 1968, only months before he was assassinated during the course of his own campaign to become President of the USA.
He discussed this issue. He talked about the difficulties that focusing on growth created in a speech that he made in March 1968. And having outlined the absurdity of some of the figures inside GDP, he then pointed out - and I'm going to quote from some of what he said - that
gross national product does not allow for the health of our children, the quality of their education, or the joy of their play.
It does not include the beauty of poetry, or the strength of our marriages, the intelligence of our public debate, or the integrity of our public officials. It measures neither our wit, nor our courage, nor our wisdom, or our learning. Neither our compassion, nor our devotion to our country. It measures everything in short, except that which makes life worthwhile. And it can tell us everything about America, except why we are proud to be Americans.
Now, if you substitute the UK for American in there, frankly, everything applies. GDP is just as deficient as it was when Robert Kennedy said those words.
So why is it that Rachel Reeves is concentrating on increasing the value of something which really doesn't measure our wellbeing?
Why is she so desperate to increase everything but those things that we value?
Why is she doing that?
And what is she going to do about increasing the value of the things that we do value?
I wish I knew the answer to that question, because I'll be candid and say I don't. But it seems to me to be one of the most important things to which she should supply explanation.
When are you going to talk about the growth in our well being, Rachel Reeves and not just the growth in the bank balances of some within the UK?
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Surely banging on about the importance of economic growth is actually a smokescreen or code for the economic controls Scammer & Co want to see imposed on the UK and these controls will largely be in the interests of the rich as the party’s donations acceptance now strongly hints.
Analysis of the general election voting strongly suggests that enthusiasm for any of Britain’s political parties is muted and much of the lack of enthusiasm is related to economic ideas:-
https://www.theguardian.com/politics/article/2024/jul/12/lowest-turnout-in-uk-general-election-since-universal-suffrage-report-shows
I gather rents are counted as income. and add to GDP?
This has always seemed strange to me as rents are a transfer of wealth to owners of property. The total wealth doesn’t increase if rents are put up. Renters are worse off and landlords better off.
Which begs the question why is there not a National Benefit Analysis. Who’s benefited this year and who hasn’t by income strata. God forbid that Britain’s politicians should use this as the base for their policies especially their taxing strategy!
They probably have you recorded as a dangerous radical, me old mate!
GDP is a measure of transactions within the economy, not the wealth in the economy.
Besides the notional rent, also included is the notional amount of money spent on illicit drugs and on sex workers.
Whether that counts towards Robert Kennedy’s happiness might be a moot point.
Douglas Adams had it right.
“This planet has – or rather had – a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn’t the small green pieces of paper that were unhappy.”
From The Hitchhiker’s Guide to the Galaxy
Artificlal owner/occupier nominal rents apart, GDP is a sexist measure, given that equivalent non transactional housework and soclal care, largely female undertaken, are excluded without even a guesstimate.
One of the problems is that there is no generally accepted alternative measure.
The Bhutan GNH is a useful step, and there are others, but it would behove one of the supranational organisations to establish an index that is fit for purpose.
The World Bank and IMF agendas have largely been growth capitalism, so these have an institutional bias, that renders them unsuitable for the task.
I’d prefer a multifactorial index that paralleled the UN Sustainable Development goals and incorporated as many indices of their criteria as possible.
I wholly agree Richard.
While studying philosophy I was, naturally, encouraged by lecturers to compare and contrast reference sources. Comparing Adam Smith and Karl Marx (on the tendency of profits to fall over time) suggests they seem to have come to the same analysis but chose two opposing solutions. Coincidentally I also came across a passage from Marx that presages Kennedy’s words. Different words from different times, but the same judgements about the morally corrosive nature of neoliberal ideology. The old adage about knowing the price of everything and the value of nothing comes to mind. GDP does not reflect the quality of life.
“Finally, there came a time when everything that men had considered as inalienable became an object of exchange, of traffic and could be alienated. This is the time when the very things which till then had been communicated, but never exchanged; given, but never sold; acquired, but never bought — virtue, love, conviction, knowledge, conscience, etc. — when everything, in short, passed into commerce. It is the time of general corruption, of universal venality, or, to speak in terms of political economy, the time when everything, moral or physical, having become a marketable value, is brought to the market to be assessed at its truest value.” K. Marx, The Poverty of Philosophy, 1847, Paris
Thanks
It’s also about thought control.
She has said only the private sector produces ‘growth’ – (ie the public sector is not really part of the economy ).
The Orwellian aspect – ‘we’ all ‘agree’ that GDP is the ultimate measure , the holy grail – against which we measure ourselves and agaisnt other countries. A version of ‘its the economy stupid’.
Reeves and Starmer just cant tolerate any actual discussion or debate or consideration – of how things might be done – it would open up an uncontrollable can of worms – because they seem to have no ideas themselves nor indeed any capacity to think and consider or engage with the ideas of others.
And least of all – ideas of how we best improve our lives
The modern notion of GDP (its predecessor GNP) was essentially invented in the 1930s by an American economist Simon Kuznets. Almost everyone since has ignored the limitations of the concept that himself recognised at the start (although he didn’t have as accomplished a way with words, or as accomplished a speech writer, as Robert Kennedy). Here he is in 1937:
“The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria.
With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured.
Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. […]
All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare.
But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values.
Economic welfare cannot be adequately measured unless the personal distribution of income is known.
And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income.
The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.”
Either Rachel Reeves is ignorant of these problems, or she thinks she knows better, or she knows it is nonsense but she recited the prescribed words of received wisdom to hoodwink the faithful.
Thanks
And much to agree with
Thanks for this. Considering that the philosophical limitations of GDP regarding the actual social good were recognised by its creator It would be of interest to know which individuals, both historically and in the present, this simplistic statistical measurement does benefit and why ?
One interesting basic question to ask, that I think would have general resonance is; (very precisely), what money spent on the NHS finds its way into GDP, and what is excluded from GDP measurement? Then ask how that same question works in the private health sector? Then ask why they are different in their substantive implications – in both overall health, and economic implications?
Returning people to health on one side reduces the burden on the public purse, and returning them to work directly enhances traditional economic measurements. The NHS is a major factor in the economy, and its growth however we view it. When we spend too little, create bed blocking problems, or supply too few nurses and doctors we are damaging the economy hugely, on any measure.
Rising GDP only increases wealth & prosperity at the top end of town, as Forbes’ Rich List conveniently demonstrates:
https://economicsfromthetopdown.com/2023/09/24/how-the-rich-get-richer/#fnref2
We don’t need a bigger cake, we just need to slice it up more evenly.
Before he retired my neighbour was a vehicle body repairer.
So if a car got rear ended he added to GDP by fixing it.
But a car getting rear ended inst treally something we want to happen.
So if driving standards were improved or anti collission devices are fitted to vehicles GDP goes down BUT the world becomes a tiny bit better
Discuss…………….
🙂
If I have an apple tree and donate the apples to the local food bank, that does not contribute to GDP. If I sell the apples it does, and this is true even if I only manage to sell half of them and the other half go to waste. It’s not difficult to think of similar examples.
Moreover it is easy to think of quite destructive ways of increasing GDP. Presumably relaxing traffic regulations would do it.
However there is another problem, something may be quite good as a measure but not as a target.
For example, basic fluency in a second language (i.e you can find your way around and buy food etc.) is usually attained when you know 2500 words. So a vocabulary test is quite a good measure of fluency. However it would be absurd to attempt to become fluent in a language merely by learning a list of 2500 words.
Similarly it may be the case that if we organize society so that everyone has a better and more fulfilling life, that will lead to an increase in GDP. But it does not follow that it is possible to make everyone’s life better and more fulfilling merely by increasing GDP.
Thank you
An interesting insight
When we have a general election, we should be judging parties on their performance in making lives better in tangible and measurable ways. A national set of key performance indicators should be developed, for instance, children living in poverty reduced, infant and maternal mortality reduced, well run justice system with reduced recidivism, better and rising exam and other measurements of attainment in primary, secondary and tertiary education, reduction in homelessness, overall better health of the nation’s people, with reducing waiting lists, reducing carbon emissions etc. etc. etc. Multi-disciplinary performance indicators. Instead of which we talk about growth and GDP which as you say hardly touches the lives of most unless you are very well off. And which is of course going to destroy, is destroying, our planet. Political parties would of course argue about how you measure these items and how you achieve them, however, it strikes me these performance indicators (and you can all do far better than I can at formulating what they might be) would make people understand to a far greater extent what they are voting for and governments more accountable. I have no doubt this is overly simplistic, but we have to do better at holding our governments accountable on the basis of other indicators and not just growth.
It is a very good idea…..
Forgive me for interrupting this mostly philosophical discussion (no irony intended) with mere lucre, but I was prompted to consult Mr Google for the current GDP per capita of the UK and was given, unbidden, the comparison between England and Scotland, which was:
England – £27,889
Scotland – £36,175 (onshore) and £39,707 (incl. oil and gas extraction)
I was astounded by the apparent discrepancy between the two nations, and can’t even decide whether this is good, bad or just plain incorrect. The amount added just from hydrocarbon extraction was startling.
Don’t believe everything on Google.
The data to prepare that calculation does not really exist in Scotland
These aren’t radical and should be easily discoverable by Starmer and Reeves
New Beyond GDP measures for the UK: a workplan for measuring inclusive income
https://www.ons.gov.uk/economy/economicoutputandproductivity/output/articles/newbeyondgdpmeasuresfortheukaworkplanformeasuringinclusiveincome/2022-05-12
Alternative measures of progress beyond GDP
https://environment.ec.europa.eu/economy-and-finance/alternative-measures-progress-beyond-gdp_en
Beyond GDP
https://unsceb.org/topics/beyond-gdp
I expect they’ll want to be grandstanding at this one in due course…
Beyond GDP
https://www.weforum.org/focus/beyond-gdp/
Since 2008 there has been a lot of re-thinking in economics, but there is a whole “cottage industry” around GDP comparisons and so a so a lot of inertia. However the debate about alternatives to GDP appears to be pretty mainstream and since 2008 there has been a lot of re-thinking. So far I’m only aware of Bhutan as a country that’s actualy moved to a happiness index
Thanks
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