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Diane Coyle – Keynote Address

July 3, 2014 Leave a comment

GDP CoyleJust attending the New Zealand Association of Economists 55th Annual Conference and it was great to hear Diane Coyle present as one of the Keynote speakers. I was originally alerted to her work by Geoff Riley – an economics teacher at Eton College and co-founder of the Tutor2u website – while I was on a Fellowship. He recommended her book ‘The Soulful Science’ back in 2007. The book aims to show how the discipline of economics has changed over the last decade and brings together economic growth and human behaviour.

Her talk was based on the research into her new book GDP: A Brief but Affectionate History. She goes right back to the Domesday Book which was a manuscript record of how much each landholder in England and Wales had in land and livestock, and what it was worth. This was completed in 1086 on orders of William the Conqueror. Further mentions of Adam Smith and Karl Marx and what they tended to focus on as an economic indicator. Interesting to note that Holland has included prostitution in its GDP calculations and that the Italian statistical body recently announced that it will include prostitution, drug trafficking, and alcohol-and-tobacco in its calculation of GDP. However Italy is just complying with international accounting standards and reporting illegal economically productive activity is required under European Union rules. But as it is part of the informal economy how do you actually measure drug deals, prostitution etc and therefore its contribution to a country’s GDP?

There is also the intangible economy – how do you measure the output of Vodafone v Skype? Also how are sustainability, variety and innovation measured? If her talk was anything to go by her book seems well worth it.

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How World Cup countries would compete in economic variables

June 30, 2014 Leave a comment

From the Wall Street Journal Graphics. Here is a great graphic that looks at how those countries competing in the World Cup would fair when you consider variables like:
Highest unemployment rate, Highest inflation rate, Highest murder rate, Most McDonalds Restaurants Per Capita, Lowest traffic death rate etc. Click link below:
How the tournament would play out if 32 countries were competing in things other than soccer.

Stats for World Cup Countries

India’s economy needs an overhaul

June 24, 2014 1 comment

India’s new government have the challenge of trying to bolster its GDP from the industrial sector. For too long its economy has been going backwards with investment dropping and households shifting their money away from savings and into gold. The Economist identified 3 tasks for the incoming government:

1. Sort out the corrupt banks - bad debts have escalated and banks have chosen to “extend and pretend” loans to zombie firms. The cost of cleaning up the banks is estimated to be 4% of GDP. Healthy banks are needed to finance a new cycle of investment.
2. Stagflation must be dealt with – high inflation and high unemployment (see graph below). High borrowing has fueled inflation and consumers have run to the safety of gold as a store of value for their money. This has meant an increasing deficit in the balance of payments. The central bank is looking at introducing inflation targeting (1-3% in NZ)
3. Developing higher skilled jobs – a lot of Asian countries have benefitted greatly from low cost labour. With labour costs rising in China and 10 million people entering the labour force each year in India, there is a great opportunity to attract foreign investment. This is particularly prevalent when you consider that Japanese firms are now nervous about the on-going military tensions with China and therefore looking at other low cost countries.

For the Indian economy to move forward they will have to ensure investors that the factors of production – land, labour, capital – are reliable and at a competitive price.

Stagflation

Sex and Drugs and Italy’s GDP

June 22, 2014 Leave a comment

EI-CH575_OUTLOO_NS_20140608150304The Italian statistical body recently announced that it will include prostitution, drug trafficking, and alcohol-and-tobacco in its calculation of GDP. However Italy is just complying with international accounting standards and reporting illegal economically productive activity is required under European Union rules. But as it is part of the informal economy how do you actually measure drug deals, prostitution etc and therefore its contribution to a country’s GDP?

Holland’s Coffee Shops

Coffeeshops are establishments in Holland where the sale of cannabis for personal consumption by the public is tolerated by the local authorities. Holland already counts cannabis sales as coffee-shop revenues and the EU is looking for greater comparability in the GDP figures which is used to distribute funds from the EU budget. Therefore member states who have a high percentage of their GDP in illegal activities will have their assistance from the EU reduced. See graph from Wall Street Journal.

Countries like Columbia have traditionally had a very large informal economy – drug trafficking – and it is estimated that between 1980 and 2012 that shadow activity varied between 27% and 56% of GDP.

Brazil needs World Cup boost

June 10, 2014 Leave a comment

With the Football World Cup about to commence the Brazilian economy doesn’t look as if it would get past the pool stage. Brazil’s high inflation and low business investment has put a damper on the expected lift from government investment in projects leading up to the World Cup. Business investment fell 2.1% in the first three months of 2014, the biggest decline in two years. Brazil, the world’s seventh largest, has prices rising at 6% per year, above the central bank’s target. The central bank has kept its key interest rate at 11% in an effort to combat rising prices. Furthermore growth prospects have been revised down to 0.4% for the first quarter of this year. The graph below shows that slower consumption and investment will mean below average growth which is unusual considering they are hosting the Football World Cup and the Olympics.
Brazil  stats

New Zealand PPP below OECD average

May 8, 2014 Leave a comment

Below is graph that shows the GDP per person and Purchasing Power Parity (PPP). During the 1970’s New Zealand was well above the OECD average but has had a downward movement since 1982. Australian continues to hold its own.

NZ GDP per Capita

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Alternatives for Measuring GDP

May 1, 2014 Leave a comment

A lot has been written about this over the last year. I can recommend Diane Coyle’s book GDP: A Brief but Affectionate History.

Gross domestic product, the total money value of goods and services sold, has become fundamental to economic policy in most countries. But there are other essential assets, qualities and conditions that GDP can’t measure, like the health of the environment or society. Paul Solman of PBS News looks at another way of measuring progress that takes more of these variables into account. In the video there is an excerpt of a speech by Robert Kennedy which says it all.

ROBERT KENNEDY: It counts napalm and it counts nuclear warhead, yet the gross national product doesn’t allow for the health of our children, the quality of their education, or the joy of their play. It measures everything in short, except that which makes life worthwhile.

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