A Gross Domestic Mistake

The Gross Domestic Product of the United Kingdom has risen by 0.7% in the three months to 30 September 2014. GDP figures are closely scrutinised. Governments regard a growing GDP as an important indicator of the economic success of the nation, and they boast when it rises and they are criticised when it falls. But GDP is just one measure and is not a proper indicator of the economic position of the people who live in a nation, only (usually) a minority of people and some big businesses.

The OECD defines GDP as “an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production plus any taxes, and minus any subsidies, on products not included in the value of their outputs”. In and other words we add together what we produce, make adjustments for tax and subsidies, and there you have a figure. GDP is not a measure of the economic success of the people within a nation, only of the nation itself and the two are quite different.

If you have a nation which is democratic, has fair labour laws, a fair system of tax and where there are about as many jobs as there are people of working age fit to do those jobs then GDP is likely to be a measure of the underlying prosperity of the people who live in a nation. If you have a nation where business is concentrated in a handful of institutions or the state, the labour laws are not protective of people or if there is slavery the GDP will be very high but the underlying prosperity of the people in that nation will be non existent.

So today when higher GDP is announced coupled with a demand by the EU that in light of the UK’s increasing prosperity it will have to pay £1.7 billion additional fees to the EU, it misses the point. The prosperity of the UK is really not the same thing as the prosperity of the people. It is the people who pay the taxes that provides the fees to the EU, rather than the other “residential institutional units engaged in production”.

Other nations who supposedly are doing well enough to have to pay increased fees are the Netherlands, Italy, Greece and Cyprus. Three of those nations are in dire straits. France, Germany, Denmark and Austria are all apparently in dire straits and get rebates rather than higher fees.

This cannot possibly be fair and reasonable.




4 Responses

  1. As I understand it the newly defined GDP now includes the “black economy” i.e all those fake perfumes, cash in hand, ladies of the night, etc.

    So according to the EU, honest taxpayers are to pay additional taxes to make up for the failure to collect them from the black economy.

    This is a double whammy for the few remaining law abiding citizens.

    Unfortunately such injustice only leads to more corruption. As Confucius nearly said “when there is only one honest man in a village he is not a hero but a fool”

    • Who can possibly measure the black economy? Germany put some estimates in their figures and the UK did not, so now the UK has to pay more. I think we should argue there is no black economy in the UK. All UK citizens are honest, unlike those Germans!

  2. Apparently, Osborne knew of this a week ago. Did he not tell Cameron or is Cameron now faking outrage?

    Either way, they cannot fool us.

  3. The only economy, all living, some black, some white.

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