GDP - What's in the numbers
The world has become unstable. Great nations are jostling for position as they smell blood in the waters. The hegemon is growing weak and his grip on power is slipping, and new aspirants circle.
Take virtually any species of animal on this planet whose members group together for mutual support - in their societies, power is the constant. These societies crave a hierarchy, and each hierarchy must have a top dog. To deny this, is to deny a hard wired facet of biology life. (I know this will annoy the SJWs, but facts are facts, no matter what your wishful thinking leads you to believe)
In lieu of figuring out the pecking order of the world's nations with guns and blood, the economic measure of GDP is used.
Lets start with a boilerplate definition of GDP:
Gross Domestic Product (GDP) is a key economic indicator that measures the total value of all goods and services produced within a country's borders within a specific period, typically a year or a quarter. It serves as a crucial gauge of a nation's economic health and performance.
The US reins supreme in this regard with a GDP in 2022 of 25.46 Trillion USD.
Its a ‘look how big my stick is’ number that goes a long way to sorting out some kind of non aggressive pecking order of nations. The US and its boastful and extensive media empire, love to remind us all of its pre-eminence. This is done by constantly focusing on its GDP and all the subsidiary statistics around it. Have you ever heard the statement: if California were a nation, its GDP would place it in the top 10 of all nations?
GDP as a denominator
GDP is focused on to such a degree that it becomes the denominator of other vital economic statistics such as, Debt to GDP and Economic growth. In the case of Debt to GDP, the debts of a nation can be belittled if the GDP denominator is huge. Better yet, if you can get it to grow faster than the debt, it gives the false impression that you are fiscally responsible.
Yet even more quoted is the Economic growth statistic. This is just the annual change of the GDP expressed in percentage terms. This is a direct derivative of the GDP number.
The devil is in the detail
Lets take the pivotal section of the definition of GDP from above:
the total value of all goods and services produced within a country's borders
If you think about this for a moment, you will quickly realise this simple sounding number hides enormous detail, and all of it has to be captured virtually in real time. It's virtually impossible, and that is where the beauty lies.
Those who calculate this all important number, happen to also be the same ones who measure their own personal successes and failures from it. Given this, it's almost a guaranteed certainty they will devise the most devilishly complicated and convoluted way to calculate it. Somewhere deep inside the machinery of these calculations will lie innocuous means with which to nudge the number this way and that.
The inclusion of financialisation into GDP
Starting about 50 years ago, the world began to financialise. What does this exactly mean?
Well a non financial commercial activity could be to buy steel sheets, pipes and such, and use them to fabricate staircases, railings, tanks, and such. Imagine your purchasing department began to trade Iron ore and steel futures contracts with the aim to mitigate negative effects from the movements in steel prices on your profit margins. Imagine this activity began to dwarf the profits derived from the main activity of fabrication. In this example, we have a real economic activity contrasted against a purely financial activity, this is financialisation in a nutshell.
How does this relate to GDP? Well if we measure the profits from the fabrication part of this business, then we may be able to derive the conclusion that our economy is making things and making progress. That our GDP numbers reflect the real tangible output of our country. But if we include the income from financialization, we distort the picture to uselessness.
It is no surprise that the nations of the world that have led the charge to financialization claim success in their GDP statistics.
GDP PPP
A derivative measure of GDP exists which attempts to make GDP better reflect the productive potential of a nation. It does not address the issue of financialisation at all, but it tries to correct the GDP value for currency variations. Mainstream economists quote international GDP figures in US dollars. In order to be able to compare GPDs around the world, they have to be expressed in the same currency. Today this is the USD.
In a nutshell PPP is:
an economic theory that compares different countries' currencies through a "basket of goods" approach. That is, PPP is the exchange rate at which one nation's currency would be converted into another to purchase the same and same amounts of a large group of products. Link1 investopedia, link2 IMF
Not really essential to the discussion of financialisation in GDP but tangentially useful to know. Ironically we have the US clinging to its claim of GDP superiority over its main economic rival China, but it is only the case if the PPP component is removed.
GDP and tax receipts
GDP and tax receipts are closely correlated. If the government knows of an income being generated, it will find a way to tax it. So the government of a country with a high GPD must also have a high tax receipt. Not so fast.
In here lies another can or worms. Incomes are not taxed equally, and some incomes are not taxed at all, while some incomes are taxed into oblivion. The capriciousness of tax policy is a case for a whole other piece so I will stop here but you get the picture here.
Just two more things need to be discussed here about this relationship. In countries where the rule of law is weak, and/or the enforcement of laws are uneven, productivity flourishes under the government's radar. The colloquial term for this is the black economy. For many engaged in the black economy there is nothing sinister or dark about it. It's all about survival in adversity.
The second thing is offshore tax receipts. Let's take Google, who is an international behemoth. They have domiciled themselves in Ireland as part of their tax optimisation structure. I dug around online but could not find anything definitive on who claims the incomes generated by Google in their GDP statistics. Multiply this over the ecosystem of international corporations and you get to see how distorted GDP can become.
GDP and the broken window
Did you know that if a thief break into your home by smashing your window. The repair of your window contribute to GDP? A glazier has to come and fix your window which generates an invoice to you (or your insurance company) and the glazier has to purchase the window from the glass refiner, another invoice.
Haiti. The little impoverished Caribbean country recorded an astounding GDP figure in the aftermath of their devastating earthquake. The cost of the recovery is estimated to have been between 100-115% of Haiti’s entire GDP!
The takeaway here is that GDP does not discriminate between constructive and destructive economic activity.
The rise of BRICS
If you are going to boast of your enormous GDP, then you will also boast about the combined GDP of you and your alliance partners.
The BRICS just expanded to include 11 countries and the G7 has decisively fallen off the mantle in terms of GDP PPP. In fact it has fallen off the perch in many metrics.
End of Empire
Historically the world of humans has only known 2 states. A state of Empire and a state of transition from one Empire to the next.
The state of Empire can be fantastic or can be horrible, it all depends on your relationship with those in control of the current Empire. Living under its wing can be glorious, but being out of its good graces can be terrible. The often shorter period of transition between empires has historically been a time of great turmoil. I believe we are in the opening scenes of transition.