The Stock Market numbers are no reflection of the performance of an economy: During the Covid Lockdowns the Stock Markets Boomed.

 

The messy truth about achieving economic growth

The writer, Daniel Susskind in The FT, is the author of ‘Growth: A Reckoning’ and an economist at Oxford university and King’s College London 

There seem to be few policy problems in Britain that “growth” will not solve. Backlogged and broken public services? We need growth to bolster tax revenues. National debt breaking £1tn for the first time? We need growth to make that sustainable. Rising worklessness and real wages that have not budged for 15 years? We need growth to fire up the labour market.  

Growth has become one of those rare things, a policy panacea: promising to benefit almost everyone in society, leaving few problems out of its restorative reach. And for that reason, its pursuit has bent the political spectrum back on itself, with leaders at opposite ends meeting in agreement about its merits. For Sir Keir Starmer, it is the “defining mission” of his government; for Rishi Sunak, it was one of his party’s ill-fated “five priorities”.  

The focus on growth is surely right. We need more of it. The challenge is how to create it. Today’s political leaders talk confidently about what is required. But this sense of assuredness is entirely at odds with the little we really know about growth’s causes.  

To begin with, the idea that we should pursue growth at all is surprisingly new. Before the 1950s, almost no politicians, policymakers, economists — anyone — talked about it. That changed with the cold war. The US and Soviet Union, each desperate to show that their side was winning the battle of ideologies, furiously competed to outgrow one another. 

As political interest took off, economists tumbled over one another in their attempts to look useful, responding — with new stories, models and data — to these practical concerns. “[D]uring the Sixties”, wrote the economist Dennis Mueller, “the growth rate of the ‘growth literature’ far exceeded that of the phenomenon it tried to explain.”  

Yet despite all that intellectual firepower, we still lack definitive answers to the question of what causes growth. “The subject has proved elusive”, wrote the economist Elhanan Helpman in 2004, “and many mysteries remain.” 

There is an old-fashioned view of productive activity that pictures the economy as purely a material thing. From this perspective, growth is driven by building impressive things that we can all see and touch — faster trains, wider roads, more houses.  

However, the little we do know suggests that it does not actually come from the world of tangible things, but rather from the world of intangible ideas; not from guzzling up ever more finite resources — land, people, machines, and so on — but from discovering new ideas that make ever more productive use of those resources. Or, more simply, sustained economic growth comes from relentless technological progress.  

These observations — how little we know about growth and the power of ideas in driving it — have important practical implications. The former is a warning against hubris. Political leaders should not claim to have more control over our economic fate than they actually do. After all, if there were a simple lever we could pull for more growth, the problem of economic development would have been solved some time ago. 

The latter observation offers us guidance. We cannot simply “build” our way to more prosperity: there are good reasons to build more houses, for instance, but a radical transformation in national growth prospects is unlikely to be one of them. Instead, securing growth will require a relentless focus on the discovery of new ideas, doing all that we can to make Britain the best place in the world to develop and adopt the most powerful new technologies of our time.  

Vastly more investment in R&D would be a good place for the new government to start. In the UK, expenditure as a percentage of GDP is stuck at just half of what Israel (the leader in this field) achieves. But we must go further.  

During the 20th century, growth came about by providing human beings with ever more education: first basic schooling and then, later on, colleges and universities. For that reason it is known as the human-capital century, a time when a country’s prosperity depended on its willingness to invest in its people.   

The current century will be different. New ideas will come less frequently from us and more from the technologies around us. We can already catch a glimpse of what lies ahead: from large companies like Google DeepMind using AlphaFold to solve the protein-folding problem to each of us at our desks using generative AI — from GPT to Dall-E.  Whether Britain flourishes or fades in this future will depend on our willingness to invest in these new technologies and the people and institutions behind them. Any serious strategy for growth must start with that fact.  

'India was not a perfect democracy before 2014': T M Krishna

 

Arun Kumar: India's GDP Data is Incorrect

 

The world’s richest countries in 2023

From The Economist

Comparing the wealth of nations is harder than you might think. Countries with lots of people tend to have bigger economies, but that does not mean that individual incomes are high. Dollar income per person is the most common metric for sorting countries into rich and poor, but it does not account for international differences in prices. Nor does it account for how many hours people have to work to earn their wage. To provide a fuller picture, The Economist has created a global rich list using the latest available data on three measures: dollar income per person, adjusted income for local prices (known as purchasing-power parity, or ppp), and income per hour worked. See where each country ranks below.

The findings show how fickle economics can be. Take America. Its gdp is by far the largest at market exchange rates. But its income per person is only the seventh highest in the world, and eighth when adjusting for local prices. When accounting for the long workdays and limited holiday, it drops to 11th. China—the world’s second-largest economy in nominal terms—comes 65th by gdp per person and 96th by hours worked. Other countries with gruesome work cultures also see big shifts: South Korea ranks 31st on our first measure and 30th on our second, but 47th on our third.

In much of western Europe the trend goes in the opposite direction: places such as Belgium, Germany and Sweden fly up the rankings when their lower prices or enviable work-life balance are taken into account. Wages in Luxembourg go the furthest in local prices. And Norway has the world’s highest average income per hour worked. (See the top 20 countries in the chart above.)

These calculations will be imprecise. ppp conversions, for example, struggle to capture differences in the quality of goods and services. Methods for calculating hours worked may differ; it is especially hard to estimate them for poor countries with large informal sectors (read our full methodology here). And the data from some countries cannot be trusted. Some countries (notably China) have very high savings rates, so even their ppp-adjusted gdp per hour will not reflect their living standards. The ranking also captures people’s average incomes (what they earn), not their assets (what they already have). But the comparison offers a more complete assessment of the world’s richest countries than a focus on any single measure—it shows where your money goes furthest, and where long hours may not always pay off.

India is Broken: Dr. Ashoka Mody

 

The data used by India to calculate GDP is a concern

 

'Don't take GDP so seriously': In The fastest growing economy 100 million people are dependent on NREGA benefits

 

A Level Economics: Why do the Elites in Fast Growing Countries encourage their Children to migrate away to other countries?

 ChatGPT

A scenario where a fast-growing country's prosperous elite encourages their children to migrate to other poorly performing countries can be driven by various factors, each with its own set of motivations and consequences. While the specifics would depend on the context, here are some potential reasons for this phenomenon:

1. Education Opportunities: The fast-growing country might lack high-quality education systems or prestigious institutions that are available in more established nations. The elite could be sending their children abroad to access better education and academic prospects. For instance, countries like India and China have witnessed this trend, with affluent families sending their children to study in universities in the United States and Europe.

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3. Economic Diversification: The prosperous elite might recognize that their country's economy is overly reliant on a particular industry or sector, making it vulnerable to economic shocks. By encouraging their children to migrate to countries with more diversified economies, they are aiming to provide them with opportunities in industries that might not be well-developed in their home country.

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5. Social Mobility and Exposure: Moving to a different country can provide these children with exposure to different cultures, ideas, and networks. This exposure can broaden their horizons and potentially lead to more opportunities and innovative thinking. The elite may believe that such experiences could equip their children to contribute more effectively to their home country upon returning.

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7. Wealth Preservation and Security: Political instability, legal uncertainties, or concerns about potential future upheavals in the fast-growing country might motivate the elite to send their children abroad. By establishing a presence in other countries, they can safeguard their family's assets and provide a secure fallback option if circumstances at home deteriorate.

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9. Dissatisfaction with Domestic Systems: Despite the country's rapid growth, there might be deep-seated issues such as corruption, lack of basic infrastructure, or inadequate healthcare services. The elite may perceive these problems as fundamental and prefer to ensure their children's future by placing them in countries with more robust systems.

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11. Global Connections and Networking: Migrating to other countries can help the elite's children build international networks and establish connections that could be beneficial for business and personal growth. These networks could later be leveraged to foster partnerships, investments, and collaborations that benefit the fast-growing country.

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13. Political Considerations: In some cases, the elite might have close ties with the governments of poorly performing countries. This could lead to investment opportunities, special privileges, or favorable business conditions for their children, which might not be readily available in their home country.

For instance, consider a scenario where the elite of Country A, experiencing remarkable economic growth but lacking advanced education systems, encourage their children to study in Country B, which boasts top-tier universities and educational resources. The children might later establish connections, acquire skills, and develop a global perspective that could potentially be applied to benefit Country A's development.

In summary, the decision by a fast-growing country's prosperous elite to encourage their children to migrate to other poorly performing countries can be driven by a combination of factors such as education, economic diversification, exposure, wealth preservation, dissatisfaction with domestic systems, global networking, and political considerations. The ultimate goal is often to secure a better future for their children while potentially creating avenues for positive impact on their home country's development in the long run.

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Let's delve into real-world examples to illustrate each point more vividly:

1. Quality of Life Disparities: In India, despite its rapid economic growth and burgeoning tech industry, there is a stark contrast between the living conditions of the urban elite and the majority of the population. Many affluent families from India send their children to study or settle abroad, often citing concerns about air pollution, lack of reliable healthcare, and an underdeveloped public infrastructure. They believe that countries like Canada or Australia offer a healthier and more secure environment for their families.

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3. Education Opportunities: Consider the case of South Korea, a country known for its high-pressure education system. Even though South Korea has a strong economy and technological advancements, many Korean parents send their children to countries like the United States for higher education. They view the American education system as more conducive to nurturing creativity, critical thinking, and a broader skill set beyond rote memorization.

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5. Business Expansion and Global Networks: Chinese entrepreneurs and business magnates often encourage their children to study in the United Kingdom or the United States. By doing so, they aim to facilitate international connections that can be leveraged for business expansion. These students become part of global networks, gaining exposure to diverse markets and potential partnerships that might not be as readily available within China's domestic business environment.

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7. Political Stability: Wealthy families in countries like Venezuela face ongoing political and economic instability. Amid hyperinflation and political uncertainty, many of these families have sent their children abroad to countries like Spain or the United States. They fear that sudden policy changes or government interventions could jeopardize their wealth and stability, prompting them to seek safer havens.

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9. Tax and Regulatory Environment: Russian oligarchs have been known to invest heavily in Western countries, including the United Kingdom. While Russia has seen economic growth driven by its vast natural resources, some of its affluent citizens invest abroad to take advantage of more favorable tax regimes and business-friendly regulations in the West.

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11. Opportunities for Social Mobility: The Gulf Cooperation Council (GCC) countries, like the United Arab Emirates, have experienced substantial economic growth due to oil reserves. However, in these countries, social mobility can be limited by factors such as a reliance on expatriate labor and a heavily regulated job market. As a result, some wealthy families send their children to Western countries for education and career opportunities that offer greater mobility and personal growth.

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13. Environmental Concerns: In parts of Southeast Asia, rapid economic development has often come at the cost of environmental degradation. Wealthy families in countries like Indonesia might send their children to countries with stronger environmental regulations, like Sweden or Norway, to ensure they grow up in a cleaner, more sustainable environment.

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15. Cultural and Lifestyle Preferences: In countries like Saudi Arabia, despite its economic advancements, some wealthy families encourage their children to study or invest in Western countries due to a desire for more liberal lifestyles and access to cultural amenities that might not be as readily available at home.

These real-world examples emphasize how the decision for prosperous elites to encourage their children to migrate to other countries is shaped by a complex interplay of economic, social, political, and personal factors. It underscores the intricacies of globalization, mobility, and the pursuit of improved opportunities and lifestyles.

Economics for Dummies 2: Unveiling the Illusions Behind GDP and Growth

 ChatGPT

Gross Domestic Product (GDP), the bedrock of economic assessment, is often brandished by governments to demonstrate their economic prowess and development efforts. Yet, the story beneath the numbers can be more intricate than the narrative presented. This essay delves into the nuances of GDP growth and per capita GDP, exposing the potential deception in government claims, and offers real-world examples to elucidate the distinction between statistical expansion and genuine prosperity.

The GDP Mirage: Governments frequently tout increases in total GDP as evidence of economic advancement, but this can mask underlying issues. GDP measures the value of all goods and services produced within a country's borders, making it an essential indicator of a nation's economic health. However, focusing solely on GDP growth without scrutinizing its composition and distribution can lead to a deceptive portrayal of economic well-being.

Example 1: Industrialization Consider a developing nation that prioritizes industrial expansion, leading to a surge in manufacturing output. While this may boost total GDP, it might neglect crucial sectors like healthcare, education, and social welfare. The GDP increase might not translate to improved living standards or reduced inequality, as wealth could be concentrated in a few hands.

Example 2: Environmental Impact Another scenario involves unchecked natural resource extraction, which may inflate GDP due to increased production. However, this comes at the cost of environmental degradation and resource depletion, potentially compromising long-term sustainability and quality of life.

The Per Capita GDP Illusion: Per capita GDP, calculated by dividing the total GDP by the population, is often used to gauge average economic well-being. Governments may herald rising per capita GDP as a sign of improved living standards, yet this figure can be misleading without considering factors like income distribution, inflation, and social services.

Example 1: Uneven Distribution A country experiencing a surge in per capita GDP might conceal stark inequality. A significant portion of the population could still struggle with poverty and lack access to basic amenities, despite the statistical average suggesting overall prosperity.

Example 2: Inflation Impact Rapid inflation can erode the purchasing power of individuals, even if per capita GDP appears to be rising. A higher per capita GDP might not equate to increased real income if the cost of living rises at a faster pace.

Deconstructing Government Claims: Governments may emphasize GDP growth and per capita GDP to showcase economic progress and attract investments. However, these claims warrant careful analysis. An increase in GDP or per capita GDP does not guarantee equitable development or improved well-being for all citizens.

Example 1: Economic Growth vs. Welfare A nation boasting impressive GDP growth may mask disparities in social indicators. While the economy expands, certain segments of the population might still lack access to quality education, healthcare, and basic infrastructure.

Example 2: Dependency on External Factors Governments may celebrate GDP growth driven by foreign investments or a temporary boost in commodity prices. This growth might prove fleeting, leaving the economy vulnerable to external shocks.

GDP growth and per capita GDP, while important metrics, should be scrutinized with a discerning eye. Government claims of economic success should be analyzed in conjunction with broader socio-economic indicators, income distribution, and the sustainability of growth. True progress lies not merely in the expansion of figures but in the improvement of the lives of all citizens, ensuring that economic growth translates into inclusive prosperity and well-being.

---Another Essay

Gross Domestic Product (GDP) serves as a crucial indicator of a nation's economic health, measuring the total value of goods and services produced within its borders. Governments often boast about their achievements in increasing GDP, both in total and per capita terms. However, a closer examination reveals a more intricate reality. This essay delves into the nuances of GDP growth claims, exposes the potential deception in government narratives, and provides real-world examples to illuminate the distinction between GDP figures and actual economic well-being.

The Mirage of GDP Growth: When governments proudly proclaim substantial GDP growth, it does not necessarily imply a proportional improvement in the economic welfare of its citizens. GDP figures, while informative, need to be carefully scrutinized to understand their implications on the ground. A mere increase in GDP does not guarantee better living standards or increased prosperity for everyone.

Unraveling the Facade: To grasp the intricacies, let's consider the hypothetical case of Country A, where the government touts a 5% increase in total GDP over a year. However, beneath the surface, this growth could be driven by specific sectors or industries, benefiting only a small portion of the population. The per capita GDP may remain stagnant or even decrease, indicating that the average individual's economic situation has not improved.

Example 1: The Resource Boom: Country B is heavily reliant on natural resource exports. A surge in global demand for these resources leads to a significant boost in total GDP. The government proudly announces a 7% increase in GDP growth. However, this growth is skewed towards resource extraction, while other sectors like manufacturing or services remain stagnant. The average citizen might not experience tangible benefits, as job opportunities and wage growth in the resource sector do not automatically translate into improved living standards for all.

Example 2: Income Inequality: In Country C, a booming technology sector drives up GDP by 8%. The government showcases this as a remarkable achievement, highlighting the nation's competitiveness. Yet, this growth predominantly benefits high-skilled workers and shareholders of tech companies, exacerbating income inequality. The average worker's wages remain stagnant, and essential services like healthcare and education become more unaffordable for many citizens.

Deconstructing Government Claims: Governments often use GDP growth as a metric to showcase their economic management and policy success. However, this can lead to misconceptions among the public. People might assume that a higher GDP directly translates to an improved quality of life for everyone, which is not always the case. In both examples, while total GDP increased, the overall well-being of citizens did not experience a parallel enhancement.

Distinguishing between government claims of GDP growth and its actual impact on citizens' lives is essential for understanding the true state of an economy. A focus solely on higher GDP figures can mask disparities in income distribution, employment opportunities, and overall quality of life. Citizens should critically analyze the economic landscape and recognize that true prosperity stems from equitable growth that benefits all segments of society. By doing so, individuals can make informed decisions, advocate for inclusive policies, and contribute to shaping a more balanced and just economic future.

---Another essay

Gross Domestic Product (GDP) serves as a barometer of a nation's economic health, but its interpretation can be far from straightforward. Governments often celebrate increases in total GDP and per capita GDP as signs of prosperity and progress. However, a closer examination reveals a more nuanced reality. This essay delves into the intricacies of GDP growth claims, exposes the potential deception behind these figures, and illustrates the difference between economic growth on paper and its real-world implications.

GDP Growth Claims: The Mirage: Governments frequently trumpet their success in achieving high GDP growth rates, portraying them as indicators of robust economic advancement. However, an important distinction must be made between the growth in GDP and the actual well-being of the populace. Just as a tall tree does not guarantee a bountiful harvest, impressive GDP growth figures may not always translate into improved living standards for citizens.

Understanding GDP Growth: To elucidate this point, let's consider a hypothetical scenario involving two countries: Country A and Country B. Both countries experienced a 5% increase in GDP over a year.

Country A's GDP: Year 1 GDP = $1 trillion Year 2 GDP = $1.05 trillion GDP growth = ($1.05 trillion - $1 trillion) / $1 trillion * 100% = 5%

Country B's GDP: Year 1 GDP = $100 billion Year 2 GDP = $105 billion GDP growth = ($105 billion - $100 billion) / $100 billion * 100% = 5%

While both countries achieved the same GDP growth rate, the absolute size of their economies differs significantly. Country A's economy is ten times larger than that of Country B, yet the GDP growth percentage is identical. This example illustrates how GDP growth rates alone can be deceptive, as they do not account for the disparities in economic scale.

Per Capita GDP: The Illusion of Prosperity: Governments often boast about increasing per capita GDP, emphasizing higher income levels for citizens. However, per capita GDP can mask inequalities and fail to capture the distribution of wealth within a country.

Consider two cities within the same country: City X and City Y.

City X: Population = 1 million GDP = $500 million Per Capita GDP = $500 million / 1 million = $500

City Y: Population = 100,000 GDP = $150 million Per Capita GDP = $150 million / 100,000 = $1,500

While City Y boasts a higher per capita GDP, indicating greater prosperity on the surface, it may still harbor pockets of poverty and income inequality that the average figure fails to capture.

Real-World Examples:

1. China's Economic Growth: China's remarkable GDP growth over the past few decades has been celebrated globally. However, this growth has come at the cost of environmental degradation and widening income inequality, challenging the notion of unqualified success.

2. Middle East Oil Economies: Countries heavily reliant on oil exports may experience significant GDP growth during periods of high oil prices. However, this growth can be unsustainable and vulnerable to fluctuations in global oil markets.

Governments' emphasis on GDP growth and per capita GDP as measures of success can be misleading without considering the broader context. While these figures offer insights into economic activity, they do not necessarily reflect the well-being and quality of life of citizens. The real impact of economic growth lies in its ability to translate into tangible benefits for the entire population, addressing inequalities, providing meaningful employment, and ensuring sustainable development. As informed citizens, it is crucial to look beyond the surface numbers and critically assess the true implications of government claims on economic growth.