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January 21, 2012 / 74

Bare Naked GDP – the Worthless Indicator

It never ceases to amaze me that supposedly intelligent people use GDP as a measure of the health of national economies. Perhaps I should specify “unadjusted GDP”. Perhaps these people don’t realize that government spending is included in GDP?

So total GDP is NOT a measure of economic health, or growth. It is simply a measure of total spending by all sources – which means absolutely nothing in any real sense.

Take China. Bare naked GDP says their economy has been “growing” at over 9% for some time. But a large part of that “growth” includes the building of “ghost cities”. Ghost cities are cities that no one lives in, no one works in, no one has any use for at all, a case of central planning gone crazy. One such city in the Mongolian desert was built to house and provide workplaces for a million people… people who don’t live there or work there: people who don’t exist in any real sense. The completed city is empty.

How much does it cost an economy to build infrastructure that is not needed or used or even useful? Shouldn’t this amount be SUBTRACTED from a measure of economic health? Shouldn’t government spending on “make work” projects be counted as a negative-times-two since not only was the money wasted on the project’s cost, but it was diverted from other perhaps more useful and needed projects? Wouldn’t such spending levels by a government actually undermine, and possibly destroy an economy?

And GDP is generally posted in terms of the amount spent which supposedly represents the “size” of the economy. So a nation that inflates its fiat currency by 100% will experience a 100% growth rate. “But wait,” you say! “GDP is adjusted for inflation!” Really? Where do you get the inflation numbers? In the US, the Treasury or the FED provides them. But as we are increasingly coming to understand, the numbers from the FED cannot be trusted. (Stated inflation of 2% does not match up with food inflation of 25%)

Unadjusted GDP is not any kind of measure of the health or size of an economy. Especially when the country uses fiat currency.

I’d think that the subtraction of ALL government transactions, both spending and revenue, and the percentage of that government spending of the total, would be a much more accurate measures of both the size of the economy, and it’s health.


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