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Showing posts with label GNP. Show all posts
Showing posts with label GNP. Show all posts

Friday 31 July 2020

Economics for Non Economists 3 – Explaining GDP and Economic Growth


By Girish Menon
Introduction
You will have recently read:
 
What does this mean?
Just like the Forbes magazine compiles an annual list of the richest individuals on planet earth, most countries participate in an annual ‘show of wealth’. The most commonly used measure in this competition is called GDP. At the end of 2019 the top six countries were:
Table 1
Country
GDP
($ trillions)
Economic growth over previous year (%)
Per Capita GDP ($)
Share of World GDP (%)
USA
19.5
2.2
59, 939
24
China
12.2
6.9
8,612
15
Japan
4.9
1.7
38,214
6
Germany
3.7
2.2
44,680
4.5
India
2.7
6.7
1,980
3.28
UK
2.6
1.8
39.532
3,26
What do these terms mean?
Simply defined, GDP or Gross Domestic Product is the money value of all goods and services (goods) produced within an economy in a period of time. In Table 1 the GDP is estimated over the year of 2019. The data quoted in the introduction compares GDP changes over the first two quarters of 2020.
Economic growth is a measure of the additional goods produced by an economy over the last period of time  (say a year or a quarter).
Per Capita GDP means the value of goods each resident would get if all goods produced in an economy is shared equally. This is calculated by dividing the GDP with the residents of the country. Do you think per capita GDP is an accurate description of how goods are actually distributed in an economy?
Share of World GDP means the share of global goods produced by an economy. This is calculated by dividing each country’s GDP with the whole world’s total GDP.
Why is GDP and the rate of Economic growth so important?
Materialism is the underlying principle of using GDP and economic growth as the most important indicator of economic performance. Materialism, according to the Cambridge English Dictionary, is the belief that having money and possessions is the most important thing in life. It follows that as one’s material goods increases one’s standard of living (happiness) tends to increase.

GDP is a tool that measures the volume of material goods produced by an economy. A high rate of economic growth demonstrates the rate at which the material goods in an economy is increasing and as a result the happiness of the residents as well. So, when the rate of economic growth becomes negative, as in the data mentioned in the introduction, it follows that your happiness will decrease.

Are GDP and GNP the same?

They are similar but not the same. GDP measures the volume of goods produced by people living within the boundaries of an economy. The output of Nissan’s Sunderland plant will be included in UK’s GDP. In other words the output of Britons and foreign nationals living in the UK will be added to calculate UK’s GDP.

GNP stands for Gross National Product. It is a measure of the volume of goods produced by British nationals living in the UK and outside. It will exclude the output of foreign nationals (say Nissan Sunderland) operating within the British economy.

Is GDP an accurate measure of the volume of goods produced within an economy?
The answer is No. The calculation is arduous and with questionable assumptions which I will not go into here. I will however mention some weaknesses here:
1. Even though there are some standardised procedures for its computation governments are known to deliberately intervene in its methodology and computation.
2.   Not all goods are included. For example if you clean your own house and look after your family – these services are not included. However, if you employ a cleaner, a cook, a nanny and a driver then their services are included.
3.   In some countries where there is a large informal economy. The goods produced by such activities are not be included in GDP computations.
Does an increase in GDP necessarily improve residents’ happiness?
In economics, happiness is better known as welfare.
If there is an earthquake in your country and many roads, buildings, bridges, stadia are destroyed. Then rebuilding them will increase the national GDP but has it improved the citizens’ welfare?
As a resultant of economic growth the quality of air you breathe has gone down and the water supply is polluted. Has this improved your standard of living?
Due to increased standard of living everybody has a car and you are now required to spend one hour extra in commuting time. Has this resulted in improved happiness?
What is the prognosis for GDP and economic growth?
It appears that due to Covid-19 the GDP of most nations will be lower than in 2019. These economies will have negative economic growth which means that in 2020 they will produce fewer goods than in 2019.
When the GDP falls, the terms most used are recession and depression. The difference between the two according to Harry Truman is ‘It's a recession when your neighbour loses his job; it's a depression when you lose yours’ .
As you have seen in the news, firms are busy firing staff which means there will be increased unemployment. Since more people are unemployed they will not have money to buy goods in the future and so there will be even less demand for goods in the future and those who have jobs today may lose their jobs next year in a downward spiral of negative economic growth begetting even more negative growth.
Will there be lower emphasis on GDP and economic growth in the future? For such a change to happen there needs a material change in organising the world economy. (If you wish to read further click here)
I hope it happens in my lifetime.
* - annualised rate

---Also watch

How the Economic Machine Works by Ray Dallio


Sunday 5 August 2018

The empty rituals of daily lives

Tabish Khair in The Hindu




Just as religious rituals move the practitioner away from the immensity of faith, secular rituals move citizens’ attention away from real issues


Serious religious thinkers have tended to distinguish between ritual and religion. Some, of course, have distinguished between spirituality and religion too, mostly because they have associated religion with rituals.

Now, rituals have their uses, as long as we employ them in the full awareness that they are arbitrary and man-made. This applies to secular matters as well as religious ones: I like my ritual of a morning cup of coffee with a biscuit or two, but I do not assume that this is god-ordained or that my day will not commence unless I have my cup of coffee. So, I am not talking of rituals of this sort. I am talking of rituals that are made ‘essential’ to either religion or secular life.

The matter with religion is clear enough. The reason why religious but nonconforming thinkers, like Kabir, railed against rituals was that they perceived how rituals are used, in the name of religion, to control, influence and exploit people. They also felt that rituals are worldly matters and have nothing to do with the divine. The priestly classes insist on rituals, as if god would care about the colour of your dress, the posture of your prayer, the number of your beads, etc. Rituals proliferate in religions because they allow the priestly classes to control and exploit ordinary believers. Instead of being used as an option, the coffee cup ritual becomes a necessity imposed on the ordinary believer, often at great cost.

Rituals in secular life

This much is clear enough about religion, and explains why so many religious thinkers — apart from the accredited priestly classes, whether mullahs or pandits — tended to criticise rituals or blind observance of rituals. But how, you might be asking, do rituals work in the secular sphere? Because such rituals are not confined to religion. They also exist in secular life, and are used by various ‘priestly classes’ to mislead, control and exploit ordinary people. I suspect that basically religious people, conditioned to associate belief with rituals, are likely to be misled by rituals in secular life too.

A ritual in secular life is like a ritual in religion: it is demanding, obsessive, unavoidable, essential. It is the one thing that you ‘need’ to do in order to have a good life (in this world or the next, or both). Or so the priestly classes claim. Because when you really look at this ‘essential’ ritual, it falls apart. It is not necessary; you can do without it. You can understand the world in other ways, live your life differently. But no, the priestly classes claim, you have to practice this ritual — or you will suffer and probably be damned for all eternity!

Rituals of prosperity

Think of the rituals that we are surrounded by in ordinary secular life. Think, for instance, of all those economic figures trotted out by national economists in all countries to show that the nation is progressing. GNP. Average national income. The rising value of shares in the stock market. These are rituals of prosperity, because if you really look into them, they mean nothing. Or they mean nothing because they have been turned from actual, though limited, indicators into sweeping rituals: empty practices.

A rise in GNP, the average national income, or the share market can indicate some types of prosperity, but these are not enough — and they are misleading when trotted out in ritualistic fashion by politicians. In each case, there is a good chance that some people might be gaining and many more losing. Take the situation of Amazon: the company is thriving, but, at least in the U.S., it is reputed to offer its workers a very meagre wage package and unsatisfactory working conditions. To think that the profits being made by Amazon is percolating down to its workers is to make a mistake. But that is the mistake we make when we simply note the net value of Amazon or the rise in its shares. Such figures play the role of empty rituals.

With countries, the matter is even more complex, as the prosperity of a country depends on factors other than financial ones. Hence, politicians who give us general figures and averages, whether correct or not, are indulging in empty rituals.

Of course, figures are not the only rituals practiced by politicians in power, the apex of the secular priestly classes. For instance, it is a ritual to construct a highway without making a sustained effort to improve the existing highways, to create a super-city without a sustained effort to improve the urban infrastructure in existing cities, to raise the statue of a great leader and ignore the best aspects of his example.

These acts and decisions are rituals because they are empty and misleading. Just as a ritual in religion moves the practitioner away from the endless immensity of faith to a delusive shortcut, a ritual in secular life moves citizens’ attention away from all the real issues and offers a soupçon of misleading satisfaction. I fear that we Indians might or might not be a spiritual people, but we do have a certain tendency to indulge — and let others indulge — in empty rituals in religious as well as secular life.

Monday 5 December 2011

Climate Justice Requires A New Paradigm


By Vandana Shiva
02 December, 2011
Newleftproject.org

Twenty Years ago, at the Earth Summit, the world’s Governments signed the UN Framework Convention on Climate Change to create a legally binding framework to address the challenge of climate change.
Today, the Green House Gas emissions that contribute to climate change have increased not reduced.
The Climate Treaty is weaker not stronger.

The failure to reduce green house gases is linked to following the flawed route of carbon trading and emissions trading as the main objective of the Kyoto Protocol to the Climate Convention.

The Kyoto Protocol allows industrialized countries to trade their allocation of carbon emissions among themselves (Article 17). It also allows an “investor” in an industrialized country (industry or government) to invest in an eligible carbon mitigation project in a developing country in exchange for Certified Emission Reduction Units that can be used to meet obligation to reduce greenhouse gas emissions. This is referred to as the Clean Development Mechanism (CDM) under Article 12 of the Kyoto Protocol. The Kyoto Protocol gave 38 industrialized countries that are the worst historical polluter’s emissions rights. The European Union Emissions Trading Scheme (ETS) rewarded 11,428 industrial installations with carbon dioxide emissions rights. Through emissions trading Larry Lohmann observes, “rights to the earth’s carbon cycling capacity are gravitating into the hands of those who have the most power to appropriate them and the most financial interest to do so”. That such schemes are more about privatizing the atmosphere than preventing climate change is made clear by the fact that the rights given away in the Kyoto Protocol were several times higher than the levels needed to prevent a 2°C rise in global temperatures.

Climate activists focused exclusively on getting the Kyoto Protocol implemented in the first phase. They thus, innocently, played along with the polluters.

By the time the Copenhagen Summit took place, the polluters were even better organised and subverted a legally building outcome by having President Obama push the Copenhagen Accord.

Copenhagen and Beyond : The agenda for Earth Democracy

The UN Climate Summit in Copenhagen was probably the largest gathering of citizens and governments [ever? To do with what?]. The numbers were huge because the issue is urgent. Climate chaos is already costing millions of lives and billions of dollars. The world had gathered to get legally binding cuts in emissions by the rich North in the post Kyoto phase i.e. after 2010. Science tells us that to keep temperature rise within 2°C, an 80% cut is needed by 2020. Without a legally binding treaty, emissions of greenhouse gases will not be cut, the polluters will continue to pollute, and life on earth will be increasingly threatened.

There were multiple contests at Copenhagen, reflecting multiple dimensions of climate wars. These contests included those:
>> Between the earth’s ecological limits and limitless growth (with its associated limitless pollution and limitless resource exploitation).
>> Between the need for legally binding commitments and the U.S led initiative to dismantle the international framework of legally binding obligations to reduce greenhouse gas emissions.
>> Between the economically powerful historical polluters of the North and economically weak southern countries who are the victims of climate change, with the BASIC countries (Brazil, South Africa, India, China) negotiating with the South but finally signing the Copenhagen Accord with the U.S.
>> Between corporate rule based on greed and profits and military power, and Earth Democracy based on sustainability, justice and peace.
The hundreds of thousands of people who gathered at Klimaforum and on the streets of Copenhagen came as earth citizens. Danes and Africans, Americans and Latin Americans, Canadians and Indian were one in their care for the earth, for climate justice, for the rights of the poor and the vulnerable, and for the rights of future generations.

Never before has there been such a large presence of citizens at a UN Conference. Never before have climate negotiations seen such a large people’s participation. People came to Copenhagen because they are fully aware of the seriousness of the climate crisis, and deeply committed to taking action to change production and consumption patterns.

Ever since the Earth Summit in 1992 in Rio de Janeiro the U.S has been unwilling to be part of the UN framework of international law. It never signed the Kyoto Protocol. During his trip to China, President Obama with Prime Minster Rasmussen of Denmark had already announced that there would only be a political declaration in Copenhagen, not a legally binding outcome.

And this is exactly what the world got – a non-binding Copenhagen Accord, initially signed by five countries, the US and the Basic Four, and then supported by 26 others – with the rest of the 192 UN member states left out of the process. Most countries came to know that an “accord” had been reached when President Obama announced the accord to the U.S Press Corp. Most excluded countries refused to sign the accord. It remained an agreement between those countries that chose to declare their adherence. But it nevertheless showed the willingness of the US and others to disregard the needs of those in the global South. Arguing against the accord, Sudan’s Ambassador Lumumba Di Aping said the 2°C increase accepted in the document would result in a 3 to 5 degree rise in temperature in Africa. He saw the pact as a suicide pact to maintain the economic dominance of a few countries.

As Jeffrey Sachs noted in his article “Obama undermines UN Climate Process”:
“Obama’s decision to declare a phoney negotiating victory undermines the UN process by signaling that rich countries will do what they want and must no longer listen to the “pesky” concerns of many smaller and poorer countries – International Law, as complicated as it is, has been replaced by the insincere, inconsistent, and unconvincing word of a few powers, notably the U.S. America has insisted that others sign on to its terms – leaving the UN process hanging by a thread.”[1]
Even though the intention of the award was to dismantle the UN process, the reports of the two ad-hoc working groups on the Kyoto Protocol (AWG-KP) and the long term cooperative action (AWG-LCA) which have been negotiating for four years and two years were adopted in the closing plenary.

The Copenhagen Accord will undoubtedly interfere with the official UNFCC process in future negotiations as it did in Copenhagen. Like the earth’s future, the future of the UN now hangs in balance. There has been repeated reference to the emergence of a new world order in Copenhagen. But this is the world order shaped by corporate globalization and the WTO, not by the UN Climate Treaty. It is a world order based on the outsourcing of pollution from the rich industrialized North to countries like China and India. It is a world order based on the rights of polluters.

Climate change today is global in cause and global in effect. Globalisation of the economy has outsourced energy-intensive production to countries like China, which is flooding the shelves of supermarkets with cheap products. The corporations of the North and the consumers of the North thus bear responsibility for the increased emissions in the countries of the South.

In fact, the rural poor in China and India are losing their land and livelihood to make way for an energy-intensive industrialization. To count them as polluters would be doubly criminal; corporations, not nations, are the appropriate basis for regulations atmospheric pollution in a globalised economy.

Twelve years after citizens movements and African governments shut down the WTO Ministerial in Seattle, the same contest between corporate power and citizens power, between limitless profits and growth and the limits of a fragile earth was played out in Copenhagen. The only difference was that in trade negotiations the commercial interests of corporation’s stands naked, whereas in climate negotiations corporate power hides behind corporate states. The Copenhagen Accord is in reality the accord of global corporations to continue to pollute globally by attempting to dismantling the UN Climate Treaty. It should be called the “Right to Pollute Accord”. It has no legally binding emission targets.

The COP 15 talks in Copenhagen and COP 16 in Cancun did not show much promise of an outcome that would reduce Green House Gas Emissions and avoid catastrophic climate change. And the deadlock is caused by an outmoded growth paradigm. There are series of false assumptions driving the negotiations, or rather, blocking them.
>> False assumption No. 1: GNP measures Quality of Life
>> False assumption No. 2: Growth in GNP and improvement in Quality of Life is based on increased use of Fossil Fuel
>> False assumption No. 3: Growth and Fossil Fuel use have no limits
>> False assumption No. 4: Polluters have no responsibility, only rights.
These false assumptions are stated ad nauseum by corporations, governments and the media. As stated in an article in the Times of India, “Emissions are directly related to the quality of life and industrial production, and hence economic growth also has a direct link with it”.

Assumption No. 1 is false because even as India’s GNP has risen, the number of hungry people in India have grown. In fact, India is now the capital of hunger. The growth in GNP has in fact undermined the quality of life of the poor in India. And it has concentrated wealth in the hands of a few 100 billionaires now control 25% of India’s economy.

Assumption No. 2 is false because there are alternatives to fossil fuels such as renewable energy. Further, reduction in fossil fuel use can actually improve the quality of food and quality of life. Industrial agriculture based on fossil fuels uses ten units of energy to produce one unit of food. Ecological systems based on internal inputs produce 2 to 3 units out of every unit of energy used. We can therefore produce more and better quality of food by reducing fossil fuel use.

Assumption No. 3 is false because the financial collapse of 2008 showed that growth is not limitless, and Peak Oil shows that fossil fuels will increasingly become more difficult to access and will become costlier.

Assumption No. 4 formed the basis of carbon trading and emissions trading under the Kyoto Protocol. This allowed polluters to get paid billions of dollars instead of making the polluter pay. Thus ArcelorMittal has walked away with £1 billion in the form of carbon credits. ArcelorMittal was given the right to emit 90m tonnes of CO2 each year from its plants in EU from 2008 to 2012, while the company only emitted 68m tonnes in 2008.

To protect the planet, to prevent climate catastrophe through continued pollution, we will have to continue to work beyond Copenhagen by building Earth Democracy based on principles of justice and sustainability. The struggle for climate justice and trade justice are one struggle, not two. The climate crisis is a result of an economic model based on fossil fuel energy and resource intensive production and consumption systems. The Copenhagen Accord was designed to extend the life of this obsolete model for living on earth. Earth Democracy can help us build another future for the human species – a future in which we recognize we are members of the earth family that protecting the earth and her living processes is part of our species identity and meaning. The polluters of the world united in Copenhagen to prevent a legally binding accord to cut emissions and prevent disastrous climate change. They extended the climate war. Now citizens of the earth must unite to pressurize governments and corporations to obey the laws of the Earth, the laws of Gaia and make climate peace. And for this we will have to be the change we want to see.

As I have written in Soil Not Oil, food is where we can begin. 40% emissions are produced by fossil fuel based chemical, globalised food and agriculture systems which are also pushing our farmers to suicide and destroying our health. 40% reduction in emissions can take place through biodiverse organic farming, which sequesters carbon while enriching our soils and our diets. The polluters ganged up in Copenhagen for a non-solution. We as Earth Citizens can organize where we are for real solutions.

References
[1] Economic Times, 25th December, 2009
Vandana Shiva is a philosopher, environmental activist, and eco feminist. Shiva, currently based in Delhi, has authored more than 20 books and over 500 papers in leading scientific and technical journals. She was trained as a physicist and received her Ph.D. in physics from the University of Western Ontario, Canada. She was awarded the Right Livelihood Award in 1993. She is the founder of Navdanya