The National Economy: What should we Measure and why should we Measure it?

The National Economy: What should we Measure and why should we Measure it?

Gross Domestic Product, ever since its birth, has been the most important economical measurement in this world. Just as doctors can not precede the appropriate treatment without a comprehensive diagnose, the decision makers can not execute necessary national policies without fully and truly understand all kinds of index in national economy. Back to the naissance of GDP, it was because of the huge demand of information that led the people in Washington to come up with an all-around way to measure the economical index of this country which was in an awkward predicament because of the 1930s big depression. However, after more than 70 years since GDP’s creation, the doubts and questionings associated with it never stop. Can the decisions made by top economists really exhaust their utilities by depending on an index which simply adding private consumption, gross investment, government spending and the difference between exports and imports?

Inequality of wealth distribution

The first problem of GDP is its futility to fully show us the living situation of people who living in an economical entity. Numerous examples have demonstrated that despite the galloping GDP of a certain region or country, there has always been a huge difference between such countries and other developed nations. Probably India and China, two biggest developing countries with the stunning increase of GDP, can genuinely present us such an unconventional but actually existed circumstance. According to the GDP ranking conducted by United Nation in 2008, China ranked third with 3,888,000 million dollars and India ranked 13th with 1,237,000 million dollars, but the real situations of these two countries were far pessimistic than the optimism presented by GDP. The inequality of wealth distribution between rich and poor has been the most significant aspect that GDP can hardly measure. While rich people’s wealth increasing dramatically, there isn’t a big change in poor people’s pockets. From the data in an annually report from National Bureau of Statistic of China, government treasure and corporation capital have taken approximate 35% and 45% of GDP while only 20% were left for agricultural and corporation workers in 2008. This phenomenon was a great embodiment of the inequality of distribution, which led government and corporation managers concerned nothing about economization and frugality.

“Fake” GDP

I don’t know from what time that the label with a clear signal “Made in China” has been everywhere, but I know, as Thomas Friedman articulated in his best seller the world is flat, the concept of outsourcing, which commonly known as the trend of transferring the manufacture industries from developed countries to developing countries. Without doubts, such trend could bring rapid increase of GDP thus create the satisfyingly economical prosperity. However, while we enjoying the fruits of being the ‘world factory’, we should also be alarmed about the traps behind the illusive blooming. From the knowledge we got from the history and politics class in secondary school, the process of transferring manufacturing industries which leads the fast increase of GDP, can absolutely be helpful for developing countries; it leads not only the decreasing of unemployment rate and increasing of revenue as a form of tax, but also the rising export thus bring increasing of possession of foreign exchange. Yet this trend does cost something, such as destruction of environment or over-consumption of natural resources. The recent phenomena in so many developing countries is that in order to attract foreign investments, these countries tried their best to depress workers’ incomes, give foreign capitals some kind of tax exemptions, issue foreign investments export favorable terms and sell the land in a very low price. Moreover, some regions even view the accomplishment of attracting foreign investments as the criterion for government officers’ promotion. Seriously speaking, if such trend persists, the over-powerful foreign capitals will definitely defeat domestic capitals in such an unequal competition. And the miserable situation would be the expansion of foreign capitals along with the atrophic domestic economy, which makes developing countries lost their influences in global economy and gradually become the vassals of developed countries, not only economically buy also politically. Such GDP traps deserve the attention from all-around world, especially developing countries.

Miscalculated GDP

When we are arguing about the accountability of GDP and its real utility to help us make appropriate economical policies, people even sometimes question the authenticity of GDP. In an article posted on Wall Street Journal at April 10th, author Tom Orlik, who was the policy adviser of British Ministry of Finance, presented his concern about the authenticity of GDP in China during the globe economical recession. In his article, Tom said:

in the process of calculating GDP, National Bureau of Statistic of China (NBSC) still rely a lot on the data presented by local government, but the local public servants must be loyal to the local leaders firstly. Without the confirmation from these local leaders, statistic reports can not be submitted to superior. Because of the relationship between public servants’ promotion and the local galloping economy, there exists the possibility of artificially manipulated or changed statistical outcome. This may partly explain why, in the report carried out by NBSC, there was a huge discrepancy (1,400 billion which constitutes 10%) between the collective number of local GDP and the final report of central GDP.

Four days after this article was posted, Jiangtang Ma, commissioner of NBS, posted his comments on NBS’s website:

True and fair is not only the requirement fulfilled of our professional responsibility, but also the requirements of consciously accepting the supervision from social and public. Let us make joints efforts in all aspects to constantly promote data quality and credibility of China statistics.

He also participated in an interview, and directly admitted the problem associate with the process of calculating GDP; as he ascribed, method for calculating, technical problems, unnecessary repeating and overall unhealthy system were all the possible reasons. This critical issue thus leads us to another question—without the accurate GDP reports, how can we use GDP as the compass for decision-making?

However, from a single perspective to explore the two-sidedness of problem would be superficial, even fatuous. As Greg Mankiw, the great macroeconomist and also the chairman of President Bush’s Council of Economical advisors, used to say: we should not worship GDP, but GDP is also not in the situation of dilapidation, as some people commented hopelessly. GDP does not measure people’s health and education, but the country with high GDP can definitely provide more comprehensive health-care and education system. GDP does not measure our knowledge, integrity, wisdom and the loyalty towards our own country, but when people do not need to worry about the starvation, those good features would be earlier to develop. GDP does not measure the beauty of verse in our culture, but the country with high GDP can help more people to read and appreciate poems.