Sunday, June 29, 2008

Economic Growth??

Just a very quick post. For those that have read my other posts, this will make more sense. The Times today reported the following:

'The drop in confidence, highlighted in new monthly figures, threatens to exacerbate Britain’s economic woes as hard-pressed consumers curb their spending, further undermining economic growth. Last week’s revised figures found that the pace of growth halved to 0.3 per cent, the lowest level for three years.'

This wonderful snippet just serves to illustrate the lunacy that has gripped economics and economists. In this paragraph the newspaper conflates growth with consumer spending. How is it that consumer spending represents economic growth. Surely it is no such thing. Growth is productive output. Whilst provision of a service is output (e.g. retailing) in one sense, it does not represent economic growth for the UK. It represents redistribution of money within the UK economy, and often means an outflow of money from the UK economy (where the goods are imported), and the increase of debt in many cases (which hardly constitutes growth, and may also represent an outflow of wealth if the root source of the lending is from outside of the UK).

At the heart of this idiocy is the measurement of economic growth to include the activity of consumers. This only represents growth if the activity of consumers is based upon their productive activity. The trouble is that increases in consumer activity can be the result of increase in debt. How does this represent economic growth? Where the activity is measuring debt based spending, it is actually measuring economic decline.

1 comment:

  1. The chancellor on R4 this morning said that as Britain under New Labour has achieved the longest run of continuous growth ever, we are "uniquely well placed to weather the storm..."


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