Real Growth (I.): A False Prophet of GDP

What is "real growth"? Is it GDP growth? Is it a drop in unemployment? We've grown in the past, haven't we? The first part of the series "Real Growth" provides a basic insight into the issue and shows why GDP growth can not be taken as a synonym for economic growth…

Bubble or real growth?
Bubble or real growth?

What is "economic growth"? Today, the increase in gross domestic product - GDP - is often seen as "growth". However, the crisis - the "economic downturn" - was measured by the change in GDP, by its decline. Miloš Zeman said of the change at one conference that the extent of the crisis should not be measured by the decline in GDP, but by the size of unemployment.

But is such an approach - through GDP and unemployment - acceptable? Is growth expressed in terms of the change in gross domestic product always growth, or is GDP only a "false prophet"?

False prophet of GDP

And what is "real growth"?

Congressman Ron Paul said in a discussion with Ben Bernank (chairman of the Fed's committee of governors): "All you have to do is build a rocket and just launch it into space, and our GDP is already growing." He is basically right.

GDP is just a number. The final calculation methodology decides its final form. However, this whole magical aggregate is basically based on the philosophy that whatever production is good, whatever we produce anything, it is right and we are achieving growth.

This concept of growth is, of course, highly questionable. We can easily come to the perverse conclusion that war is a period of prosperity, because a lot is produced. It doesn't matter that tanks and other machines are being destroyed. It doesn't matter that the butter, bread and other products that people actually demand are rationed and scarce. It's produced and that's the main thing!

It's the same with unemployment. If GDP growth means producing anything, employment growth means working on anything. Once again, we are offered a war parallel: if most potential workers are fighting at the front, of course, we have less unemployment (according to Mr. Zeman or the nobelist Krugman, we are growing like that), but somehow we have nothing to eat.

Work is not an end in itself. It is only a means of achieving human goals as well as production. Produce anything or work anywhere does not mean that we are achieving economic growth. Unfortunately, the perception of the GDP aggregate as a synonym for growth gives us this illusion. It is no wonder, then, that there are economists who see war as a period of prosperity - for example, Paul Krugman. All they have to do is believe that GDP is the right indicator of wealth.

It's not.

What is growth?

"Economic growth", prosperity, the matter is purely individual - and there is no other tool than trade by which we can achieve prosperity. Prosperity is the process of meeting human needs with more effective methods.

In 1800, the "average person" in Britain had to work 6 hours to get a candle that lasted 1 hour. In 1880, you had to work an average of 1 minutes to provide 15 hour of light. In 1950, only 8 seconds. Today, it is only about 1/2 second in Britain.

In 200 years, we have saved almost 6 hours of time, which we can use differently. The beauty of economic growth, however, is that the effects of growth are multiplied - thanks to the fact that we only need 1/1 second for 2 hour of light, we can shine much longer. If we shine for 4 hours a day, for example, we have saved 1800 * 4 hours since 6, which is 24 hours - one day. Since 1800, we have only been one day richer in lighting every day. However, if we are lit 4 hours Daily for a whole month, we find that we have gained an extra whole month of our lives. One month every month!

In addition, the time gained means a greater degree of freedom that we have gained - it is up to us how we use it. We can satisfy more and more of our needs - to rest, read, eat, shop, travel, write, sleep, laze - it's up to us. But how is it possible that this growth took place at all?

Someone had to find more efficient methods of providing light. Why he did it? Because people wanted light! By producing the things that people demand, we create economic growth.


  1. why does the state measure GDP?
    Politicians measure GDP, its growth resp. decrease for a simple reason> The tax revenues of the state are directly derived from the size of GDP. From the point of view of STAT, GROWTH is GROWTH if the state's income increases. Politicians are not interested in the "good" of citizens, but in money in the state.
    For illustration:
    Roasted Pigeons will fall to the Earth from the New Year.
    For citizens - this is an excellent economic growth. Roast pigeons - and completely out of work.
    For STAT - it's NEGATIVE and harmful. Citizens will work less because they make a living effortlessly. Less work => less taxes paid => less money in the state treasury. And therefore smaller GDP !!!!

    From the point of view of STAT, the phenomenon, which is a model growth of their wealth for citizens, appears to be a negative harmful thing. The STAT will certainly introduce high taxes to collect those fallen roasted pigeons.
    STAT vss. people. Their interests are antagonistic. GDP measurement should not be rejected, STAT must be rejected.

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