Sunday, 27 March 2016

Does GDP Growth Matter?

I hate GDP. People think because I believe in free markets and liberty that I must worship the metric. Of course I would say the only way over the long term to keep it ticking over is with free markets but thats not a purpose or even the concern of liberty. It's also a very flawed metric in order to measure peoples increase in material wealth. Many economists and commentators assume if GDP is sluggish that the public must be suffering but GDP is very limited, especially now with new disruptive technologies that keep popping up and illustrating how arcane GDP is.

GDP, or Gross Domestic Product is a measure of all goods and services in an economy. Over time this generally increases as people find new ways to become more productive through general ingenuity, entrepreneurship and the freedom to try new ideas. However it generally only measures financial transactions. The 21st Century is a disruptive era, one where the free market has worked miracles where money will become less and less important in giving us well being in our lives as the prices of many services are driven through the floor. If we take a look at TVs we can see back in 1979 it took around 70 hours of average labour to buy a 19inch TV. Now its around 4.3 hours. TV repair shops are now a thing of the past as we have become so wealthy that we now just buy a new one if our old one goes thanks to the free market that has brought down their cost. Not only has the cost gone down but the quality has gone up. I can now view TV on demand and have more content than back in 1979. The TVs also offer superior picture and sound quality. All of this will not be accounted for in GDP.

One ground breaking innovation in the free market is social websites. Now we have marketplaces where we can all buy and sell with each other, we can recycle second hand goods far easier than in the past. We not only sell products with each other but we now freely give it away with sites like freecycle or facebook groups. TVs have now gone flat, but the old cathode ray ones are available all the time on sites like these for free.

The sharing economy is exploding, whether its books, toys, computers, favours, ride shares or TVs - much of this will not show up in GDP yet is dramatically improving the lives of millions. As a parent I have gained hugely from such innovations. I collect free toys from other parents and in turn we give away toys to other parents as kids grow up. This is also a great boon to the environment as more people upcycle rather than throw it into a landfill. Yet GDP captures none of this.

If we compare other services that the market has offered for example Facebook. I personally have never gotten into facebook (well apart from 2006/2007 when I first signed up and it was new) but it brings huge value to now over a Billion people. My Parents always say how great the service is as I have signed them both up with the sole purpose to follow my partner who posts pictures of the kids all the time. Now the Grandparents can follow in real time what their Grandkids have been up to despite being hundreds of miles away. Innovations like this will never show in GDP but yet are literally priceless to us all. To be able to share a moment in the form of a simple picture is life changing and of course we all have phones which have camera capabilities all the time which means we can all capture these moments as and when they happen. In the past we would use old camera film with a limit of 24 pictures, the film would cost, the development of the pictures would cost and if we wanted to make duplicates to loved ones this would also cost. Of course all this would show in GDP but now its all free - I can sync all my pictures to the internet for free forever, no limits - and I can share them with as many people as I wish with no cost. All of this will cost nothing and will not show in GDP. So if we measure GDP we are all getting poorer, but how can that be with all the above? This is why I believe GDP is such a flawed metric in the 21st Century. I look back at the pictures when I was a child and they are scarce by comparison not because my parents were incompetent but because technology has just given us pictures for free. Google is banking on offering us unlimited storage on the basis that they will be able to perfect their algorithms - giving the poorest amongst us the most precious of gifts, free photos for eternity.

I could keep going on; in fact I will. I remember paying lots of money for Encyclopaedias. Now Wikipedia is far better in the magnitude of thousands and is free for all (although I like many voluntary donate to it). Bad for GDP, despite being good for us all. News used to strictly controlled by newspapers that would cost. Now news is generally free on-line. Not only is it free but the variety and quality is far superior. Anyone and everyone is a publisher covering a far wider range of interests. Recently a thermostat broke on one of my radiators. In the past I would have needed to call a plumber out to fix it and possibly been overcharged for work that didn't need doing. Instead I went on youtube and someone has suggested that tapping the pin with a hammer usual works as they can get stuck. Sure enough it worked and has for the past year worked but been recorded as a zero sum transaction in GDP. I remember paying lots of money for computers and computer games in the past. Now if you are not interested in the latest and greatest you can pick them up for nothing on Ebay. I recently got a old wii and can get games for it for £2 using ebay. Very playable for a casual gamer and enjoyable. In the past if a Child sneezed on a computer a parent would begin hyperventilating knowing how much it cost them. Now my kids stand on laptops and I don't really care as they are so cheap I know not even too worry. Again I can get old computers for free that people believe do no use, but I can get them up and running again. My three year old loves playing games on hers and it didn't cost me anything.

With all the above and countless other examples its amazing GDP continues to rise. Of course people now have more disposable income because of all the above so spend it in other areas. We are living in a marvellous era where goods are beginning to become so plentiful and we are witnessing the de-materialisation of many objects that were once considered valuable. Its become so cheap that thieves won't even bother stealing TVs or Computers as they would in the past, instead they target keys of expensive cars to make it worthwhile. I still remember friends of mine when I was a teenager raving on about my dads 32" cathode ray tube TV now it would be found at a skip with no one wanting it. 

GDP is just a single metric. It is not the be all of prosperity. In fact there are many good and services that would not register on it despite greatly enriching many of us. When items that once cost a fortune but are now given away how can you measure that as a metric? How can you measure the pleasure services such as social media, personal blogging, on demand entertainment or information at the touch of a button with no cost? Sharing those moments with loved ones that are miles away that was once impossible, being able to research the most specialised of topic and gain knowledge that would once take a lifetime to gain. Personally I don't pay much attention to GDP. I pay attention to the technological innovations that improve our lives immeasurably that we now all take for granted. Thank god for a free market and economic freedom that makes all this possible.

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