GDP

Gross Domestic Product (GDP) is a statistic to which much importance is attached by the high priests of capitalism, our celebrated economic ‘experts’ and central bankers with their panels of expert advisers. Estimates of the growth or decline in GDP in the previous quarter are eagerly awaited, and forecasts for the coming year and beyond are given much credence and lead to sighs of relief when, as with the recent forecast for UK GDP from Moody, they predict growth of 1.2% for 2017, only slightly lower than the 1.5% forecast for 2016. The collective group-think is that, while the UK economy is slowing down, the EU Referendum result will not, as previously feared, trigger a recession. This confidence is buttressed by forecasts of GDP growth in the rest of the world, the recent fall in the value of the pound and the Bank of England’s further resort to ‘quantitative easing’ – the strategy whereby the government, in effect, prints money and lends it to the commercial banks without any strings attached.

Capitalist economies are, of course, always driven by such vague sentiments, reinforced by the wisdom of ‘experts’ who actually have little understanding of how their economies really work or when the next crisis will hit. Moody’s forecast assumes that another financial crash of the kind experienced in 2007 and 2008 won’t occur. Considerations such as the instability of the Euro, the house price bubble and bankers’ continued addiction to casino and arbitrage activity instead of investment in productive enterprises are simply ignored. Also disregarded, perhaps because it is simply too painful for the ‘experts’ to contemplate, is the much greater difficulty governments and central banks will encounter if a crisis in the banking and finance sector occurs sooner rather than later. Next time it won’t be so easy to lay the burden on ordinary workers and their families. That trick can only be played when memories have faded.

The tendency for capital to over-accumulate and resort to speculative activity as the rate of profit declines makes another economic crisis inescapable. It may not arise in 2017, but it’s coming.

Finally, a brief note on GDP. GDP is arrived at by summing the value added from separate commodity generating activities across the economy, thereby avoiding double counting the production of commodities used in subsequent production. It thus represents the income available to a nation to pay wages, capital costs, taxes and (most important to capitalists) profits. It is a useful measure of the scale of an economy, but it has several shortcomings. In particular:

  1. it fails to measure inputs and outputs at their true economic cost. In particular, no allowance is made for the damage to the environment caused, for example, by CO2 emissions;
  2. there is no allowance for depreciation of plant and machinery. If this were done GDP would be a good first order estimate of surplus value – a key measure in Marxist economics which bourgeois economists prefer to ignore – assuming that is they understand what it is;
  3. GDP, even after deduction of depreciation, requires a deflator before it can be used as an efficiency measure. The available deflators such as hours worked have limitations; and
  4. the statistic tells us nothing about how GDP is shared between capitalists and workers.

 

For those interested in these more technical matters, I will post a short piece shortly on the  Communist University in South London website.

 

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What Regulators Are For

Last week the Financial Conduct Authority proposed as its contribution to solving the housing crisis to “look at the products and markets that are developing to ensure they work for consumers.” This week it was the turn of the Bank of England’s Financial Stability Committee to address the housing crisis. They were, however, no more concerned about the housing needs of working families than were the Financial Conduct Authority. Their concern was with “wider financial stability” which they saw threatened by bank lending to the buy-to-let market. “Wider financial stability” is banker-speak for avoiding another banking crisis. Fuelled by Quantitative Easing, the policy whereby the government prints money and gives it to the banks in the hope that they will lend it to UK industry, the banks chose, instead, to increase lending for buy-to-let by 40% since the 2007-8 banking crash and bailout. This increase has been a major factor in escalating house prices. The Financial Stability Committee is right to be concerned that another banking crisis could be triggered by a collapse in the buy-to-let market, but just like the Financial Conduct Authority, they are focussing on the wrong needs: those of banks and financial services providers, not the unmet needs of working families.

Needless to say, the Financial Stability Committee refrained from suggesting that the government should regulate or restrict bank lending even though it is effectively with our money. The role of a regulator in a market economy is to bestow legitimacy on markets and the accumulation of capital. Protection of ‘consumers’ is very much a secondary consideration and protection of workers completely out of the question. Appointed by ministers but supposedly at arm’s length from the government of the day, their true independence is as fictitious as that of the judiciary and the police. We should not be surprised when they represent the interests of the 1%, not the 99%.