Economics for Non Economists 3 – Explaining GDP and Economic Growth

By Girish Menon

Introduction

You will have recently read:

-     At 13%, Economist Intelligence Unit Pegs India's Growth In 2021 Higher Than IMF

-    Western economies recovering faster than expected from Covid, says IMF

 -   UK GDP rose 0.4% in February

 -  China's economy grows 18.3% in post-Covid comeback

 

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

SourceWorldometers

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

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A Class War like Never Seen Before?

A coronavirus vaccine could split America

In the battle between public science and anti-vaxxer sentiment, science is heavily outgunned writes Edward Luce in The FT

It is late October and Donald Trump has a surprise for you. Unlike the traditional pre-election shock — involving war or imminent terrorist attack — this revelation is about hope rather than fear. The “China virus” has been defeated thanks to the ingenuity of America’s president. The US has developed a vaccine that will be available to all citizens by the end of the year. Get online and book your jab.  

It is possible Mr Trump could sway a critical slice of voters with such a declaration. The bigger danger is that he would deepen America’s mistrust of science. A recent poll found that only half of Americans definitely plan to take a coronavirus vaccine. Other polls said that between a quarter and a third of the nation would never get inoculated. 

Whatever the true number, anti-vaccine campaigners are having a great pandemic — as indeed is Covid-19. At least three-quarters of the population would need to be vaccinated to reach herd immunity. 

Infectious diseases thrive on mistrust. It is hard to imagine a better Petri dish than today’s America. Some of the country’s “vaccine hesitancy” is well grounded. Regulators are under tremendous pressure to let big pharma shorten clinical trials. That could lead to mistakes. 

Vaccine nationalism is not just about rich governments pre-ordering as many vials as they can. It is also about winning unimaginably large bragging rights in the race to save the world. Cutting immunological corners could be dangerous to public health. 

Such caution accounts for many of those who would hesitate to be injected. The rest are captured by conspiracy theories. In the battle between public science and anti-vaxxer sentiment, science is heavily outgunned. It faces a rainbow coalition of metastasising folk suspicions on both the left and the right. Public health messages are little match for the memology of social media opponents. 

It is that mix of technological savvy and intellectual derangement that drives today’s politics. Mr Trump did not invent postmodern quackery — though he has endorsed some life-threatening remedies. The irony is that he could fall victim to the mistrust he has stoked.  

Should an effective vaccine loom into view before the US goes to the polls in 95 days, Mr Trump would not be the ideal person to inform the country. The story is as old as cry wolf. Having endorsed the use of disinfectants and hydroxychloroquine, Mr Trump has forfeited any credibility. Validation should come from Anthony Fauci, America’s top infectious-diseases expert, whose trust ratings are almost double those of the president he serves. 

Even then, however, the challenge would only just be starting. There is no cause to doubt the world-beating potential of US scientific research. There are good reasons to suspect the medical establishment’s ability to win over public opinion. 

The modern anti-vaxxer movement began on the left. It is still going strong. It follows the “my body is my temple” philosophy. Corporate science cannot be trusted to put healthy things into our bodies. The tendency for modern parents to award themselves overnight Wikipedia degrees in specialist fields is also to blame. 

Not all of this mistrust is madcap. African Americans have good reason to distrust public health following the postwar Tuskegee experiments in which hundreds were infected with syphilis and left to fester without penicillin. Polls show that more blacks than whites would refuse a coronavirus vaccine. Given their higher likelihood of exposure, such mistrust has tragic potential. 

But rightwing anti-vaxxers have greater momentum. America’s 19th century anti-vaccination movements drew equally from religious paranoia that vaccines were the work of the devil and a more general fear that liberty was under threat. Both strains have resurfaced in QAnon, the virtual cult that believes America is run by a satanic deep state that abuses children. 

It would be hard to invent a more unhinged account of how the world works. Yet Mr Trump has retweeted QAnon-friendly accounts more than 90 times since the pandemic began. Among QAnon’s other theories is that Covid-19 is a Dr Fauci-led hoax to sink Mr Trump’s chances of being re-elected. Science cannot emulate such imaginative forms of storytelling. 

All of which poses a migraine for the silent majority that would happily take the vaccine shots. Their lives are threatened both by a pandemic and by an infodemic. It is a bizarre feature of our times that the first looks easier to solve than the second. 

All marriages are arranged

Sadhguru Jaggi Vasudev in The Indian Express

Arranged marriage is a wrong terminology, because all marriages are arranged. By whom is the only question. Whether your parents or friends arranged it, or a commercial website or dating app arranged it, or you arranged it – anyway, it is an arrangement.

The idea that arranged marriage is some kind of a slavery – well that depends on whether there is exploitation. There are exploitative people everywhere. Sometimes, even your parents themselves may be exploitative – they may be doing things for their own reasons, like their prestige, their wealth, their nonsense.

Recently, someone asked me about choosing a girl for their boy. One girl is well-educated and pretty, but another girl had a wealthy father. They asked me which they should choose. So I asked a simple question, “Do you want to marry the girl or someone’s wealth?” It depends on what is your priority. If your priority is such that someone’s wealth by marriage becomes yours and that is all that matters to you, that is fine. Well, that is the kind of life you have chosen.

Arranged marriage and divorce rates

The success of something is in the result. Luxembourg, a small country which is held as one of the most economically prosperous and free societies, has a divorce rate of eighty-seven per cent. In Spain, the divorce rate is around sixty-five per cent; Russia is at fifty-one per cent; United States, forty-six per cent. India: 1.5 per cent. You decide which works best.

Well, people may say the divorce rate here is low due to the social stigma associated with divorce, but definitely how it is arranged is also an important factor. When parents are the basis of organising the marriage, the success rate is a little better because they will think more long term. You may just like the way a girl is dressed and you want to get married today. Well, tomorrow morning you could realise you don’t want to have anything to do with her! When you are twenty, due to various compulsions or peer pressure, you may take decisions which will not last a lifetime. But sometimes you really hit it off with someone and it may work out – that is another matter.

Everything is an arrangement. You may think so many things about it, but it is arranged by your emotion, your greed, or by someone. It is an arrangement. It is best that it is arranged by responsible, sensible people, by those who are most concerned about your wellbeing, who have a larger reach. You cannot find the best man or woman in the world because we do not know where they are! With the limited contacts that we have, we can arrange something that is reasonably good. That is all it is.

If a young man or young woman wants to marry, who will they marry? Their contacts are very limited. Within those ten people that they know in their life, you marry one guy or girl. Within three months you will know what it really is. But in most countries, there is a law: if you make a mistake, at least two years you must suffer before you can divorce. It is like a jail term. Well, many religions have fixed it that you cannot divorce, that it is completely wrong. But where such religions are practiced, there the divorce rate is highest. So, neither God’s diktats nor the law is able to stop the breakups.

When parents organise a marriage, their judgement may not be the best, but they generally have your best interests in mind. If you have matured beyond your parents’ judgement or prejudice, that is different – now you can make your own decisions.

Conducting your marriage responsibly

When I married I did not know my wife’s full name. I did not know her father’s name. I did not know her caste. When I told my father that I wanted to marry her, he said, “What? You don’t know her father’s name? You don’t know who they are, or what they are? How can you marry her?”

I said, “I’m only marrying her. I’m not planning to marry any of the other things that come with her. Just her. That’s it.” I was absolutely clear about her potential and what she will bring to me, and she was helplessly in love from the first moment.

Though I never took anyone’s advice in my life, there are always self-appointed advisors who said, “You’re making the biggest mistake in your life, this is going to be a disaster.”

I said, “Whatever happens, whichever way it happens, it is for me either to make it a disaster or a success.” I knew this much.

Because who you marry, how you marry, which way it was arranged or by whom it was arranged is not important. How responsibly you exist – that is all there is. How you arrange the marriage is your choice. I’m not saying this or that is the way, but whichever way you do it, please conduct it responsibly, joyfully. You need to understand to fulfil your needs, physical, psychological, emotional, social and various other needs, you are coming together. If you always remember, “To fulfil my needs, I’m with you,” then you will conduct this responsibly. Initially, you may be like that, but after some time, you think he or she needs you; then you will start acting wantonly and, of course, ugliness will start in many different ways.

This happened. A young man and a young woman got engaged. So once the ring was slid on her finger, the young woman said to him, “You can lean on me to share your pains, your struggles. Whatever sufferings you go through, you can always share them with me.”

The guy said, “Well, I don’t have any struggles or pains or problems.”

She said, “Well, we are not yet married.”

If you think you are full of pain, struggles, and problems and need someone to lean on, there will be trouble. You know, they have been saying, marriages are made in heaven, but you are cooking hell within you. If you think someone else is going to fix you then there will be trouble for you, and of course, unfortunate consequences for the other person. If you make yourself into a joyful, wonderful human being, then you will see, your work, home and marriage will all be wonderful. Everything will be wonderful because you are!

Does Modern Medicine have a Platypus Problem?

By Girish Menon

“Early zoologists classified as mammals those that suckle their young and as reptiles those that lay eggs. Then a duck-billed platypus was discovered in Australia laying eggs like a perfect reptile and then, when they hatched, suckling the infant like a perfect mammal.
The discovery created quite a sensation. What an enigma! it was exclaimed.

What a mystery! What a marvel of nature! When the first stuffed specimens reached England from Australia around the end of the eighteenth century they were thought to be fakes made by sticking together bits of different animals. Even today you still see occasional articles in nature magazines asking ‘Why does this paradox of nature exist?’.

The answer is: it doesn’t. The Platypus isn’t doing anything paradoxical at all. It isn’t having any problems. Platypuses have been laying eggs and suckling their young for millions of years before there were any zoologists to come along and declare it illegal. The real mystery, the real enigma, is how mature, objective, trained scientific observers can blame their own goof on a poor innocent platypus.” Robert Pirsig in Zen and the Art of Motorcycle Maintenance

I wondered if this is the attitude of modern medicine towards primary care physician Dr. Stella Emmanuel for her recommendation of Hydroxychloroquine as a panacea for the Covid-19 virus.

I discussed Dr. Emmanuel's prescription with more than one practitioner of modern medicine and they were all unanimous in their condemnation of Dr. Emmanuel’s self publicity approach of making a film with many white coated authority figures in the background. 'She could have presented her data for scrutiny' and 'her claims will not qualify as level 2 evidence' were some of their verdicts.

Hydroxychloroquine, unfortunately, has become a highly political drug which has divided opinion on liberal v conservative lines. ‘Big Pharma’ has also been accused of trying to destroy a cheap solution to the raging Corona virus problem.

In the UK, modern medicine’s success in combating Covid-19 has resulted in over 50,000 deaths and delayed treatment of all other life threatening ailments. Decision making has been a series of flip-flops and U turns and is best illustrated by Telegraph’s Blowe





I wondered if some of the decisions by modern medicine on the lockdown and thereafter have the same amount of evidence required of Dr. Emmanuel and her panacea?

I am willing to take a sceptical approach to Dr Emmanuel as well as to the science based responses of the Boris Johnson government.

But, I also wondered if modern science and medicine ever consider that they too may suffer from the platypus problem?

'Modern Medicine's' response to Covid

Hindutva is based on the Abrahamic faiths model