The Danger of GDP

By Juchang He, chang@public.shenzhen.cngb.com, 19 March 2000

Western economists tend to use GDP (Gross Domestic Product) as a measure of the economic status of a country. All models of economic growth are set up on the basis of the GDP. They regard an increase in the GDP as a development of the economy, or as economic growth, and they calculate the rate of a country's economic growth, according to the GDP. This is misleading and unscientific and so disguises the actual economic realities. It perpetuates poverty. It leads to the pollution and destruction of the earth. It even leads to war. Why? I'll show you:

(1) It perpetuates poverty and disguises economic realities.

Nowadays, most countries use the GDP to judge and calculate their economic growth. When there is a large GDP and high economic growth, say 9% per year, economists will say that the economy is great and the financial officers will be proud, but still the economy is bad. It is bad because the living standards of the poor haven't been raised. There are still many people suffering from cold and hunger. They can't afford to send their children to school, and, as a result, too many children are deprived of education.

If the economists say things are bad, the government has got to make an effort to raise the living standards of poor people. If the economists say that the economy is great, there seems no need for the government to raise the living standards of poor people.

When there is a small GDP and a negative economic growth rate of, say, -2% a year, the economists will say that the economy is bad and the financial officers will be ashamed of it. Then the government has got to make every effort to raise GDP, but the living standards of the poor are unaffected. Therefore, it appears that GDP is for the rich to fool the poor people and keep them poor.

(2) It leads to the pollution and destruction of the earth.

We all know the Earth is getting more and more seriously polluted. Why? Because we are blindly developing the economy. Economists uphold the GDP (Gross Domestic Product) as the measure in developing the economy. All activities that increase the GDP are labelled as “development of the economy” and as a result some people are wilfully destroying the environment merely for the purpose of making money. Since they can make a lot of money by destroying of environment, they employ a large number of workers and say that they have decreased the rate of unemployment. They also say that, with the increase of GDP, they have advanced the development of economy. As western economists take the GDP to be the measure in developing the economy, we find it difficult to lay blame on them for the economic activities that lead to the destruction of environment and, as a result, the earth is becoming more and more seriously polluted.

(3) It leads to war.

Western economists create prosperity by producing weapons and war. Are you aware that “the crisis of 1930-39 is generally known as the Great Depression”? Keynesians say “the Great Depression was ended by the military Keynesianism of the Second World War.” Why do they insist that the Great Depression can be ended by war? It is because they think that war can increase the government's spending. The spending increase means the increase of social needs, which can decrease unemployment and increase GDP and economic growth rate. Keynesians call it “military Keynesianism”. They judge a country's economic growth and economic growth rate by means of the GDP. (Keynes's Solution to unemployment was higher public spending which would add to incomes and through the multiplier process lead to more jobs.)

How can we make a change in these phenomenon? The only way out is to use some other economical measure to replace GDP. What is the exact aim of developing the economy? The aim of developing the economy is to raise the quality of life and improve the standard of living. Therefore only the living standards of the people can be used as a measure of the economic status of a country. In order to use the living standards of the people instead of GDP to measure the whole economic situation of a country, I'd like to offer a criterion of how to measure the living standards of the people:

People's living standard can be divided into four grades. The first grade is necessary consumption of education, clothing, food, housing and transportation. The second grade is ordinary consumption, which means buying some more clothes and purchasing TV sets and washers, etc. The third grade is extravagant consumption, which means going to hotels, restaurants and dancing-halls and taking cars, etc. The fourth grade is over-extravagant consumption.

Sincerely,
Juchang He
SHENZHEN, P.R. CHINA
E-mail: chang@public.shenzhen.cngb.com
http://sites.netscape.net/juchang/homepage.html