Saturday, April 19, 2014

Hey Presto!

Statistics are the magic, and the manna, of the economist. They are less reliable than weather forecasts; the meteorologist has a better chance of forecasting rainfall than an economist of forecasting economic growth.Things get even more testy over the issue of Gross Domestic Product, that great calculator of a nation’s economic output. The proof, in this case, lies outside the pudding, rather than in it. Things get even more testy over the issue of Gross Domestic Product, that great calculator of a nation’s economic output. The proof, in this case, lies outside the pudding, rather than in it....

...A suitable illustration of this statistical gazing comes in the form of assessing Nigerian economic performance. For one, the recent rebasing of its performance seemed to take other countries in the region by surprise. Nigeria is now Africa’s largest economy. This hardly seemed to make sense, given that South Africa, with a GDP of $354 billion in 2013, was streets ahead. Nigeria’s statistician-general would have none of that. Figures showed a jump from 4.2 trillion naira to 80.2 trillian naira, the equivalent of $509 billion. Astonishingly, the economy had grown by 90 per cent, effortlessly surpassing their rivals....

...The problem, as ever, is that GDP is one of the greatest tricks in the economist’s manual. In itself, it says nothing. Roy H. Webb of the Federal Reserve Bank of Richmond offers a definition: “the market value of current, final, domestic production during a specific interval of time.” Already we have our first problem – value includes prices for goods and services actually paid in market transactions. Defense costs may not be available because market prices are not available. What is left out can prove as vital as what is included.

States, on paper, can appear rich yet still have a good portion of its citizens living on less than a dollar a day. The GDP measurement had its origins in concepts of sound and sober management – monitoring the economy the way a doctor monitor’s a patient’s health. That management, as with other systems of accounting, went awry. It has been said that John Maynard Keynes’s The General Theory of Employment, Interest and Money was a true catalyst, given its emphasis on matters of national investment and product. The retiring Bureau of Economic Analysis chief Steven Landefeld has issued an appropriate warning: figures like GDP “are eminently useful in macroeconomic analysis if they are not regarded as a precision instrument.” The line between precision and lethality is a fine one...

... economic improvement should never be a race. It should be a matter of genuine growth and poverty alleviation. Economic growth serves as both warning and promise. As well as it might suggest that some things are going well, it gives little indication about distribution. GDP remains a trick.

Full article by Binoy Kampmark on the Dissident Voice website 

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