Comment: Don’t be fooled by GDP – we’re seeing a fake boom
By Godfrey Bloom
There is much confusion in the minds of the media and electorate as to exactly which direction the UK economy is actually travelling. This is not easy to guess. GDP is frequently heralded as the most reliable compass. It is most certainly not, if indeed it ever was.
Let us take a look at what GDP is. How is it defined? I am comfortable with the Penguin Dictionary of Economics: "Aa measure of the total flow of goods and services produced by the economy over a specific time period". There are a number of caveats attached but they are simple and non controversial and this is not an economics paper but an aide memoire for the interested layman.
Let me give two examples of why it is such an unreliable measure of economic success. Using my Euro-constituency as my first, let us imagine I was a benevolent plenipotentiary in Yorkshire and North Lincolnshire and my subjects judged me on GDP growth for the kingdom.
At present this figure is close to zero, stifled by 20% VAT, employment legislation, business rates, EU regulation and the usual list of either engines of modern government designed to place a millstone around the neck of the wealth-creating sector.
However, I have a cunning plan. I intend to build an earth mountain on the south bank of the Humber. I intend to create this by digging the most enormous hole on the north bank. This will double the tolls on the Humber Bridge, expand massively the haulage business so create jobs for truck drivers and hence transport cafes and service stations. Health and safety expenditure will, of course expand exponentially, the council will take on more people as will highway repair companies. Yorkshire and North Lincolnshire will experience a bonanza. House prices will soar and the high street retail trade will recover. So what’s not to like?
Indeed Nobel Prize winning Paul Krugman, the thinking man's Will Hutton believes this is exactly what we should do. Indeed, it's worth looking up both these characters to find out how spectacularly wrong they have been in their careers. Quarterly GDP in the region would expand by at least one per cent.
People would come from far and wide to see how I had created this economic miracle. But when the party is over what do we have to show for it? A bloody great hole in Yorkshire and a great mud pile in Lincolnshire. In short it collapses and we see the sort of problems Ireland has with vast empty housing estates and Spain with derelict, if brand new, state of the art airports.
The writing is on the wall. When it appeared the money printing frenzy might stop, stocks and bonds slumped. Quantitative easing – or counterfeiting – call it what you will, is addictive and almost impossible to stop. Returning to my imaginary world of mud pies – what happens when the programme comes to an end, as it must. Or do we reverse the process and fill in the hole, extending the scam or 'kicking the can down the road' in popular parlance. We all know it cannot continue, the US, UK, Japanese and ECB debts are un-repayable. Default in some form is inevitable, politicians just pray that when the music stops it will not be on their watch.
Let us cast our gaze across the pond awhile and look at water subsidies in the west of America where the Gilbertian Bureau of Reclamation, created in 1902, basically carries out my mud pie scheme. The parched deserts in central Arizona and arid central California take water from the Colorado with thousands of miles of pipes and aqueducts so farmers can grow cotton and pecans where nature had no such intention.
Hundreds of billions of dollars have been spent over the years on this nature defying scam with all the wealth transfer implications to moribund families in middle America. Federal government, lobbyists and landowners wax fat at everyone else's expense.
Let us look again then at recent UK numbers. Zero point eight per cent growth in last quarter's GDP. But what does it really mean? Money printing on an enormous scale to support the banks and recycle money into area of financial assets. Mud pies only with money substituting mud. So real money is degraded, interest rates on savings are negative, those on fixed incomes are crucified. Inflation figures are skewed by government who pretend all is well.
Because it is a financial fake boom, the apples never fall far from the tree. So London booms and the rest of the country flatlines at best. The national debt grows, the party goes on, no longer good quality wine in the punch but home distilled rot gut. That is what this government's figures are. Moonshine.
The government has printed £350 billion in its term of office. It borrowed £120 billion last year, spent nearly 50% of GDP and the national debt climbs at ten per cent a year. For what? A measly 0.8% in the last quarter and the government is boasting about it. How the Far East economies must laugh at us as they quietly accumulate our gold reserves and our manufacturing companies.
Godfrey Bloom is an independent member of the European Parliament for Yorkshire and the Humber
The opinions in politics.co.uk's Comment and Analysis section are those of the author and are no reflection of the views of the website or its owners.
