Alliance-building toward a better measure of national well-being.

What is wrong with national GDP growth as a measure of success?

• It doesn’t capture everything that adds value to the economy. One example is that caring for children is not included in GDP if carried out by their parents.
• It doesn’t capture broader aspects of economic welfare of the nation’s population. For example, if GDP rose by 2 per cent one year, but the population grew by 4 per cent, then average GDP per person would have decreased.
• It doesn’t tell us anything about how evenly national income is split across the population. Income may have increased for everyone, or may have been concentrated in certain groups.
• There are things that raise GDP but don’t make the country better off. One example is the initial spending to replace buildings and infrastructure after a natural disaster, which boosts measures of economic growth.
  • Source: Reserve Bank of Australia
• It compares the size of countries’ economies which is used to fuel unhealthy geopolitical competition.

Why per-capita GDP is a step in the right direction:

• Although it tells us nothing about inequality, it at least takes population size into consideration.
• It is calculated by dividing the GDP of a nation by its population.
• It is the most universal way to analyze a country’s wealth and prosperity because its components are regularly tracked on a global scale, providing ease of calculation and usage.
• Income per capita is another measure for prosperity analysis, though it is less broadly used.
• Countries with higher GDP per capita tend to be those that are industrial, developed countries.
  • Source: Investopedia

why gpi is better

Per capita GDP segways [sic] to the Genuine Progress Indicator (GPI), “which takes everything the GDP uses into account but adds other figures that represent the cost of the negative effects related to economic activity, such as the cost of crime, cost of ozone depletion, and cost of resource depletion, among others. The GPI nets the positive and negative results of economic growth to examine whether or not it has benefited people overall.” (Source: Investopedia) The Australia GPI was published in 1997.

What needs to be done:

• Treasury and Federal Cabinet must stop using GDP growth as a measure of success and selling it to the public as such.
• GDP growth is consistently higher on the graphs than per capita GDP growth. For example, in 2009, we had a per capita GDP recession, but not a GDP recession. (Source: The World Bank.) Focusing on it is political expediency.
• Per capita GDP and the GPI must take its place in decision-making and general parlance.
• A broad alliance inside and outside parliament must bring this about, setting aside differences and special interests.
• To help move toward this, organizations and individuals can sign the Sustainable Population Australia Position Statement.

Post script: “Treasurer Jim Chalmers is about to release what he is calling “Measuring What Matters” – Australia’s first national wellbeing framework.” The Conversation.

Chalmers says the themes are the extent to which Australia is

• healthy
• secure
• sustainable
• cohesive
• prosperous.

It will be interesting to see how this impacts on the main driver of unsustainable growth (mass immigration), which the duopoly in Canberra are too coy to take responsibility for, so they shift attention to Treasury.

In May this year, Treasury created a furore when it announced net migration in 2022-23 would be 400,000 – a level Australia has never experienced. A political fight about who supported a ‘big Australia’ ensued but with neither major party indicating what they mean by ‘big Australia’. Apparently neither the Coalition nor Labor supports a ‘big Australia’ and both prefer to leave it to Treasury officials to make forecasts and assumptions about Australia’s future population and in particular the level of net migration. Neither major party takes ownership of these forecasts and assumptions.

Abul Rizvi, Pearls and Irritations, 19 Jul 2023

Post Post Script: 22nd July, 2023. According to Leith van Onselen of MacroBusiness,

Australia’s economy would slide into recession if not for our record-breaking immigration. Australia’s gross domestic product (GDP) grew by 0.2 per cent over the March quarter of 2023 against a population increase of 0.4 per cent. This means GDP per capita fell by 0.2 per cent in the March quarter. The Reserve Bank of Australia (RBA) projects that Australia’s overall GDP will grow by only 1.2 per cent in the 2023 calendar year, against the federal budget’s projected population increase of 1.9 per cent, meaning per capita GDP will fall by 0.7 per cent this year.

_{Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs}

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