economics growth politics

That rise in GDP could mean less than you think

Two little observations about economics and what we think we know about it.

  • The Office of National Statistics released its latest bulletin today, confirming that the economy had grown by 0.3% in the first quarter of 2010. Among the outpouring of comment on this is news piece by the BBC’s Declan Curry. Towards the end of the clip, as he rides an ascending escalator, he explains: “if GDP is rising, that means the economy is expanding, and that means more wealth, and more new jobs.”

    A neat little explanation of what rising GDP is supposed to mean – except that  neither of those last two statements is true. In reality, unemployment rose by 0.1% during that same period. And since inflation is at 3% and wages have stagnated, we’re actually poorer in real terms.

    I like Declan Curry, but he needs to analyse his assumptions about GDP. There was a rather obvious question that neither he, nor any other journalist appeared to be asking yesterday: if we can have confirmed growth in the economy, but remain poorer and have fewer jobs, then remind me what’s so great about growth again?

  • In the detail of the bulletin, I also found the answer to another important question I’ve been wondering about: just how much of our growth is government spending? As it turns out, government expenditure grew by 1.5% in the first quarter of this year. Thank goodness it did, because household consumption fell, and our trade deficit grew. In all, government spending was responsible for 0.4% growth in GDP.

    Since GDP growth was only o.3%, not only did the government account for all the growth in the first quarter, it offset the decline in other sectors. To put it another way, government spending single-handedly brought the economy out of recession.

    That puts a rather different perspective on those spending cuts.


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