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.

A bit of Argie bashing

You might be forgiven for thinking this is someone in the UK complaining about MaradonaMaradona’s performance in a world cup.

But no, this is a US court apparently telling another sovereign government what to do with its money.  Or to be more precise, telling it that it cannot pay a legitimate debt until it has paid off a debt speculator.  As a result Argentina has again defaulted on a debt – but this time not because it wants or has to, but because a US court will not allow it not to.

Have a look at http://jubileedebt.org.uk/actions/support-argentinas-fight-against-vulture-funds for more details.

The “vulture fund” which bought Argentine debt in the hope of making a profit may not be a bank or be involved in the lending of money commercially, but it is making use of the system to try to make a substantial profit.  If it had accepted the debt write-down agreed by most of (93% of) Argentine’s lenders, it would have made a mere 300% profit, but it is holding out for more.

And the US court support for the speculator’s position is making debt forgiveness even more difficult to achieve for hard-pressed countries around the world.

So, I am campaigning for a moratorium on all commercial debt.  This would get rid of this sort of speculation at a stroke.

Of course there are other reasons for my proposal – have a look at the about page and other posts and let me know if you agree.

Debt is a bad thing – HIPC

Although all of this is set out in the white paper, I thought it would help to go through parts of it and see if you agree.

So the starting point is that debt is a bad thing – not just for individuals but also for countries and ultimately the world as a whole.

Lets start with countries and I have highlighted Highly Indebted Poor Countries (HIPC) and also Highly Indebted Rich Countries (HIRC); but there may be other countries where debt is a problem – China for example is laden with debt – money owed to its citizens, rather than by it – and it seems that may be stifling its economy.

The Jubilee Debt Campaign and associated organisations have been campaigning since the mid 1990s to get debt waived for countries who are paying so much in debt repayments that they cannot afford basic services such as health care and education.  Many of the debts themselves have been categorised as “unfair” because of the way they were incurred either on the lifestyle of the country’s leader or on “vanity projects” which whilst they exist were not a high priority for the country (such as palaces and infrastructure).

This sort of debt is a bad thing and the world has agreed to waive debt after agreeing suitable criteria for determining whether it is right to waive the debt.

The question is whether that is sufficient reason for outlawing all debt or whether an alternative solution would mean we can avoid these sorts of bad debts in the future.  My argument is that when added to the debts of impoverished rich countries and what happens when personal debt becomes national debt that we cannot manage debt well enough and the right answer is to outlaw it all.