You can’t eat Gross Domestic Product (GDP), yet it is the indicator that economists pay closest attention to.
GDP gained currency during WWII as a way of keeping track of war production, and has since remained the dominant measure of economic output. More than that, it has become a byword for living standards.
Looking across countries, economic output per person, or per capita, adjusted for price differences is still a reasonable proxy for average material living standards. At least up to a point. It is not necessarily a good indicator of individual happiness, or of societal wellbeing, however.
The main problem isn’t with measuring GDP per se, but that maximizing it has become the over-riding target for economic policymakers. They have lost sight of the fact that increasing economic output should be a means to an end, not an end in itself. The over-riding priority should be to maximize the welfare and happiness of the greatest number or people while ensuring everyone has a basic, decent standard of living. Unfortunately, there is no consensus around how these should be measured.
Together with the state and markets, community is the sometimes-overlooked ‘third pillar’ on which our society rests. Just as we need a strong state and can benefit from efficient markets, these imperatives must be balanced with the interests of the geographic communities that bind us. This is the premise of an important new book by Raghuram Rajan, former IMF Chief Economist.
In Ireland, public policy in recent decades has tended towards letting the market rip. To reduce the resulting stark income inequalities, the state has to do more heavy lifting in terms of redistribution than in any other OECD country. Even then, we only rank towards the middle of the equality league table.
Ironically, perhaps, for a country with such a strong traditional sense of community, local government is an area where we are weak. Ireland has one of the most centralized systems of governance, our local representatives lacking much in the way of real power. Whether it is rural heartlands losing pubs, post offices and people, or pockets of urban disadvantage ravaged by unemployment and drug barons’ turf wars, our communities suffer the consequences, fraying the very fabric of our society. Continue reading
Jean-Baptiste Colbert, French Finance Minister under Louis XIV, colorfully explained “that the act of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of squealing.”
Those on the left have long advocated squeezing the rich until the pips squeak. What almost everyone can agree on, however, is that a tax system should be progressive so that those with the broadest shoulders bear the greatest burden.
There are those that would wish to tax the rich simply as a blunt instrument to reduce income and wealth inequalities. A better approach is to establish what public goods and services, and what sort of welfare state, government should provide and then set about financing it in the most efficient and equitable way possible. Before deciding how many feathers to pluck, you should see how many pillows need to be filled. Continue reading
As human beings, we are designed to be able to process vast amounts of complex information to inform the countless decisions we make every day. Some are split-second decisions of little import – such as where to sit in as we enter a room. Others are potentially life-changing and warrant a period of reflection – such as what to do after secondary school, or who to marry. But, we tend not to sweat the small stuff. We take mental short cuts so that we don’t waste precious brain power calculating the most advantageous seat to sit in. Often, we’ll simply sit in the same seat as last time!
But, not all mental shortcuts are good for us. For example, when we are young we tend to save less than we should for retirement because it seems so far in the future. We tend to value the here and now more than the future. This is a problem for us as individuals, but potentially disastrous for society. Our grandkids, our children and our future selves will pay the price.
Climate change is another catastrophe in the making. Other than those few members of the flat-earth society, we all know that man-made global warming is well underway. The science in uncontestable. The proof is in the increased frequency of extreme weather events, the melting polar ice caps, and the slow but inexorable rise in sea levels. Continue reading
Economists are well versed in the concepts of competitive advantage and comparative advantage, but could we be missing a trick by not putting more emphasis on what has been called ‘cooperative advantage’?
What if the economy was organized around cooperation instead of competition? What if the principles of shared ownership and community solidarity replaced the pursuit of profit and maximizing shareholder value?
It’s so far from our everyday reality that, for most of us, it is little more than a thought experiment. Continue reading
Sure as night follows day, and winter follows autumn, the economic cycle will ebb and flow.
Right now, the Irish economy is enjoying something of an Indian summer: strong growth, record employment, rising wages, low inflation and low interest rates. And the good times have a while to run yet.
That’s far from saying that everyone is living on the pig’s back, as anyone facing the sharp end of the health or housing crises can attest.
But, the economy is at cruising speed and unlikely to soar higher. At least not safely.
Maybe not today. Maybe not tomorrow. But winter is coming.
Writing in the midst of our summer heatwave, I can’t help but see the parallels with Ireland’s recent economic trajectory. After a seemingly endless winter, we are finally getting to enjoy some sunny spells. Likewise, our economy has been through the wringer over the past decade, but growth and unemployment numbers suggest mercury rising.
As with the weather, there’s always someone complaining: if it’s not too cold, it’s too hot. The conservative class of economic pundits have been sounding the siren of an overheating economy, as if we were back in the Celtic Tiger’s obnoxious heyday.
Is overheating a thing? Continue reading