Tuesday, September 27, 2022
Fake economic growth?
While I have a strong interest in economics, and have educated myself about it, I never had a formal education in that field. So there are some things that I know how they are being calculated, but have my doubts about why it is done that way. One thing that always sounded dubious to me is the calculation of economic growth. For example if I help you and you help me, that doesn't contribute to economic growth. But if I pay you for your help, and you pay me the same amount for my help, we suddenly created economic growth, although we still have the same work done and the same amount of money in our pockets.
I was thinking about my doubts on the way GDP is calculated in the recent economic context. In order to battle inflation, central banks everywhere are raising interest rates. And that has a huge negative impact on GDP. And I was wondering whether at least in part that is because we "faked" economic growth earlier, in the long decades of low interest rates.
If I decide to borrow some money and buy myself something with it, this is counted as straight economic growth. There is no negative accounting of the fact that I now have debt. If we all live way beyond our means, that would be perfect for the official GDP and its growth. In reality we are all hopefully aware that if I spend borrowed money today, that will necessitate that I spend less tomorrow, so I can pay my debt back. So spending borrowed money instead of earned money causes a sort of "fake" economic growth, at it is foreseeable that this isn't permanent, and the seed for negative growth is already sown by the debt.
One person's debt is another person's saving. However, we know that richer people spend a lesser percentage of their income than poorer people, and tend to just sit on their savings. The "trickle-down economics" don't really work, because they are at best a trickle. A fairer distribution of the spoils of capitalism, in which workers get a larger share of created wealth, would create a much more sustainable economic growth.