Low grade China – Letters, Sept 3

Date:       12 Sept 16

By:          Frank Gue, B.Sc., MBA, P.Eng.

2252 Joyce St, Burlington, ON Canada L7R 2B5

905 634 9538

For:         Editors, The Economist, London, U K

Re:          Low grade China – Letters, Sept 3

Dear Editors:

Writer Flyvbjerg (Letters, Sept 3) has put his finger squarely on the fragility and unreliability of some of the numbers economists and politicians use routinely to develop such things as fiscal and monetary policy.

Example:  Qatar, per Wiki, has a per-capita GDP of $102,900.  Now, by no stretch of any imagination has anyone in Qatar “produced” $102,900 per year of anything; most of it is crude oil revenue.  The problem: a “product” is, per Merriam Webster, something that is made or grown to be sold or used.  Thus crude oil is  not a “product”, but a resource.  Only the costs of finding, recovering and processing it are authentic components of a “product”.

This line of thought suggests some logical conclusions:

1.  The above defined “cost” of crude oil should doubtless include a charge for the depreciation of this diminishing capital resource and,

2.  We should include in GDP not only Mr Flyvbjerg’s “decent assets that contribute positively to the economy” but also recognize that some expenditures destroy, rather than create, economic value.  Thus GDP should, quite arguably, be the net of Value Added (VA), minus Value Neutral (VN), and also minus Value Destroying (VD) elements.  Eg: High Frequency Trading (HFT), is clearly a VD element that should subtract from any declared GDP, and,

3.  Many, perhaps most, financial transactions, representing financialization (finance financing finance rather than finance financing production which was its original, proper function), should be seen as VN or VD, therefore also netted out of GDP.  We would thereby rid ourselves of the fiction that financial transactions are productive; because over 95% of them are not.*

– end –

*  Foroohhar, Rana, Makers and takers, Crown Business, NY, NY, 2016, and Stewart, Walter, Bank heist, Harper Collins, Toronto, ON, 1997, and other similar books; and also the daily media.