A new way of looking at economics?

I have been thinking recently.  It is a difficult and sometimes painful process I would prefer to avoid.

I have been thinking about how we measure economies and whether GDP is helpful or not.  One issue with GDP is that everything is measured in terms of finance and that does not always give reliable results.  For example I know I am well off because my house is warmer than the house I grew up in – because of improvements in insulation and heating, not because I have more finance than my parents.

And then I heard something on the news this morning.  As a result of the Ebola crisis, they (I cannot remember who was talking) think that Sierra Leone’s economy will shrink this year, whereas its GDP had been projected to rise by 11%.

Would 11% growth in GDP have been a real measure of the countries economic strength?  We know from frequent news reports that the country does not haGraph of somethingve anything like the health care that we (in an ailing economy which cannot manage 3% GDP growth) take for granted.

So do we really want to compare GDPs or are there better measures available?  Should we care about these financial measures at all, or would it be better to measure happiness (as they do in Bhutan) or what should we measure.

Perhaps we could look at some social measures – education, employment, quality of housing stock, health care – but these might be difficult to quantify.

But if we are going to look at financial measures, we need to get away from GDP.  Economic analysis says that another way of looking at GDP is that most of it comes from  bank lending and government deficits (government borrowing).  See my previous post Steve Keen visits solvent land (2) for more detail on this.

Some may say that this is fine, but recent experience of debt shows us that some, if not a lot of, debt is an illusion – it cannot be repaid and is therefore of no value.  As a result we have written off debts of countries (under the HIPC initiatives);  we have bailed out banks who lent too much to people who could not pay.  So if neither bank borrowing nor government borrowing are secure, GDP, the main economic measure we use, is overstated.

So let’s look for something which better reflects what is important – and the size of our mortgages – personally or as a country – is not the right place to start.

This is how we pay our debts

Have a look at this article from the Jubilee Debt campaign.

In simple terms, banks and others lent money to the Greek government.  They should perhaps have known better but they took the risk.

The “bailout” of the government means that these banks and others have been paid off and instead the Greek government now owes other countries.  And Germany (and others) are saying that these international debts will have to be paid.

So instead of banks and other lenders suffering because they took a risk lending to Greece, many have been paid off in full with no risk.  And some banks which were not paid in full have gone bust and the Greek government has had to pick up the pieces by borrowing more money.

And the debt has not gone away but will have to be paid off by the Greek people.

So who has benefited from the “bailout” given to Greece?


May the force be with you

At long last (they say) the ECB has embarked on Quantitative easing by “printing” over a trillion euros.

So will it work?

The initial signs are that it is doing what it is supposed to do – reduce interest rates on Euro loans.

But Robert Peston, the BBC economics editor is not convinced about the long term benefits. Various countries have already tried this approach (including the US and the UK). Continue reading