tag:theconversation.com,2011:/uk/topics/gross-domestic-product-8500/articlesGross Domestic Product – The Conversation2024-03-05T09:48:44Ztag:theconversation.com,2011:article/2249632024-03-05T09:48:44Z2024-03-05T09:48:44ZPrepare to hear about an ‘official recession’. Unofficially, we’ve been in one for some time<p>Australians are set to find out if we are on the edge of a so-called “official” recession.</p>
<p>Due out <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">mid-Wednesday</a>, the national accounts will either show spending, incomes and production continued to grow in the three months to December, or show they fell.</p>
<p>If they fell, it would be the first of the two strikes needed for what some people call an “official” recession. (Though surprisingly, there’s no such thing here in Australia, as I’ll explain later.)</p>
<p>The second strike would be a fall in the following three months, the so-called March quarter. If we get <a href="https://www.investopedia.com/terms/r/recession.asp#:%7E:text=The%20Bottom%20Line-,A%20recession%20is%20a%20significant%2C%20widespread%2C%20and%20prolonged%20downturn%20in,the%20economy%20is%20in%20recession.">two quarters in a row</a>, all manner of people – probably including the treasurer – will declare it a recession.</p>
<p>But whatever Wednesday’s data shows, the truth is we are already experiencing the biggest dive in living standards in half a century – and have been for two years.</p>
<h2>How to spot a genuine recession</h2>
<p>The figures due out on Wednesday will give us an indication of whether ordinary Australians are better or worse off, if we know where to look.</p>
<p>The first thing to do is to put to one side the headline increases or falls in gross domestic product (GDP). Those are spending, income and production over the entire economy each three months.</p>
<p>Those figures show GDP growth was weak before the pandemic, very weak during lockdowns (shrinking for two successive quarters), then strong as lockdowns ended. It’s been exceedingly weak since.</p>
<hr>
<p><iframe id="IC2pL" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/IC2pL/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>But this tells us little about spending and income per person, which is how each of us experiences daily life.</p>
<p>Adjusted for our current very high rate of population growth, GDP per person is extremely weak. It’s been falling, or barely growing, for three quarters now.</p>
<hr>
<p><iframe id="8fe5i" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/8fe5i/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>And even this doesn’t tell us enough. </p>
<p>What matters most for each one of us – in the view of Chris Richardson, formerly of Deloitte Access Economics – is <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">real household disposable income per capita</a>.</p>
<p>Unfortunately, the bureau of statistics doesn’t display this on its website. But it’s easy enough to calculate from the bureau’s spreadsheets.</p>
<p>It’s the income accruing to households, adjusted for the prices paid by households, and then adjusted some more.</p>
<p>The bureau also subtracts taxes paid (which have climbed because of the expiry of the <a href="https://theconversation.com/why-do-i-suddenly-owe-tax-this-year-it-could-be-because-the-low-and-middle-income-tax-offset-is-gone-forever-214632">temporary tax offset</a> in mid-2023). And it subtracts net interest payments, most of which are mortgage payments.</p>
<hr>
<p><iframe id="HOgIw" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/HOgIw/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>In his public presentations, Richardson says he refers to real household disposable income per capita as “living standards”, because that’s what it measures.</p>
<p>It shows weak spending, rising prices, a greater tax take, and much greater payments on mortgages have been shrinking living standards for two years.</p>
<p>That’s how it has felt for two years, even if the way the pain has been spread has been different than in the past.</p>
<h2>The biggest dive in living standards in half a century</h2>
<p>Previous dips in household disposable income per capita have been accompanied by high unemployment, concentrating the pain in the unlucky group looking for work at the time. </p>
<p>In contrast, this dip in living standards has been accompanied (so far) by low unemployment, pushing more of the burden onto working taxpayers.</p>
<p>Looked at through a longer-term lens (the longest the bureau’s spreadsheets allow) the latest dive in real household disposable income per capita is the biggest in half a century.</p>
<hr>
<p><iframe id="zobEO" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/zobEO/6/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>The broad picture is of fairly steady living standards until the mid-1990s, accelerating living standards during the 2000s mining boom, and then fairly flat (rising slowly) after the 2008-2009 global economic crisis. </p>
<p>They jumped for a bit during the COVID lockdowns, because of all the government assistance. But they’ve been diving since.</p>
<h2>There’s no such thing as an official recession</h2>
<p>Perhaps surprisingly, given how much we talk about “official” recessions, even the Reserve Bank of Australia says <a href="https://www.rba.gov.au/education/resources/explainers/recession.html">“there is no single definition of recession”</a> here.</p>
<p>Many people talk about a recession meaning two quarters in a row of shrinking spending and income. This appears to date back to a 1974 <a href="https://www.nytimes.com/1974/12/01/archives/the-changing-business-cycle-points-op-view.html">New York Times</a> article, written by a US business cycle expert Julius Shiskin. </p>
<p>He said two quarters of shrinking economic activity was <em>one</em> of the criteria you could use to decide whether or not an economy was in recession. </p>
<p>Shiskin’s pronouncement was subsequently latched on to by journalists all over the world, who made it <em>the</em> definition because it was simple.</p>
<p>But it has led to nonsensical conclusions.</p>
<h2>How Australia and the US differ</h2>
<p>Three decades ago, after the release of the <a href="https://www.ausstats.abs.gov.au/ausstats/free.nsf/0/9B5F32621050BC95CA2575050019621A/$File/52060_1990_SEP.pdf">September 1990</a> national accounts on November 29, Treasurer Paul Keating declared they showed Australia in recession. </p>
<p>Keating famously added: </p>
<blockquote>
<p>the most important thing is this is the recession that Australia had to have.</p>
</blockquote>
<p>Those words live on, but the so-called “recession” didn’t. It vanished soon after. What had been a small decline in economic activity, followed by a big decline, got revised to become a small increase, followed by a big decline.</p>
<p>How? The Australian Bureau of Statistics revises the national accounts as a matter of course, each time new information comes in. </p>
<p>Its revisions moved Australia’s early 1990s recession to the March and June quarters of <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/sep-2023/5206001_Key_Aggregates.xlsx">1991</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/per-capita-recession-as-chalmers-says-gdp-steady-in-the-face-of-pressure-212642">Per capita recession as Chalmers says GDP 'steady in the face of pressure'</a>
</strong>
</em>
</p>
<hr>
<p>A “recession” even <a href="https://www.smh.com.au/opinion/australias-national-accounts-recession-were-not-even-close-20161207-gt5zih.html">briefly</a> appeared after revisions to the 2000 national accounts, under Prime Minister John Howard and Treasurer Peter Costello. Then it disappeared, after further revisions.</p>
<p>In the United States, they’re not nearly as mechanical. There, there isn’t an official recession until a committee of elders convened by the National Bureau of Economic Research says so. Its <a href="https://www.nber.org/research/business-cycle-dating">proclamations</a> have broad support.</p>
<p>If Wednesday’s figures show Australia’s economic activity shrinking, we will hear a lot more about an “official” recession. But it will make little difference to Treasurer Jim Chalmers as he prepares this year’s May budget.</p>
<p>Just like the rest of us, he knows things are going backwards.</p><img src="https://counter.theconversation.com/content/224963/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin is Economics Editor of The Conversation.</span></em></p>The best measure of living standards – real household disposable income per capita – has been going backwards for two years. It’s the biggest dive in living standards in half a century.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2182392023-11-26T19:20:42Z2023-11-26T19:20:42ZGreen growth or degrowth: what is the right way to tackle climate change?<p>Nearly all the world’s governments and vast numbers of its people are convinced that addressing human-induced climate change is essential if healthy societies are to survive. The two solutions most often proposed go by various names but are widely known as “<a href="https://www.oecd.org/greengrowth/whatisgreengrowthandhowcanithelpdeliversustainabledevelopment.htm#:%7E:text=Green%20growth%20means%20fostering%20economic,which%20our%20well%2Dbeing%20relies.">green growth</a>” and “<a href="https://www.nature.com/articles/d41586-022-04412-x">degrowth</a>”. Can these ideas be reconciled? What do both have to say about the climate challenge?</p>
<p>The crude version of green growth – the solution that dominates the discourse of developed countries – is essentially that technology will save us if we get the incentives right. We can stick with the idea that economic growth is the central determinant of human flourishing, we just need technological fixes for unsustainable industrial practices. These will emerge if we get prices pointing in a green direction, which is first and foremost about carbon taxes.</p>
<p><iframe id="tc-infographic-973" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/973/534c98def812dd41ac56cc750916e2922539729b/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Yet this sort of thinking still seems head-in-the-sand. Yes, the <a href="https://www.climatecouncil.org.au/what-is-the-difference-between-absolute-emissions-and-emissions-intensity/">emissions intensity</a> of per-capita GDP growth <a href="https://ourworldindata.org/grapher/co2-intensity?tab=chart&country=USA%7ECHN%7EIND%7EIDN%7EDEU">is generally falling</a>, in part because added economic value increasingly comes from ideas not widgets.</p>
<p><a href="https://ourworldindata.org/energy/country/sweden">Sweden, for example</a>, has increased its GDP by 76% but its domestic energy use by only 2.5% since 1995. But we are still <a href="https://www.nature.com/articles/d41586-023-01702-w#:%7E:text=The%20planet%20is%20on%20track,cross%20the%20line%20much%20sooner.">missing carbon reduction deadlines</a> by wide margins and struggling to enact meaningful carbon pricing.</p>
<h2>Eco-socialism and political suicide: the caricature of degrowth</h2>
<p>The crude version of degrowth is that to ensure sustainability, GDP must contract. Endless growth got us to where we are, and endless growth will kill us. We need to throw out the status quo and make our revolutionary way to eco-socialism. Rich countries need to stop where they are and transfer wealth to poor countries so we can equitably share what we have.</p>
<p>This sort of thinking is <a href="https://www.noahpinion.blog/p/degrowth-we-cant-let-it-happen-here">easily caricatured</a> as political suicide and more likely to undermine enthusiasm for sustainability than achieve it.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/is-nuclear-the-answer-to-australias-climate-crisis-216891">Is nuclear the answer to Australia's climate crisis?</a>
</strong>
</em>
</p>
<hr>
<p>Yet these caricatures can be easily dismissed. While it’s hard to pin down exactly what each camp stands for, since they represent amorphous agglomerations of ideas in a fast-moving discourse, it’s clear many advocates of both green growth and degrowth are sophisticated in their views and <a href="https://www.sciencedirect.com/science/article/abs/pii/S0921800919319615">share many points of agreement</a>. </p>
<h2>Where green growth and degrowth agree</h2>
<p>The first is that contemporary industry is too environmentally intensive – it crosses multiple planetary boundaries in its carbon emissions, ocean acidification, nitrogen, phosphorus loading and so on.</p>
<p>Second, to avoid ecological collapse, sectors such as fossil fuels, fast fashion, industrial meat farming, air travel, plastics and many more need to draw down their economic activity.</p>
<p>Meanwhile, other sectors need to grow. These include clean energy, obviously, but also biodegradable materials, green steel and pesticide-free agriculture, on and on. Effecting this structural transition will require <a href="https://www.energypolicy.columbia.edu/publications/green-new-deal-and-carbon-taxes-can-work-together/">both carbon taxes and more muscular</a> industrial policy of the <a href="https://www.nytimes.com/2019/02/21/climate/green-new-deal-questions-answers.html">Green New Deal</a> sort.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/too-hard-basket-why-climate-change-is-defeating-our-political-system-214382">Too hard basket: why climate change is defeating our political system</a>
</strong>
</em>
</p>
<hr>
<p>Third, environmental damage is both licensed and exacerbated by a narrow policy focus on <a href="https://data.oecd.org/gdp/gross-domestic-product-gdp.htm">gross domestic product</a> (GDP). We need to shift priorities away from GDP and towards frameworks and budgets – such as those used in <a href="https://www.treasury.govt.nz/information-and-services/nz-economy/higher-living-standards/our-living-standards-framework">New Zealand</a>, the <a href="https://www.act.gov.au/wellbeing">Australian Capital Territory</a> and other places – that do a far better job than GDP does of measuring whether we are using our resources effectively to advance human wellbeing.</p>
<p>And many of these wellbeing goals can be achieved using a fraction of the wealth of advanced nations. For example, Cuba, with about <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=CU">an eighth of the GDP</a> per capita, has similar <a href="https://www.newsweek.com/americans-can-now-expect-live-three-years-less-cubans-1739507">life expectancy</a> and <a href="https://worldpopulationreview.com/country-rankings/literacy-rate-by-country">literacy rates</a> to the United States.</p>
<h2>New ways to measure and increase human wellbeing</h2>
<p>A complementary approach is to <a href="https://www.bennettinstitute.cam.ac.uk/research/research-projects/wealth-economy-social-and-natural-capital/">measure comprehensive wealth</a> – financial, natural, human, and social – rather than income. If economic activity substitutes a relatively small amount of financial capital concentrated in few hands for a huge amount of natural capital, then it isn’t sustainable nor does it increase total wealth.</p>
<p>Finally, we need to measure productivity – the extent to which we can do more with less. Economic growth models stress that only <a href="https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model">long-run improvements in productivity</a> lead to sustained increases in wealth. Simply increasing investment, of the kind associated with extractive industries, provides only a transitory boost.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-to-beat-rollout-rage-the-environment-versus-climate-battle-dividing-regional-australia-213863">How to beat 'rollout rage': the environment-versus-climate battle dividing regional Australia</a>
</strong>
</em>
</p>
<hr>
<p>Another virtue of productivity growth is <a href="https://www.cmu.edu/epp/irle/irle-blog-pages/schumpeters-theory-of-creative-destruction.html">creative destruction</a>: when innovation clears out outmoded industries, ideas, and ways of working. Today creative destruction is held back by the power of vested interests, <a href="https://theconversation.com/how-to-deal-with-fossil-fuel-lobbying-and-its-growing-influence-in-australian-politics-188515">notably in fossil fuels</a>, to lobby governments to slow the industrial transition required to address climate change.</p>
<p>Quality of life frameworks, wealth accounts, and productivity growth all have problems and present measurement difficulties, but they point us in the right direction. They help us to understand GDP as a means, not an end. Twentieth century statistics cannot measure 21st century progress.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-new-dawn-becoming-a-green-superpower-with-a-big-role-in-cutting-global-emissions-216373">Australia's new dawn: becoming a green superpower with a big role in cutting global emissions</a>
</strong>
</em>
</p>
<hr>
<p>Green growth and degrowth advocates also agree that getting people to practise less carbon intensive lifestyles, especially in rich countries, is politically and culturally difficult. Witness the recent <a href="https://www.theguardian.com/world/2022/aug/02/spain-puts-limits-on-air-conditioning-and-heating-to-save-energy">outcry in Spain</a> when the government legislated that public and commercial buildings could not be cooled below 27 or heated above 19 degrees respectively.</p>
<p>That’s why sweeteners are fundamental to the political logic of Green New Deals: for example, the proceeds of carbon taxes can be returned to households as compensation.</p>
<h2>Where green growth and degrowth disagree</h2>
<p>What green growth and degrowth advocates disagree most about is how deeply we need to alter our political economy to survive climate change. </p>
<p>Green growth is broadly optimistic about the capacity of liberal democracy’s incremental style to get the green transition done in time. It has faith in markets, and even as it recognises the need for green industrial policy it is cautious about government’s ability to micromanage it.</p>
<p>Degrowth believes something more radical is in order, with equality at its core. We need to understand what is “sufficient” for people to live good lives, and then redistribute from people who have far more than they need to people who have much less.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-australia-urgently-needs-a-climate-plan-and-a-net-zero-national-cabinet-committee-to-implement-it-213866">Why Australia urgently needs a climate plan and a Net Zero National Cabinet Committee to implement it</a>
</strong>
</em>
</p>
<hr>
<p>This approach would include the provision of energy-efficient social housing, and international aid for green development. Government must adopt the climate transition as its mission in the manner of winning a total war. It must get involved in the economy and society in a big way, including by regulating things like private jets and low emission traffic zones.</p>
<p>The problem for degrowthers is that getting such a radical agenda off the ground requires first and foremost a change in public values. But the movement’s focus on international political economy – its tendency to target its efforts at bureaucrats and quasi-governmental agencies like the <a href="https://www.ipcc.ch/">Intergovernmental Panel on Climate Change</a> (IPCC) – undermines cultural change by feeding populist narratives about technocratic overreach.</p>
<p>Spain’s experience illustrates that citizens haven’t internalised the sorts of lifestyle changes degrowth believes are required. Politically hopeless slogans like “degrowth” that don’t even capture the essence of the movement need to be tossed out, and much more attention needs to be given to marketing the experience of living green in sustainable societies.</p><img src="https://counter.theconversation.com/content/218239/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Fabian does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>One set of ideas runs counter to the mainstream consensus that technology will save us from climate change. Can degrowth ever win enough converts to persuade humanity to change course?Mark Fabian, Assistant professor of public policy, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2136782023-10-02T14:37:50Z2023-10-02T14:37:50ZNigeria’s new blue economy ministry could harness marine resources - moving the focus away from oil<p><em>Nigeria’s President Bola Ahmed Tinubu announced a new <a href="https://www.channelstv.com/2023/08/16/full-list-of-ministers-and-portfolios/">ministerial portfolio</a> in August: Marine and Blue Economy. This was <a href="https://dailypost.ng/2023/08/22/long-overdue-creation-of-marine-and-blue-economy-ministry-excites-stakeholders/">welcome news</a> as it renewed hope for economic development outside the oil sector. We asked marine sustainability and blue economy <a href="https://iucn.org/our-union/commissions/group/iucn-ceesp-governance-equity-and-rights-thematic-group">expert</a> Isa Olalekan Elegbede to explain how the ministry could benefit Nigeria.</em></p>
<h2>Why has Nigeria established a new ministry for the blue economy?</h2>
<p>The <a href="https://link.springer.com/referenceworkentry/10.1007/978-3-030-02006-4_401-1">blue economy</a> is the sustainable use of ocean and coastal resources for economic growth. It <a href="https://www.frontiersin.org/articles/10.3389/fmars.2020.00586/full">integrates environmental, social, economic and institutional objectives</a> into the use of marine resources. It <a href="https://blue-economy-observatory.ec.europa.eu/eu-blue-economy-sectors_en">includes a wide range of sectors and resources</a> related to oceans, seas, coasts and waterways.</p>
<p>The ocean economy supports <a href="https://www.oecd.org/ocean/topics/ocean-economy/">90% of global trade</a> and <a href="https://www.worldbank.org/en/topic/oceans-fisheries-and-coastal-economies">provides millions of jobs</a>. It includes shipping, tourism and offshore energy <a href="https://www.weforum.org/agenda/2020/06/human-impact-ocean-economy/">valued at US$24 trillion</a>. </p>
<p>Marine fisheries and reefs, sea grass and mangroves are worth US$6.9 trillion; trade and transport US$5.2 trillion; and coastline productivity and carbon absorption US$12.1 trillion. </p>
<p>Nigeria’s establishment of a Ministry of Marine and Blue Economy is a strategic move. I believe the ministry will tap the country’s rich marine resources as an element of the national economic framework. </p>
<p>Nigeria’s coastline <a href="https://fcwc-fish.org/other-news/nigerian-navy-at-64-a-sustained-fight-against-maritime-crimes">stretches</a> for 420 nautical miles and covers an exclusive economic zone of 200 nautical miles. Its maritime interests span the Gulf of Guinea, covering roughly 574,800 square nautical miles with a 2,874 nautical mile coastline.</p>
<p>Marine resources can be exploited to create jobs and transform Nigeria into a <a href="https://venturesafrica.com/now-that-nigeria-has-created-a-ministry-of-marine-and-blue-economy/">leader in sustainable marine activities</a>. It will help diversify the country’s oil-based economy as well. <a href="https://www.rvo.nl/sites/default/files/2021/07/Blue-Bio-Economy-in-Norway.pdf">Norway</a> is an example of how this has been done successfully.</p>
<h2>What four areas should the ministry focus on?</h2>
<p>Nigeria hopes to generate over <a href="https://punchng.com/what-you-need-to-know-about-ministry-of-marine-and-blue-economy/">US$1.5 trillion annually</a> from exploiting its marine resources. To achieve this, the ministry should do the following:</p>
<ul>
<li><p>Create an inclusive committee for effective collaboration among stakeholders and partners. The committee should include scientists, NGOs, youth and traditional communities. Indigenous peoples, persons with disabilities, and the relevant <a href="https://www.legit.ng/politics/1549451-list-ministries-created-by-president-tinubu-ministers/">federal government agencies</a> should not be left out. The committee should advance beyond the scope of the Expanded Committee on Sustainable Blue Economy in Nigeria inaugurated by the former president Muhammadu Buhari.</p></li>
<li><p>Integrate sustainability into policies and strategies. Policies should prioritise sustainable marine resource use. Strategies should focus on sustainable and ethical harvesting, trading, extraction and tourism. Blue economy personnel, unemployed youths and women should be trained. Improved programmes would foster sustainable practices and raise the sector’s contribution to the country’s gross domestic product. </p></li>
<li><p>Sustain investment in ports, transport systems and storage facilities. The same should apply to research and technology. Aquaculture, offshore energy and marine biotechnology should be advanced to increase efficiency and sustainability. Additionally, remote coastal communities should have <a href="https://www.energy.gov/eere/water/marine-energy-blue-economy">access</a> to resilient and blue renewable energy sources and systems to enhance protection of coastal and ocean resources.</p></li>
<li><p>Check mismanagement. To ensure a sustainable future for all, the government should protect coastal and marine ecosystems. Mismanagement could destabilise the delicate balance of these ecosystems. This is crucial, considering the <a href="https://enveurope.springeropen.com/articles/10.1186/s12302-021-00502-1">intricate relationship between the blue economy and marine habitats</a>. Neglect puts fish resources at risk and endangers vital sectors like maritime transport, energy and fishing. Cooperation and commitment to stewardship are therefore imperative to maintaining the health and productivity of the oceans.</p></li>
</ul>
<h2>What benefits will Nigerians feel if these steps are taken?</h2>
<p>Oil is a key revenue source for the country. But it has led to major environmental problems. Harnessing the blue economy could be a game changer for Nigeria.</p>
<p>First, it could create jobs and generate income from fisheries, aquaculture, tourism, shipping and renewable energy. </p>
<p>Second, a blue economy could mitigate environmental damage as it enables the restoration of marine ecosystems. Unlike oil, fisheries are renewable. Nigeria’s oil-rich Niger Delta has experienced severe environmental harm. A shift to greener energy supplies could make a massive difference.</p>
<p>Third, it creates the opportunity to grow the tourism sector. Seychelles and Mauritius are examples of countries that earn foreign exchange from marine exports and tourism. </p>
<p>Fourth, it could help attract investment to Nigeria’s marine infrastructure, fisheries and technology. </p>
<p>Fifth, it could help decrease regional and social inequalities in coastal communities. </p>
<p>Finally, investment in the blue economy could encourage marine biology, oceanography and marine technology research. This could, in turn, lead to global innovations. </p>
<p>Despite competition from more experienced countries in the marine industry, the blue economy offers Nigeria significant potential. Strategic planning, global partnerships and investment can make it a reality.</p><img src="https://counter.theconversation.com/content/213678/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Isa O Elegbede is presently affiliated with the Lagos State University and with many international and local NGOs, such as Geo Blue Planet, IUCN/CEESP/TGER; he is also the president of Sayne Development Foundation and Executive director of Pearlrose Foundation. He has received a fellowship grant from Ocean Frontier institute (OFI) in Canada and several international organisations in the past.</span></em></p>Nigeria’s new marine and blue economy ministry has promise but it must be well run.Isa Olalekan Elegbede, Lecturer, Brandenburg University of Technology Cottbus-SenftenbergLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2053792023-05-16T12:39:11Z2023-05-16T12:39:11ZCOVID-19’s total cost to the economy in US will reach $14 trillion by end of 2023 – new research<figure><img src="https://images.theconversation.com/files/525744/original/file-20230511-13703-c57kdq.jpg?ixlib=rb-1.1.0&rect=130%2C0%2C5474%2C3755&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Once guests trickled back into hotels, they were urged to socially distance.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/people-check-into-a-hotel-in-times-square-on-april-27-2022-news-photo/1394037006?adppopup=true">Spencer Platt/Getty Images</a></span></figcaption></figure><p><em>The <a href="https://theconversation.com/us/topics/research-brief-83231">Research Brief</a> is a short take about interesting academic work.</em></p>
<h2>The big idea</h2>
<p>The economic toll of the COVID-19 pandemic in the U.S. <a href="https://doi.org/10.1016/j.econmod.2022.106147">will reach US$14 trillion</a> by the end of 2023, <a href="https://scholar.google.com/citations?user=M283AQ4AAAAJ&hl=en">our team</a> of <a href="https://scholar.google.com/citations?user=MdqrwWwAAAAJ&hl=en">economists</a>, <a href="https://scholar.google.com/citations?user=DMyZI3UAAAAJ&hl=en">public policy researchers</a> and <a href="https://scholar.google.com/citations?user=A1xnFJcAAAAJ&hl=en">other experts</a> have estimated.</p>
<p>Putting a price tag on all the pain, suffering and upheaval Americans and people around the world have experienced because of COVID-19 is, of course, hard to do. More than <a href="https://covid.cdc.gov/covid-data-tracker/#datatracker-home">1.1 million people</a> have died as a result of COVID-19 in the U.S., and many more have been hospitalized <a href="https://doi.org/10.1093/geronb/gbac085">or lost</a> <a href="https://www.nih.gov/news-events/news-releases/more-140000-us-children-lost-primary-or-secondary-caregiver-due-covid-19-pandemic">loved ones</a>. Based on data from the first 30 months of the pandemic, we forecast the scale of total economic losses over a four-year period, from January 2020 to December 2023.</p>
<p>To come up with our estimates, our team used economic modeling to approximate the revenue lost due to mandatory business closures at the beginning of the pandemic. We also used modeling to assess the economic blows from the many changes in personal behavior that continued long after the lockdown orders were lifted – such as avoiding restaurants, theaters and other crowded places.</p>
<p>Workplace absences, and sales lost due to the cessation of brick-and-mortar retail shopping, air travel and public gatherings, contributed the most. At the height of the pandemic, in the second quarter of 2020, our survey indicates that international and domestic airline travel fell by nearly 60%, indoor dining by 65% and in-store shopping by 43%. </p>
<p>We found that the three sectors <a href="https://doi.org/10.1016/j.econmod.2022.106147">that lost the most ground</a> during the first 30 months of the pandemic were air travel, dining, and health and social services, which contracted by 57.5%, 26.5% and 29.16%, respectively.</p>
<p>These losses were offset to a degree by surges in online purchases, a series of large <a href="https://www.worldbank.org/en/publication/wdr2022/brief/chapter-1-introduction-the-economic-impacts-of-the-covid-19-crisis">fiscal stimulus and economic relief packages</a> and an unprecedented expansion of the number of <a href="https://www.bls.gov/opub/mlr/2022/article/telework-during-the-covid-19-pandemic.htm">Americans working from home</a> – and thus were able to keep doing jobs that might otherwise have been cut.</p>
<p>From 2020 to 2023, the cumulative net economic output of the United States will amount to about <a href="https://www.whitehouse.gov/wp-content/uploads/2023/03/ERP-2023.pdf">$103 trillion</a>. Without the pandemic, the total of GDP over those four years would have been $117 trillion – nearly 14% higher in inflation-adjusted 2020 dollars, according to our analysis. </p>
<p>We also simulated four different possible economic outcomes had the number of COVID-19 deaths been different because of either more or less successful public health strategies in the first 30 months of the pandemic.</p>
<p>The direct health expenses, driven mostly by hospitalization costs in these scenarios, would have totaled $20 billion in a best-case scenario in which 65,000 Americans would have died from January 2020 to June 2022. In the worst-case scenario, about 2 million would have died during that period, with $365 billion in direct health-related expenses.</p>
<p>Based on our findings, most economic losses were not due to these health care expenditures.</p>
<p><iframe id="kLF88" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/kLF88/8/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Why it matters</h2>
<p>The COVID-19 pandemic’s economic consequences are unprecedented for the U.S. by any measure. The toll we estimate that it took on the nation’s gross domestic product is <a href="https://doi.org/10.1016/j.ijdrr.2021.102317">twice the size of that of the Great Recession</a> of 2007-2009. It’s 20 times greater than the economic costs of the 9/11 terrorist attacks and 40 times greater than the toll of any other disaster to befall the U.S. in the 21st century to date.</p>
<p>Although the federal government has now <a href="https://theconversation.com/what-does-ending-the-emergency-status-of-the-covid-19-pandemic-in-the-us-mean-in-practice-4-questions-answered-205165">lifted its COVID-19 Public Health Emergency declaration</a>, the <a href="https://www.brookings.edu/blog/up-front/2021/12/08/a-most-unusual-recovery-how-the-us-rebound-from-covid-differs-from-rest-of-g7/">pandemic is still influencing the U.S. economy</a>. The <a href="https://fred.stlouisfed.org/series/CIVPART">labor force participation rate</a>, which stood at 62.6% in April 2023, has only recently neared the February 2020 level of 63.3%. </p>
<h2>What is not known</h2>
<p>We modeled only the pandemic’s standard economic effects. We didn’t estimate the vast array of <a href="https://covid.cdc.gov/covid-data-tracker/#trends_weeklydeaths_select_00">economic costs tied to COVID-19</a>, such as lost years of work after an early death or a severe case of long-COVID-19.</p>
<p>We also didn’t assess the costs due to the many ways that the disease has affected the physical and mental health of the U.S. population or the <a href="https://www.brookings.edu/blog/brown-center-chalkboard/2022/03/03/the-pandemic-has-had-devastating-impacts-on-learning-what-will-it-take-to-help-students-catch-up/">learning loss experienced by students</a>.</p><img src="https://counter.theconversation.com/content/205379/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jakub Hlávka received funding from Centers for Disease Control and Prevention and the U.S. Department of Homeland Security to conduct COVID-19-related research.
</span></em></p><p class="fine-print"><em><span>Adam Rose receive funding from Centers for Disease Control and Prevention and the U.S. Department of Homeland Security.</span></em></p>Workplace absences, along with sales lost due to the cessation of brick-and-mortar retail shopping, airline travel and public gatherings, contributed the most.Jakub Hlávka, Research Assistant Professor of Health Policy and Management; Schaeffer Center Fellow, University of Southern CaliforniaAdam Rose, Professor of Public Policy, University of Southern CaliforniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2047072023-04-28T17:48:04Z2023-04-28T17:48:04ZThe Federal Reserve and the art of navigating a soft landing … when economic data sends mixed signals<figure><img src="https://images.theconversation.com/files/523457/original/file-20230428-16-6qiovj.jpg?ixlib=rb-1.1.0&rect=36%2C256%2C6062%2C3767&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">'Surely we can avoid an economic crash? We can, but don't call me Shirley!'</span> <span class="attribution"><a class="source" href="https://corporate.fathomevents.com/press/media/3893/airplane_still_ks_c-5344_ccde77f8e99d535abb14358ba6e9a325941369ac.jpg?anchor=center&mode=crop&rnd=132882314110000000">Paramount Pictures/Fathom Events</a></span></figcaption></figure><p>With inflation easing and the U.S. economy cooling, is the Federal Reserve done raising interest rates? After all, gently bringing down the trajectory of prices without crashing the economy was the central bank’s objective when it began jacking up rates over a year ago. </p>
<p>Gross domestic product, the broadest measure of an economy’s output, <a href="https://www.bea.gov/news/2023/gross-domestic-product-first-quarter-2023-advance-estimate">expanded at an annual pace</a> of a mere 1.1% in the first quarter, according to data released April 27, 2023 – down from 2.6% recorded in the final three months of 2022. And the latest consumer price data, from March, shows inflation slowing to 5% on an annualized basis, the <a href="https://fred.stlouisfed.org/series/CPIAUCSL#0">least in about a year</a>. </p>
<p>Unfortunately for consumers and businesses weary of soaring borrowing costs, the Fed’s not likely done hiking rates quite yet. <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">Financial markets are predicting another quarter-point hike</a> when the Fed meets for a two-day meeting that ends May 3, 2023. And there could be several more increases to come.</p>
<p>But this does raise another important question: With all the recent, often conflicting, data and narratives regarding <a href="https://theconversation.com/jobs-report-hints-that-fed-policy-is-paying-off-and-that-a-growth-recession-awaits-203485">inflation</a>, <a href="https://theconversation.com/us/topics/2023-bank-crisis-135462">bank failures</a> and <a href="https://techcrunch.com/2023/04/27/tech-industry-layoffs/">layoffs in the tech sector</a>, is the Fed close to engineering the “soft landing” it’s been hoping for? </p>
<h2>The economy zigs then zags</h2>
<p>The GDP data is a mixed bag and provides some clues to the answer. </p>
<p>Overall, the recent GDP figures suggest a likely economic slowdown going forward, due largely to a drawdown in inventories – that is, rather than ordering new goods, companies are relying more on stuff currently in storage. Businesses seems more inclined to sell what is on hand rather than order up new products, likely in anticipation of a slowdown in consumption. And business investment declined 12.5% in the quarter. </p>
<p>At the same time, consumer spending, which represents about two-thirds of GDP, grew at a healthy 3.7% pace, and investment in equipment such as computers and robotics increased by 11.2% – though this category is quite volatile and could easily turn in subsequent quarters. </p>
<p>Other data also points to a slowdown, such as a <a href="https://www.census.gov/manufacturing/m3/prel/pdf/s-i-o.pdf">decline in new orders for manufactured goods</a>. This, combined with the drawdown in inventories in the GDP report, might suggest that businesses are anticipating a slowdown in demand for goods and services.</p>
<p>When we look at the labor market, while job <a href="https://www.bls.gov/news.release/empsit.nr0.htm">increases have been strong</a> – 334,000 over the past six months – job openings have been declining. After peaking at about 12 million in March 2022, openings dropped to <a href="https://www.bls.gov/jlt/">about 9.9 million</a> as of February, according to the Bureau of Labor Statistics.</p>
<h2>Inflation: Is it high or low?</h2>
<p>In terms of inflation, we can also see conflicting numbers.</p>
<p>The headline consumer price index <a href="https://www.bls.gov/news.release/cpi.nr0.htm">has indeed slowed steadily</a> since peaking in June 2022 at 9.1%. But the core preferred consumption index, the <a href="https://www.bloomberg.com/news/articles/2023-03-25/fed-s-preferred-inflation-gauge-seen-staying-elevated-eco-week?sref=Hjm5biAW">Fed’s favored measure of inflation</a>, <a href="https://fred.stlouisfed.org/series/PCEPILFE#0">has remained stubbornly elevated</a>. The latest data, released on April 28, 2023, showed the index, which excludes volatile food and energy prices, <a href="https://www.bea.gov/news/2023/personal-income-and-outlays-march-2023">was up 4.6% in March</a> from a year earlier and has barely budged in months.</p>
<p>Meanwhile, wages, which when rising can have a strong upward push on prices, <a href="https://www.nytimes.com/2023/04/28/business/wage-inflation-march.html">climbed at an annualized 5.1% in the first quarter</a>, also according to data released on April 28. That’s down from the peak of 5.7% in the second quarter of 2022 but is still about the fastest pace of wage gains in at least two decades. </p>
<h2>More hikes to come</h2>
<p>So what might all this suggest about Fed actions on interest rates?</p>
<p>The next meeting is scheduled to end on May 3, with the <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">market odds greatly favoring</a> another 0.25 percentage point increase – which <a href="https://www.federalreserve.gov/monetarypolicy/openmarket.htm">would be the 10th straight hike</a> since March 2022. </p>
<p>With the inflation rate still well above the Fed’s target of about 2%, combined with continued job growth and a low unemployment rate, the central bank is likely not done ratcheting up rates. I agree with the market odds pricing in a quarter-point hike for the May meeting. Future data will guide any future rate increases beyond that. </p>
<p>The good news is that, I believe, the larger rate increases are well in the past.</p>
<h2>Landing softly – or at least mildly</h2>
<p>That brings us back to the big question: How close is the Fed to sticking a soft landing, in which the U.S. economy manages to tame inflation without a recession? </p>
<p>Sadly, it’s too early to tell. Labor markets can be very volatile and political and international events – such as <a href="https://www.brookings.edu/2023/04/24/how-worried-should-we-be-if-the-debt-ceiling-isnt-lifted/">potential gridlock on debt ceiling talks</a> or <a href="https://www.bbc.com/news/world-europe-65421341">further escalations in the Ukraine War</a> – can turn things upside down. That said, we are either looking at a mild recession or a growth recession.</p>
<p>What’s the difference? A <a href="https://www.investopedia.com/terms/g/growth_recession.asp">growth recession</a> signals a weak economy but not enough to significantly drive up unemployment – and that’s preferable to even a mild recession of multiple quarterly drops in GDP and much higher unemployment. </p>
<p>We just don’t know which is more likely. What I think is true now, though, is that, barring any catastrophic and unpredictable events, a severe recession has been avoided.</p><img src="https://counter.theconversation.com/content/204707/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher Decker does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The numbers seem to be going in the ‘right’ direction for the Fed to pull off a soft landing – and avoid a recession – but the picture remains murky.Christopher Decker, Professor of Economics, University of Nebraska OmahaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1995722023-03-03T06:09:49Z2023-03-03T06:09:49ZEconomic growth is fuelling climate change – a new book proposes ‘degrowth communism’ as the solution<p>I’m often told that degrowth, the planned downscaling of production and consumption to reduce the pressure on Earth’s ecosystems, is a tough sell. But a 36-year-old associate professor at Tokyo University has <a href="https://www.theguardian.com/environment/2023/feb/28/a-greener-marx-kohei-saito-on-connecting-communism-with-the-climate-crisis">made a name for himself</a> arguing that “degrowth communism” could halt the escalating climate emergency.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/513174/original/file-20230302-16-g0suqd.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A black book cover with white Japanese writing and an image of the author superimposed on a red Earth." src="https://images.theconversation.com/files/513174/original/file-20230302-16-g0suqd.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/513174/original/file-20230302-16-g0suqd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=967&fit=crop&dpr=1 600w, https://images.theconversation.com/files/513174/original/file-20230302-16-g0suqd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=967&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/513174/original/file-20230302-16-g0suqd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=967&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/513174/original/file-20230302-16-g0suqd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1215&fit=crop&dpr=1 754w, https://images.theconversation.com/files/513174/original/file-20230302-16-g0suqd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1215&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/513174/original/file-20230302-16-g0suqd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1215&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The first edition cover of Capital in the Anthropocene, published in 2020.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Capital_in_the_Anthropocene#/media/File:Capital-in-the-Anthropocene.png">Kohei Saito</a></span>
</figcaption>
</figure>
<p>Kohei Saito, the bestselling author of Capital in the Anthropocene, is back with a new book: <a href="https://www.cambridge.org/core/books/marx-in-the-anthropocene/D58765916F0CB624FCCBB61F50879376">Marx in the Anthropocene: Towards the Idea of Degrowth Communism</a>. The book is dense, especially for those not fluent in Marxist jargon who, I suspect, care little about whether or not Karl Marx started worrying about nature in his later years.</p>
<p>And yet, the way Saito mobilises Marxist theory to make a plea for “the abundance of wealth in degrowth communism” (the title of the last chapter of his book) is as precise as it is gripping. This is what attracted my attention as an economist <a href="https://theses.hal.science/tel-02499463/document">working on degrowth</a>: Saito’s attempts to reconcile Marxism with newer ideas around alternatives to economic growth might bring critiques of capitalism to an unprecedented level of popularity.</p>
<h2>Economic growth creates scarcity</h2>
<p>Saito turns the concept of economic growth on its head. Many people assume that growth makes us richer but what if it did the precise opposite? </p>
<p>Gross domestic product (GDP), a monetary measure of production, can rise because someone privatises a common good – what British geographer <a href="https://books.google.se/books/about/Seventeen_Contradictions_and_the_End_of.html?id=EDg_AwAAQBAJ&redir_esc=y">David Harvey</a> calls “accumulation by dispossession”. Fence a resource that people could previously access for free and start selling it to them. </p>
<p>This <a href="https://www.sciencedirect.com/science/article/pii/S0921800919304203">rent extraction</a> might inflate GDP but it doesn’t create anything useful. In fact, by preventing people from accessing the means of subsistence it creates an artificial scarcity.</p>
<p>The more money accumulates, the more these snatch-and-sell tricks become possible, whether it’s for natural resources, knowledge or labour. In a world where everything becomes a potential commodity (in other words, something which can be bought and sold), the ruling rationality favours lucrative activities over others. </p>
<p>Why would you lend your apartment to someone for free if you can rent it on Airbnb? And that’s the catch: once you need money to satisfy your needs, you are forced to play like a capitalist.</p>
<h2>An emergency brake</h2>
<p>This self-perpetuating striving for moneymaking pushes us to turn more and more of nature into a commodity. The money companies can make is infinite while the quantities of nature at disposition are getting scarcer. </p>
<p>There may be no clearer illustration than the <a href="https://www.forbes.com/sites/roberthart/2023/02/07/bp-boasts-record-profits-as-oil-giants-report-historic-windfalls/">record profits</a> of fossil fuel companies amid <a href="https://www.bloomberg.com/news/articles/2023-03-01/climate-change-is-messing-with-forests-ability-to-soak-up-carbon">worsening climate conditions</a>.</p>
<p><a href="https://www.versobooks.com/books/3989-the-future-is-degrowth">Degrowth</a> could act as an emergency brake on this vicious cycle, Saito argues, by “terminat[ing] the ceaseless exploitation of humanity and the robbery of nature”. </p>
<p>Academics define degrowth as a democratically planned effort to downscale levels of production and consumption in order to lighten environmental pressures. The democratic part is important: the idea is to do this in a way that reduces inequality and improves wellbeing for everyone.</p>
<p>It’s difficult to imagine this happening within capitalism, a system which must continually expand and generate more. And that’s Saito’s point: communism is much more likely to achieve these objectives.</p>
<p>He reasons that an economy concerned with meeting human need is more likely to avoid producing junk. Without the get-rich-or-perish imperative, many nature-intensive goods and services would cease to be necessary or desirable. </p>
<p>Saito calls this “a conscious downscaling of the current ‘realm of necessity’”. This Marxist term describes what we consider our essential needs. Under degrowth communism, this realm would shrink to exclude things and activities which don’t benefit human wellbeing or contribute to sustainability.</p>
<p>Suddenly, it’s possible to organise work differently. Gone is the industrial model of producing something as cheaply as possible while sacrificing safety and the pleasantness inherent in a shared effort. </p>
<p>Instead of competing for market share, companies could cooperate to achieve common goals like restoring biodiversity. Reducing the importance given to moneymaking would free societies to improve all these things we today trivialise because they aren’t profitable.</p>
<p>Such an economy might be slower and smaller money-wise but it would be more sustainable and more effective in delivering wellbeing, which is all we should be asking from an economy anyway.</p>
<h2>Towards a post-scarcity society</h2>
<p>Saito’s book is refreshing because it helps end an old feud between socialists who trust that new technologies and the <a href="https://www.theguardian.com/sustainable-business/2015/mar/18/fully-automated-luxury-communism-robots-employment">automation of work</a> can deliver an expanding economy with greater leisure time and those who argue for a <a href="https://www.tandfonline.com/doi/full/10.1080/10455752.2017.1386695">socialism without growth</a>. </p>
<p>Instead of perpetually growing the economy by making more things private property and saleable, Saito proposes sharing the wealth we’ve already created. This could usher in a new way of living, where people can afford to spend less time and effort producing commodities and turn their attention towards things that really matter to them, what Marxists call the realm of freedom. This should start, Saito argues, with restoring the health of Earth’s ecosystems, on which everything else relies.</p>
<p>No longer forced to obsess over money, people could enjoy the abundance of social and natural wealth <a href="https://www.versobooks.com/books/3693-post-growth-living">outside of consumerism</a>. Imagine trading the new smartphones which arrive yearly for luxuriant ecosystems, thriving communal spaces and vibrant democracies we finally have time to explore and participate in.</p>
<p>Saito breathes new life into Marxist ideas with his book by presenting evidence of life beyond endless extraction, production and consumption. As the author himself argues, this could not have come at a better time: </p>
<blockquote>
<p>Although it was never recognised during the 20th century, Marx’s idea of degrowth communism is more important than ever today because it increases the chance of human survival in the Anthropocene.</p>
</blockquote>
<hr>
<figure class="align-right ">
<img alt="Imagine weekly climate newsletter" src="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p><strong><em>Don’t have time to read about climate change as much as you’d like?</em></strong>
<br><em><a href="https://theconversation.com/uk/newsletters/imagine-57?utm_source=TCUK&utm_medium=linkback&utm_campaign=Imagine&utm_content=DontHaveTimeTop">Get a weekly roundup in your inbox instead.</a> Every Wednesday, The Conversation’s environment editor writes Imagine, a short email that goes a little deeper into just one climate issue. <a href="https://theconversation.com/uk/newsletters/imagine-57?utm_source=TCUK&utm_medium=linkback&utm_campaign=Imagine&utm_content=DontHaveTimeBottom">Join the 10,000+ readers who’ve subscribed so far.</a></em></p>
<hr><img src="https://counter.theconversation.com/content/199572/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Timothée Parrique does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What does Karl Marx have to say about climate change? Quite a lot, according to a new book.Timothée Parrique, Researcher in Ecological Economics, Lund UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1947212022-11-18T05:15:59Z2022-11-18T05:15:59ZVictoria’s economic growth leads nation, as NSW falls to last place<figure><img src="https://images.theconversation.com/files/496053/original/file-20221118-25-cxy773.jpg?ixlib=rb-1.1.0&rect=22%2C14%2C4898%2C3238&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The latest figures on the economic performance of Australia’s states and territories shows Victoria leading the nation and New South Wales falling to last place. </p>
<p>The annual <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-state-accounts/2021-22-financial-year">gross state product</a> accounts from the Australian Bureau of Statistics record the equivalent of gross domestic product (the total value of goods and services bought and sold). </p>
<p>In the 2021-22 financial year Australia’s <em>real</em> gross domestic product – that is, adjusted for inflation – grew by 3.6%. </p>
<p>Victoria’s real gross state product grew by 5.6%, followed by South Australia (5.1%), Northern Territory (4.7%), Queensland (4.4%), Tasmania (4.3%), Western Australia (3.1%), the Australian Capital Territory (1.9%) and New South Wales (1.8%).</p>
<hr>
<p><iframe id="vAEkI" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/vAEkI/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>This isn’t as impressive for Victoria as it might seem.</p>
<p>Victoria’s GSP contracted in the previous year due to the state’s extensive COVID lockdowns. This left more scope for a rebound in 2021-22. The state’s construction sector in particular had a backlog of projects. </p>
<p>South Australia has benefited from a strong grain harvest. In the Northern Territory, oil and gas extraction were the prime drivers of growth.</p>
<p>In Tasmania, and to a lesser extent Queensland, the major contributor to growth was the rural sector.</p>
<p>Western Australia’s growth was restrained by a fall in iron ore exports. The Australian Bureau of Statistics attributes this to adverse weather – there was <a href="https://www.industry.gov.au/sites/default/files/minisite/static/b3caf4fd-b837-4cc5-b443-38782298963a/resources-and-energy-quarterly-june-2022/documents/Resources-and-Energy-Quarterly-June-2022.pdf">record rainfall in the Pilbara</a> – and falling overseas demand. </p>
<p>NSW’s growth was driven by the services sector. Services were also the major driver of growth in the Australian Capital Territory. </p>
<h2>Western Australia is still the most affluent</h2>
<p>The state accounts allow us to get a sense of the relative affluence of each state and territory. </p>
<p>This can be done by dividing the total real gross state product by the population. Of course, these averages say nothing about how the income from this production is actually distributed within the state. But they are a useful indicator. </p>
<hr>
<p><iframe id="Qq39p" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Qq39p/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Western Australia and Northern Territory top the list, due to their large mining sectors. </p>
<p>The Australian Capital Territory’s <a href="https://www.researchgate.net/publication/365485034_Mines_and_Minds_Comparing_economic_growth_in_Western_Australia_and_the_ACT#fullTextFileContent">high per capita income</a> reflects its highly educated workforce, with an economy dominated by professional services and education. </p>
<p>Longer term structural factors such as the relative decline in manufacturing explain incomes lagging in South Australia. </p>
<p>Tasmanian economist Saul Eslake <a href="https://www.sauleslake.info/tasmania-records-strong-economic-growth-in-2020-21-but-remains-australias-poorest-state/">attributed</a> the lower average income in Tasmania to a smaller proportion of Tasmanians working, tending to work fewer hours and being less productive due to less education.</p><img src="https://counter.theconversation.com/content/194721/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Victoria’s real gross state product has grown by 5.6%, while New South Wales has fallen to 1.8%.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1878942022-07-28T19:36:29Z2022-07-28T19:36:29ZIs the US in a recession? Well, that depends on whom you ask – and what measure they use<figure><img src="https://images.theconversation.com/files/476556/original/file-20220728-26301-9hv5qb.jpg?ixlib=rb-1.1.0&rect=38%2C122%2C3666%2C2344&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Fears that the U.S. is in recession are growing.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/homeless-person-sleeps-along-wall-street-on-april-28-2022-news-photo/1394228485">Spencer Platt/Getty Images</a></span></figcaption></figure><p><em>The U.S. economy <a href="https://www.bea.gov/news/2022/gross-domestic-product-second-quarter-2022-advance-estimate">shrank at an annual rate 0.9%</a> from April through June, the Bureau of Economic Analysis estimated on July 28, 2022. It follows a contraction in gross domestic product of 1.6% recorded in the first quarter of the year.</em></p>
<p><em><a href="https://www.foxbusiness.com/economy/us-economy-shrank-second-quarter-entering-technical-recession">Some observers suggest the two quarters of contraction constitute</a> a “technical recession” or the “<a href="https://www.theguardian.com/business/2022/jul/28/us-economy-gdp-second-quarter">unofficial start” of one</a>, while others suggest <a href="https://www.cnn.com/2022/07/28/economy/us-economy-second-quarter-gdp/index.html">it at least raises fears</a> or <a href="https://www.cnbc.com/2022/07/28/gdp-q2-.html">signals it’s on the way</a>. Federal Reserve Chair Jerome Powell apparently thinks otherwise. <a href="https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613">On July 27</a>, after <a href="https://theconversation.com/a-hawkish-fed-signals-further-rate-hikes-and-sees-a-slowing-economy-but-not-recession-187758">raising interest rates</a> 0.75 percentage point, Powell told reporters, “it’s a strong economy and nothing about it suggests that it’s close to or vulnerable to a recession.”</em> </p>
<p><em>Confused about whether the U.S. is in a recession or how to know when one hits? If you are, <a href="https://www.theatlantic.com/ideas/archive/2022/07/recession-definition-wrong-question-inflation-unemployment/670983/">join the club</a>.</em></p>
<p><em>So The Conversation U.S. asked <a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">Brian Blank</a>, a financial economist at Mississippi State University, to explain what’s going on in the economy and what factors determine if it is in recession.</em></p>
<h2>What did the latest GDP report tell us?</h2>
<p>The economy is really hard to pin down right now. </p>
<p>First, the question everyone is talking about now is the release of the less-than-impressive gross domestic product report, which showed a <a href="https://www.theguardian.com/business/live/2022/apr/28/cost-of-living-pressures-inflation-unilever-sainsbury-whitbread-stock-markets-twitter-musk-business-live">contraction</a> after adjusting for inflation. </p>
<p>Some aspects of the report were positive, such as that consumption – how much people are buying – still rose a little and business fixed investment – how much companies spend on machines and factories – was flat, avoiding the drop previously forecast. </p>
<p>As for some of the more negative news, investment in residential housing and property declined 14%, which makes sense given how much it had been rising since the pandemic upended the <a href="https://fred.stlouisfed.org/graph/?g=6NQG">housing market</a>. In addition, a <a href="https://fred.stlouisfed.org/series/CBI">drop in private inventory investment</a> – a measure of how much stuff companies have produced but haven’t yet sold – had perhaps the biggest impact on negative second-quarter figures. While inventory reductions can be a sign of strength from selling products, the decline reduced overall GDP by over 2 percentage points.</p>
<p>And overall it means the U.S. economy technically has shrunk for two consecutive quarters, which is why you’re seeing a lot more economists, journalists and others use the dreaded “R” word: recession. </p>
<p><iframe id="jLB58" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/jLB58/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>What is a recession, anyway?</h2>
<p>Two quarters in a row of contraction is the <a href="https://www.cnbc.com/2022/07/26/heres-how-to-know-if-were-in-a-recession-and-its-not-what-you-think.html">shorthand journalists</a> and many others use to describe a recession.</p>
<p>In the U.S., however, the economy is deemed to be officially in recession only after the <a href="https://www.nber.org">National Bureau of Economic Research</a>, a nonprofit and nonpartisan organization, says it is.</p>
<p>The bureau <a href="https://www.nber.org/research/business-cycle-dating">defines a recession</a> as a “significant decline in economic activity that is spread across the economy and lasts more than a few months.” Its <a href="https://www.nber.org/research/business-cycle-dating/business-cycle-dating-committee-members">business cycle dating committee</a>, which is composed of eight economics professors, meets to determine when recessions begin and end. It uses three key criteria:</p>
<p>1) How quickly the economy is contracting.
2) How many aspects of the economy are declining.
3) How long the economy contracts.</p>
<p>The NBER defines recessions as the time between the point at which the economy stops growing – the peak – and the point at which it starts growing again – the trough. </p>
<figure class="align-center ">
<img alt="a man looks at two boxes of breakfast food in front of an aisle of cereals and other foods" src="https://images.theconversation.com/files/476573/original/file-20220728-34200-4gv6bc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/476573/original/file-20220728-34200-4gv6bc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/476573/original/file-20220728-34200-4gv6bc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/476573/original/file-20220728-34200-4gv6bc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/476573/original/file-20220728-34200-4gv6bc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/476573/original/file-20220728-34200-4gv6bc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/476573/original/file-20220728-34200-4gv6bc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Companies are investing less in inventory as high inflation slows consumer spending.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Economy-GDP/69fe8e57892e411191f0bbbbab2d50fb/photo?Query=recession&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=7839&currentItemNo=1">AP Photo/Andres Kudacki</a></span>
</figcaption>
</figure>
<h2>So, are we in a recession or not?</h2>
<p>Recessions are complicated to identify, given that the economy is big and has many parts. Currently, some parts of the U.S. economy, like the labor market, are growing quickly, while others, such as housing, are slowing. </p>
<p>While <a href="https://fred.stlouisfed.org/series/GDP">two quarters of economic contraction typically do coincide with a recession</a>, they also do not typically involve the <a href="https://apnews.com/article/us-jobs-report-signs-of-economic-resilience-e83d996c4a6320b5785dde94d6c2f125">hot job growth the U.S. economy</a> has seen this year. And recessions rarely happen when unemployment – which is currently at a <a href="https://fred.stlouisfed.org/series/UNRATE">roughly half-century-low of 3.6%</a> – is falling. The economy is typically not in recession if almost everyone who wants a job has one.</p>
<p>In addition, recessions usually involve <a href="https://www.bea.gov/data/income-saving/gross-domestic-income">declines in real gross domestic income</a>, which is similar to GDP but instead specifically measures income and costs related to production. In theory, <a href="https://www.nytimes.com/2022/07/27/opinion/gross-domestic-product-income.html">they should move more or less in tandem</a>, but <a href="https://fred.stlouisfed.org/series/GDI">gross domestic income continues to grow</a>. </p>
<p>Another measure of growth is personal income, which <a href="https://www.bea.gov/news/2022/personal-income-and-outlays-may-2022">has been climbing for most of the year</a> and rose faster than <a href="https://www.bea.gov/data/personal-consumption-expenditures-price-index">spending</a> in May. The Fed watches this metric closely because of its <a href="https://www.dallasfed.org/research/economics/2021/0701">predictive ability</a>, as <a href="https://www.nber.org/research/business-cycle-dating">does the National Bureau of Economic Research</a>, in addition to unemployment. </p>
<p>For my 2 cents, I believe Powell is right. The economy does not appear to be in a recession at the moment, given how strong the labor market is. Since <a href="https://fred.stlouisfed.org/series/PAYEMS">2.7 million more people have jobs now</a> than they did at the end of last year, a key measure of the economy is still growing. </p>
<p>“There are too many areas of the economy that are performing too well,” <a href="https://www.cnbc.com/2022/07/27/fed-chair-jerome-powell-said-he-does-not-think-the-us-is-currently-in-a-recession.html">Powell told reporters</a>. “It doesn’t make sense that the economy would be in a recession with this kind of thing happening.”</p>
<p>That said, Powell and the Fed are trying their level best to curb soaring inflation by slowing the economy – and there are worries that doing so will induce a recession. If you want a strong signal to tell if that might be happening, <a href="https://fred.stlouisfed.org/series/A011RE1Q156NBEA">look at residential investment as a percentage of GDP</a>. Residential investment is how much individuals spend on new homes and home improvement. Right now it’s flat, but when it starts to decline, a recession is usually on its heels.</p>
<p>Keep in mind, 2021 boasted <a href="https://theconversation.com/yes-us-economy-may-be-slowing-but-dont-forget-its-coming-off-the-hottest-year-since-1984-heres-who-benefited-in-4-charts-176643">one of its best U.S. economies in decades</a>, so maybe Americans can accept a so-so 2022. In some ways, an economy that is not growing too fast might also mean an economy that is getting inflation under control, which suggests that sometimes not so great news is actually good news.</p><img src="https://counter.theconversation.com/content/187894/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>D. Brian Blank does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The US economy shrank for a second straight quarter. While some call that a recession or a strong sign of one, a financial economist explains why the term probably doesn’t yet apply.D. Brian Blank, Assistant Professor of Finance, Mississippi State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1766432022-04-28T21:32:41Z2022-04-28T21:32:41ZYes, US economy may be slowing, but don’t forget it’s coming off the hottest year since 1984 – here’s who benefited in 4 charts<figure><img src="https://images.theconversation.com/files/460409/original/file-20220428-20-bsp6p1.jpg?ixlib=rb-1.1.0&rect=93%2C93%2C6818%2C3751&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tracking changes in net wealth is one of the best ways to see who benefited from economic growth. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/1335148671">Chris Rogers/Photodisc via Getty Images </a></span></figcaption></figure><p>The U.S. economy <a href="https://www.bloomberg.com/news/articles/2022-04-28/u-s-economy-contracted-in-first-quarter-on-surge-in-trade-gap?srnd=premium&sref=Hjm5biAW">unexpectedly shrank</a> in the first quarter, according to <a href="https://www.bea.gov/sites/default/files/2022-04/gdp1q22_adv.pdf">gross domestic product data</a> released on April 28, 2022. While the reasons were technical and weren’t seen as signs of weakness, they <a href="https://www.marketplace.org/2022/04/27/can-the-fed-lower-inflation-without-getting-the-economy-into-a-recession/">add to worries</a> that the U.S. might be headed for another recession as the Federal Reserve seeks to fight inflation by raising interest rates. </p>
<p>But before we fret too much about what 2022 will bring, I believe, as a <a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">financial economist</a> who studies the decisions people and companies make with money and the resulting impacts, it’s worth reflecting on 2021, which saw the strongest economic growth in almost four decades. </p>
<p><a href="https://www.bea.gov/data/gdp/gross-domestic-product">GDP</a>, which provides a snapshot of the economy by measuring the total value of all goods and services consumers produce and exchange, <a href="https://fred.stlouisfed.org/series/A191RL1A225NBEA">surged 5.7% in 2021</a> after accounting for inflation, the fastest pace since 1984. </p>
<p>So who benefited from all this growth? </p>
<h2>Record gains in American net worth</h2>
<p>A useful way to assess how economic growth affects individuals is by looking at <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:128;series:Net%20worth;demographic:networth;population:all;units:levels">personal financial wealth</a>. This is measured by <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/">net worth</a>, or the difference between what someone owns and owes.</p>
<p>By that measure, it’s likely that the <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">vast majority of Americans</a> are <a href="https://www.jpmorganchase.com/institute/research/household-income-spending/family-cash-balances-income-and-expenditures-trends-through-2021">better off</a> than they were in 2020 – or even before the <a href="https://www.gspublishing.com/content/research/en/reports/2021/02/15/e52e6826-59ec-4c7a-9ebb-732af6ce3946.html">COVID-19 pandemic</a> – meaning they have less debt relative to their assets. This is in no small part thanks to the <a href="https://www.usaspending.gov/disaster/covid-19?publicLaw=all">trillions of dollars in pandemic-related spending</a> by the U.S. government. </p>
<p>Overall, Americans’ <a href="https://www.federalreserve.gov/econres/notes/feds-notes/wealth-inequality-and-covid-19-evidence-from-the-distributional-financial-accounts-20210830.htm">net worth increased</a> by over US$18 trillion during 2021 to $142 trillion, likely the biggest increase ever. </p>
<p>It amounts to an average gain of almost $55,000 for every American. </p>
<p><iframe id="aI9ZO" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/aI9ZO/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>The wealthiest got most of that</h2>
<p>Of course, the average hides tremendous variation across groups.</p>
<p>It’s <a href="https://americansfortaxfairness.org/issue/2-years-covid-u-s-billionaires-1-7-trillion-57-richer/">already been</a> <a href="https://ips-dc.org/u-s-billionaire-wealth-surged-by-70-percent-or-2-1-trillion-during-pandemic-theyre-now-worth-a-combined-5-trillion/">thoroughly</a> <a href="https://www.timesofisrael.com/billionaires-share-of-global-wealth-soars-as-pandemic-widens-inequality-gap-as/">reported</a> that <a href="https://www.aa.com.tr/en/americas/us-billionaires-wealth-soars-70-during-pandemic-report/2396011">billionaires</a> saw their <a href="https://www.cnbc.com/2020/05/21/american-billionaires-got-434-billion-richer-during-the-pandemic.html">wealth soar</a> during the pandemic. <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/compare/chart/">This was driven</a> largely by double-digit gains in the value of their stock holdings and businesses, while their liabilities grew only 1%. </p>
<p>In 2021, the wealthiest 1% of Americans saw their net worth grow $6.7 trillion to about $46 trillion, making up well over a third of the overall gains. Another $6.2 trillion went to the next 9%. Meanwhile, just $1.5 trillion went to the bottom 50%. </p>
<p><iframe id="B4Ycs" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/B4Ycs/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>But those in the bottom half grew the fastest</h2>
<p>The richest may have gotten the most, but the net wealth of the bottom half jumped at the fastest pace. </p>
<p>The bottom 50% saw their wealth grow 64% in 2021. That’s the biggest calendar-year growth of any of these groups since at least 1988, dwarfing the percentage gains of the richest. </p>
<p>This happened largely <a href="https://www.nar.realtor/newsroom/record-high-prices-and-record-low-inventory-make-it-increasingly-difficult-to-achieve-homeownership-particularly-for-black-americans">because homeowners</a> saw real estate <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/compare/chart/#quarter:128;series:Assets;demographic:networth;population:all;units:shares">assets</a> grow a lot faster than <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/compare/chart/#quarter:128;series:Liabilities;demographic:networth;population:all;units:levels">mortgage debts</a>.</p>
<p>While these changes are positive for Americans, both on average and in general, this has not changed the overall distribution of wealth that much. </p>
<p>The bottom half of Americans accounted for 5.5% of the country’s assets before the pandemic and at the end of 2021 owned 5.9%. Though this is the highest level since 2013, it still lags behind levels it saw during the 1990s, when the share rose to nearly 9%.</p>
<p><iframe id="riwzX" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/riwzX/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>White people gained most, but still saw share fall</h2>
<p>Similar to the income-level story, <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:128;series:Net%20worth;demographic:race;population:1,3,5,7;units:levels">most of the gains</a> went to white Americans, who saw their net wealth soar $14.5 trillion in 2021 to $119 trillion. Black Americans gained $1.3 trillion, and Hispanics saw growth of $683 billion. </p>
<p>But the percentage gains were highest for people of color – 26% for African Americans and 24% for Hispanics. That compares with 14% for white Americans.</p>
<p>As a result, the <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:128;series:Net%20worth;demographic:race;population:1,3,5,7;units:shares">overall share held by white people</a> fell to 83.6%, the lowest since at least 1988 and very likely the lowest ever. Black net wealth increased to 4.4% of the pie, the most since 1992. Hispanics held 2.5% of total U.S. net wealth. </p>
<p>For context, non-Hispanic <a href="https://www.census.gov/quickfacts/fact/table/US/PST045221">white Americans make up about 60%</a> of the population, versus 13.4% for Black Americans and 18.5% for Hispanic or Latino Americans.</p>
<p><iframe id="jqdlF" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/jqdlF/6/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>What happens next, as economic growth slows, is hard to say. <a href="https://doi.org/10.1016/j.jpubeco.2020.104273">A large chunk of the coronavirus-related aid</a> <a href="https://doi.org/10.1162/rest_a_01043">went to poorer Americans</a>, which helps explain the gains for the bottom 50% as well as for Black people and Latinos. That aid has now ended. </p>
<p>Still, the market for workers remains on fire, with unemployment at 3.6% at the end of March 2022, <a href="https://fred.stlouisfed.org/series/UNRATE">near a half-century low</a>. And <a href="https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q1-2022">economists</a> have been <a href="https://www.conference-board.org/research/us-forecast">forecasting</a> pretty <a href="https://www.spglobal.com/ratings/en/research/articles/220328-economic-outlook-u-s-q2-2022-spring-chills-12320559">solid</a> growth. </p>
<p>Will this strong economic growth continue?</p>
<p>Count me as one economist hoping Americans continue benefiting from improving job prospects to build wealth – even as the economic picture gets a bit cloudier. </p>
<p>[<em>More than 150,000 readers get one of The Conversation’s informative newsletters.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-150K">Join the list today</a>.]</p><img src="https://counter.theconversation.com/content/176643/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>D. Brian Blank does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most of the gains went to the richest Americans, but almost everyone saw an improvement in terms of net wealth.D. Brian Blank, Assistant Professor of Finance, Mississippi State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1778552022-03-14T13:53:14Z2022-03-14T13:53:14ZNigeria will have to dig deep to overcome entrenched patterns of poverty<figure><img src="https://images.theconversation.com/files/450358/original/file-20220307-84357-7y659j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People loot bags of food from a COVID-19 palliative warehouse in Nigeria. </span> <span class="attribution"><span class="source">Photo by Kola Sulaimon/AFP via Getty Images</span></span></figcaption></figure><p>India has just recently overtaken Nigeria as the country with the <a href="https://africa.businessinsider.com/local/markets/nigeria-is-no-longer-the-poverty-capital-of-the-world-but-still-has-over-70-million/2txm7g3">largest number</a> of people living in extreme poverty. </p>
<p>It’s estimated that <a href="https://www.reuters.com/article/us-nigeria-economy-poverty-idUSKBN22G19A">almost half </a> of Nigeria’s population of about 200 million lives below the threshold of US$1.90 (792 Naira) daily. </p>
<p>Nigeria accounts for about 14% of the world’s poor. The African continent as a whole accounts for about <a href="https://www.thecable.ng/report-nigeria-overtakes-india-worlds-poverty-capital">two-thirds</a> of the world’s poor and the figure is projected to rise.</p>
<p>Calls have been growing for the urgent need to tackle extreme global poverty and boost shared prosperity. The continued attention isn’t solely linked to altruistic motives. Poverty has implications for global growth, peace and development.</p>
<p>The crucial question is how can poverty be reduced? </p>
<p>Evidence is clear that fast-paced inclusive growth driven by value-added productivity and strong institutions ensure a decent level of wealth re-distribution.</p>
<p>In his paper <a href="https://openknowledge.worldbank.org/handle/10986/3466">“From Flying Geese to Leading Dragons”</a>, Justin Yifu Lin points out new opportunities and strategies for structural transformation in developing economies. </p>
<p>In this article, I corroborate his arguments based on my research, teaching and policy experiences on economic growth and development in developing countries, particularly in the sub-Saharan Africa region. </p>
<p>I posit that while technology has meant that countries can leap in advancement, through imitation, there is no alternative evidence to sequential structural change for poverty reduction. This requires changes to both the structure of the economy and labour moving in tandem, especially in high population countries like Nigeria.</p>
<p>I draw insights from three of my recent studies: (i) <a href="https://link.springer.com/chapter/10.1007/978-3-319-78843-2_7">Capital Flows and Economic Growth: Does the Role of State Fragility Really Matter</a> (ii) <a href="https://link.springer.com/chapter/10.1007/978-3-030-49348-6_2">Interrogating the Political Economy of Africa Rising</a> (iii) <a href="https://link.springer.com/chapter/10.1007/978-3-030-49348-6_19">From the Narrative of “Africa Rising” to “How Africa Can Arise”</a>.</p>
<h2>Changing face of global poverty</h2>
<p>The aim of the first Millennium Development Goal – to see a halving of the world population living in extreme poverty by 2015 – was met <a href="https://www.un.org/millenniumgoals/2015_MDG_Report/pdf/MDG%202015%20rev%20(July%201).pdf">five years early</a>. The rate fell to an estimated 21% in 2010, from 43% in 1990. </p>
<p>A huge chunk of this success can be attributed to China, and to a lesser extent India. Between them they were responsible for three-quarters of the reduction in the world’s poor witnessed over the period 2005 - 2015. </p>
<p>These trends contributed to the changing face of global poverty. Asia’s share of global poverty fell from about two-thirds to one-third. For its part Africa’s share more than doubled from <a href="https://databank.worldbank.org/data/download/poverty/33EF03BB-9722-4AE2-ABC7-AA2972D68AFE/Global_POVEQ_SSA.pdf">28% to 60%</a>.</p>
<p>Poverty has gradually become an African problem, despite the rapid growth in the continent over the last decade. In addition, poverty is no longer concentrated in low-income countries. Large chunks of the world’s poor are now located in the recently upgraded middle income countries with significant clusters in the fragile ones. Nigeria is one of them. </p>
<p>This dire situation calls for urgent concern. But accelerating economic growth without increased effort at sharing prosperity and wealth redistribution is not enough to end poverty.</p>
<p>In 2014, the International Monetary Fund presented new evidence on a global scale supporting the arguments of the Nobel economist <a href="https://www.theguardian.com/business/2014/feb/26/imf-inequality-economic-growth">Joseph Stiglitz </a>that inequality can also make growth more volatile and create the unstable conditions for abrupt slowdown in GDP growth.</p>
<p>In essence, inequality can be a drag within national contexts. </p>
<h2>Structural transformation for Inclusive Growth</h2>
<p>There is broad recognition that continuous structural transformation prompted by industrialisation, technological innovation, and diversification are essential features of rapid and sustained growth. </p>
<p>Structural transformation is the reallocation of economic activity away from the least productive sectors of the economy to more productive ones. </p>
<p>As at 2015, <a href="https://blogs.worldbank.org/opendata/half-world-s-poor-live-just-5-countries">about half</a> of the world’s 736 million extreme poor lived in just five countries. </p>
<p>The five countries with the highest number of extreme poor are (in descending order): India, Nigeria, Democratic Republic of Congo, Ethiopia, and Bangladesh. They also happen to be some of the most populous countries of South Asia and Sub-Saharan Africa, the <a href="https://eurasiantimes.com/india-nigeria-bangladesh-home-to-worlds-poorest-people-world-bank/">two regions</a> that together account for 85% (629 million) of the world’s poor. </p>
<p>Both Nigeria and India have over the years experienced some form of structural transformation. For example in both the service sector now contributes significantly to gross domestic product. But unemployment persists, hence, their high poverty numbers. </p>
<p>Nigeria <a href="https://www.brookings.edu/blog/africa-in-focus/2015/03/03/are-african-countries-rebasing-gdp-in-2014-finding-evidence-of-structural-transformation/">re-based</a> its GDP in 2013/2014, to account for new sectors. The re-basing exercise saw an almost doubling effect on Nigeria’s GDP. </p>
<p>The exercise was carried out largely to find evidence of structural transformation. The review showed changes in the sectoral composition of the economy, but this shift doesn’t mean that citizen’s welfare suddenly improved.</p>
<p>A noticeable trend was that the services sector had become the single largest component of the economy (accounting for over 50% percent of total GDP). For their parts the agriculture and manufacturing sectors had not improved significantly. </p>
<p>As at 2011 almost 40% of the GDP was contributed by the agricultural sector. <a href="https://www.nipc.gov.ng/opportunities/services/">Current figures</a> suggest that almost 53% of GDP is accounted for by services, 26% by agriculture and 21% by industry.</p>
<p>Indeed, the basic starting point for structural transformation is a gradual progression out of crude agriculture to more sophisticated sectors of value addition. But the change in the sectoral contribution to GDP needs to be accompanied by changes in the allocation of labour.</p>
<p>There are significant implications for sustaining growth, and for reducing poverty, if this doesn’t happen. </p>
<p>In Nigeria there was no corresponding movement in the sectoral share of the labour force on the back of the rise in the service sector’s share of GDP and a shrinkage in the shares of industry and agriculture. Agriculture still accounts for between <a href="https://www.fao.org/nigeria/fao-in-nigeria/nigeria-at-a-glance/en/">60% to 70% </a>of labour in Nigeria.</p>
<p>There are those who argue against sequential structural transformation. But I think the evidence supporting this remains scanty, particularly for countries with large population, high unemployment and poverty. </p>
<p>Manufacturing exports have been an important source of growth for the ‘miracle’ economies of the late 20th and early 21st centuries. </p>
<p>In addition, the export promotion ideologies of countries such as the Asian Tigers, and more recently China, corroborates the need to industrialise along the lines of a country’s endowment. </p>
<h2>New challenges</h2>
<p>Nigeria needs to achieve and sustain fast-paced economic growth driven by productivity and an export-oriented policy of industrialisation. It also needs to decompose its growth structure in a way that creates jobs and adds value to its factor endowments. </p>
<p>Nigeria has enormous areas of arable land with different climatic conditions. These can support the cultivation of various cash crops. Other endowments include natural resources such as crude oil, and various other solid minerals.</p>
<p>The ability to harness and add value to these before trading would therefore create jobs and reduce poverty. </p>
<p>It also needs to realign its labour force. To achieve this will require a shift from crude agriculture to a mechanised one that frees up labour as a factor of production to work in value chain that transforms primary products to intermediate or finished products. This will reduce the skewness of labour away from the agriculture sector towards industries and services. </p>
<p>Also, its high youth population would imply availability of cheap labour as an endowment that can work in factories at low wages and produce for competitive export.</p>
<p>To achieve this will require skills acquisition and capacity development to work in industries and services, away from the crude agricultural skills. This can be done by reviewing the education curriculum at compulsory levels to significantly reflect technological skills needed in the 21st century. </p>
<p>It will also require concerted efforts aimed at institutional strengthening, to attract and encourage both domestic and foreign investors. </p>
<p>Institutional strengthening will include improved level of enforcement of court orders, improved ease of doing business, increased supply of accountability by the political class and government officials and an efficient and progressive taxation regime, to facilitate wealth re-distribution. </p>
<p>A combination of these factors will help Nigeria achieve a more sustainable growth and equitable redistribution of wealth.</p><img src="https://counter.theconversation.com/content/177855/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Temitope J. Laniran does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria has the largest number of people living in extreme poverty in Africa. Turning the tide requires inclusive growth, value added productivity and strong institutions.Temitope J. Laniran, Research associate, John and Elnora Ferguson Centre for African Studies, University of BradfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1783272022-03-03T19:09:35Z2022-03-03T19:09:35ZVital Signs: Australia’s hairdressing-led economic recovery can’t last<figure><img src="https://images.theconversation.com/files/449708/original/file-20220303-21-1gqfrlx.jpg?ixlib=rb-1.1.0&rect=189%2C21%2C4424%2C2908&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>“It’s difficult to make predictions, especially about the future,” American baseball legend Yogi Berra once quipped. When it comes to predicting where the Australian economy is heading the task is made even trickier in the face of war in Europe and uncertainty about the global energy and other markets.</p>
<p>This week there was some good news. Australia’s economic growth (GDP) bounced back strongly in the last quarter of 2021, up <a href="https://theconversation.com/wednesdays-gdp-numbers-are-impressive-but-they-are-for-the-december-quarter-when-we-were-bouncing-back-from-delta-177821">3.4%</a>, according to Australian Bureau of Statistics figures. </p>
<p>This was a turnaround from the 1.9% decline in GDP in the September quarter.</p>
<hr>
<p><strong>Australian quarterly gross domestic product</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Chain volume measures, seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS National Accounts</a></span>
</figcaption>
</figure>
<hr>
<p>It is often noted, however, that GDP is an imperfect measure – it doesn’t capture things such as unpaid work. It is also “backward-looking”. </p>
<p>The figures tell us what happened at the end of last year, at a time when what we would really like to know is what is going to happen this year, and beyond.</p>
<p>That said, they provide useful clues.</p>
<h2>Splurge-based recovery</h2>
<p>The 3.4% growth was generated almost entirely by consumer spending (3.2 percentage points) with the rest due to changes in inventories and trade.</p>
<p>Government spending made no contribution. Investment (both private and public) was actually a drag, knocking 0.3 and 0.1 percentage points off growth.</p>
<p>This isn’t all that surprising. After months of lockdowns in much of Australia, people wanted to spend. </p>
<p>In the September quarter household savings soared to 19.8% of income. In the December quarter they fell to 13.6% as people splurged on things they couldn’t spend on while they had been locked down. </p>
<hr>
<p><strong>Household final consumption expenditure</strong></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=310&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=310&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=310&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=390&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=390&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=390&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">December quarter growth in real household final consumption expenditure.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS National Accounts</a></span>
</figcaption>
</figure>
<hr>
<p>Spending on “accommodation and food services” jumped 26.1%. Personal and other services (such as haircuts and beauty treatments) grew 15.4%. Air transport expenditure rose a massive 56.5%, though, as economists say, it was was “strong growth off a low base”.</p>
<p>In other words, many people couldn’t get a haircut or go to a restaurant or fly in the third quarter of 2021. In the fourth quarter they could – and did. </p>
<p>This is reinforced by the fact the strongest ouput growth (6.7%) was in New South Wales, where the lockdown arguably bit the most mid-year.</p>
<hr>
<p><strong>State final demand, December quarter</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=201&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=201&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=201&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=253&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=253&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=253&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS National Accounts</a></span>
</figcaption>
</figure>
<hr>
<p>Of course, Omicron hit hard in mid-December, but too late to have a big impact on the quarterly figures. </p>
<p>We will see more of Omicron’s impact in the numbers for the March quarter, due to be released after the May election.</p>
<p>On the plus side, households still have a large stock of savings compared with pre-pandemic levels. </p>
<p>The $424 billion consumer “<a href="https://www.news.com.au/finance/small-business/josh-frydenberg-reveals-private-savings-war-chest-after-criticism-of-business-support/news-story/21fc54b4949b485a74371488c43588fb">war chest</a>” Treasurer Josh Frydenberg has rightly been talking up puts us in a good position to spend, building a sustained recovery.</p>
<hr>
<p><strong>Household saving ratio</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Ratio of saving to net-of-tax income, seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS National Accounts</a></span>
</figcaption>
</figure>
<hr>
<p>Can Australia’s spending-led-recovery continue in 2022? Perhaps, but there are reasons to be concerned. </p>
<p>The mechanical point is that the GDP figures for the December quarter are only impressive when you fail to remember they were bouncing back from a decline of 1.9% in the September quarter (so-called negative growth). </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/wednesdays-gdp-numbers-are-impressive-but-they-are-for-the-december-quarter-when-we-were-bouncing-back-from-delta-177821">Wednesday's GDP numbers are impressive, but they are for the December quarter, when we were bouncing back from Delta</a>
</strong>
</em>
</p>
<hr>
<p>A less mechanical concern is that the world is now awash with uncertainty. </p>
<p>The largest European conflict since the second world war threatens to upend everything from peace and security to global supply chains and financial markets.</p>
<p>The Reserve Bank governor referred to “a major new source of uncertainty” after his board meeting on Tuesday.</p>
<p>Domestically, we still don’t know whether inflation is just returning to regular programming or getting away from us.</p>
<h2>What’s ahead</h2>
<p>Like many economists, I favour the former interpretation. Anyone who tells you they know for sure is delusional. </p>
<p>Aggressive wages claims, if successful, <em>could</em> be the genesis of a wage-price spiral, sending inflation systemically higher, but we don’t know.</p>
<p>The Reserve Bank is going to raise interest rates sooner rather than later. </p>
<p>It could be mid-year or delayed many months, but eventually rates will climb to align with the so-called “neutral rate of interest” - the level that keeps the economy on an even keel, with unemployment low and inflation stable. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-theres-no-magic-jobless-rate-to-increase-australians-wages-176538">Why there's no magic jobless rate to increase Australians' wages</a>
</strong>
</em>
</p>
<hr>
<p>There is considerable uncertainty about what that rate is. </p>
<p>In the 1990s and early 2000s the Reserve Bank thought it was between 3% and 4%. Now it’s hard to dispute it is lower, but not as low as 0.1%, where rates are now. Either way, it suggests meaningful rate rises are coming.</p>
<p>All of these factors will feed into future rate rises – which will dent spending by Australia’s highly leveraged households.</p>
<p>In short, getting sustainable GDP growth back to the 3% plus it used to be will require more than just a consumer spending binge. It will require the hard work of productivity growth.</p>
<h2>The budget looms</h2>
<p>In 2021, for the first time, the federal budget set out four years of “forecasts” instead of two years of forecasts and two years of “projections”. </p>
<p>It has an important implication. It means this year’s budget will need to take a more formal and rigorous view about the next four years – in particular about the international environment in which Australia sits. </p>
<p>The budget is due in less than four weeks. The big question is what will be needed to drive the economy in the years ahead. It will require more than a rebound in restaurant meals and haircuts.</p>
<p><iframe id="Omhhs" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Omhhs/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/178327/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President of the Academy of the Social Sciences in Australia.</span></em></p>Australia’s GDP was up 3.4% last quarter of 2021, on the back of pent-up consumer spending. Other factors must drive future growth.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1764572022-02-09T19:09:02Z2022-02-09T19:09:02ZA myth that won’t die: stopping migration did not kickstart the economy<figure><img src="https://images.theconversation.com/files/445274/original/file-20220208-13-h2ntt5.png?ixlib=rb-1.1.0&rect=679%2C787%2C3058%2C1908&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>Australia’s unemployment rate – <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">now at 4.2%</a> – is at its lowest in more than a decade. It’s not too far off slipping below 4%, something that hasn’t happened for the best part of half a century.</p>
<p>This good news story has ignited fierce debate over who deserves the credit. </p>
<p>The prime minister and the Reserve Bank governor believe it is them. They delivered both the biggest government stimulus package in history and the lowest interest rates in history.</p>
<hr>
<p><strong>Australia’s unemployment rate, 1901 to February 2022</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/445329/original/file-20220209-37168-gp0gro.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/445329/original/file-20220209-37168-gp0gro.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/445329/original/file-20220209-37168-gp0gro.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/445329/original/file-20220209-37168-gp0gro.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/445329/original/file-20220209-37168-gp0gro.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/445329/original/file-20220209-37168-gp0gro.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/445329/original/file-20220209-37168-gp0gro.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/445329/original/file-20220209-37168-gp0gro.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Monthly seasonally adjusted data from 1978, quarterly unadjusted data from 1966 to 1978, annual data (collected differently) prior to 1966.</span>
<span class="attribution"><a class="source" href="https://grattan.edu.au/news/whats-driving-australias-record-low-unemployment-border-closures-or-stimulus/">Sources: ABS Labour Force, ABS Labour Force Historical Timeseries, MW Butlin, A Preliminary Annual Database 1900/01 to 1973/74</a></span>
</figcaption>
</figure>
<hr>
<p>But others disagree, most notably ACTU Secretary <a href="https://twitter.com/sallymcmanus/status/1488628657531002880?s=21">Sally McManus</a> who tweeted last week that the reason unemployment rates were low was closed borders. </p>
<p>It had “nothing to do” with economic management. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1488628657531002880"}"></div></p>
<p>So who’s right? No matter <a href="https://grattan.edu.au/news/whats-driving-australias-record-low-unemployment-border-closures-or-stimulus/">how we run the numbers</a> we find it’s economic management. On balance, closed borders might have helped us, but because they prevented Australians from leaving, rather than others from arriving. </p>
<h2>Arrivals boost demand as well as supply</h2>
<p>New arrivals (often migrants) most certainly do add to the supply of labour. They compete with pre-existing Australians for jobs.</p>
<p>But that’s only half the story.</p>
<p>The other half is that new arrivals consume goods and services, for a while at a greater rate than Australians who have been here longer. They save less or run down savings in order to do it.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-government-is-right-immigration-helps-us-rather-than-harms-us-113919">The government is right – immigration helps us rather than harms us</a>
</strong>
</em>
</p>
<hr>
<p>By buying more, they add to the demand for goods and services, and for workers to produce them.</p>
<p>If migrants enter Australia to work, but then spend more than they are paid, they might even create more jobs than they ‘take’.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/445331/original/file-20220209-23-kuh34x.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bar chart showing the expenditure of people born in Australia is similar to those who have arrived in recent decades. But a second panel shows recent arrivals dissave, spending more than they earn, whereas Australians save a bit." src="https://images.theconversation.com/files/445331/original/file-20220209-23-kuh34x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/445331/original/file-20220209-23-kuh34x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/445331/original/file-20220209-23-kuh34x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/445331/original/file-20220209-23-kuh34x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/445331/original/file-20220209-23-kuh34x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/445331/original/file-20220209-23-kuh34x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/445331/original/file-20220209-23-kuh34x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://grattan.edu.au/news/whats-driving-australias-record-low-unemployment-border-closures-or-stimulus/">Grattan Institute analysis of ABS household Expenditure Survey 2016</a></span>
</figcaption>
</figure>
<hr>
<h2>The net effects are small</h2>
<p>Most recent research confirms that migrants both take and create jobs, finding little overall impact on the employment or wages of existing workers. </p>
<p>One study even found temporary skilled migrants <a href="https://cdn.theconversation.com/static_files/files/1971/gpaa009.pdf">boosted</a> the wages of lower-skilled Australians by prompting them to move up into higher-paid jobs.</p>
<p>In an in-depth study conducted in 2016, the <a href="https://www.pc.gov.au/inquiries/completed/migrant-intake#report">Productivity Commission</a> concluded</p>
<blockquote>
<p>there was almost no evidence that immigration is associated with worse (or better) labour market outcomes for Australian-born people</p>
</blockquote>
<p>Of course, the pandemic is a unique event. Research only takes us so far. </p>
<p>But in <a href="https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Unemployment_statistics">Europe</a> and the <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">United States</a> where borders remained open, unemployment also fell to near historic lows, suggesting it was something other than closed borders that did it. </p>
<h2>But staff shortages are real</h2>
<p>The number of migrants fell dramatically after COVID began. This reduced both the supply of and demand for labour, but the composition affected some industries more than others. </p>
<p>Before the pandemic, about one in six workers in hospitality were temporary migrants, many of them international students.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/covid-halved-international-student-numbers-in-australia-the-risk-now-is-we-lose-future-skilled-workers-and-citizens-175510">COVID halved international student numbers in Australia. The risk now is we lose future skilled workers and citizens</a>
</strong>
</em>
</p>
<hr>
<p>There are roughly half as many international students in Australia now as in 2019. Working holiday makers, who made up about 4% of the agriculture workforce, are almost entirely absent. </p>
<p>The staff shortages are real. Labour supply in those sectors has dramatically shrunk while demand for their services has continued. Eventually those employers will make other arrangements or the supply of backpackers and international students will resume.</p>
<h2>Closed borders helped, by keeping Australians here</h2>
<p>Oddly, there was an aspect of closed borders that boosted GDP.</p>
<p>As it happens, Australians spend more overseas each year than Australia makes from tourists coming here. </p>
<p>As economist <a href="https://www.sauleslake.info/protracted-border-closures-are-a-new-form-of-protectionism/">Saul Eslake</a> points out, banning our population from leaving has been a perverse windfall. Money that would have otherwise been spent overseas has been spent at home.</p>
<p>Bureau of Statistics figures suggest that closing the border might have contributed <a href="https://www.abs.gov.au/statistics/economy/international-trade/balance-payments-and-international-investment-position-australia/latest-release">$28 billion</a> to Australia’s trade balance compared to 2019. </p>
<h2>It’s stimulus that mattered</h2>
<p>Putting the story together in the chart below, it’s clear that stimulus (both “fiscal” from the government, and “monetary” from the Reserve Bank) boosted the economy far more than did closed borders.</p>
<p>The dark-blue bar captures the decline in spending overseas on travel and education as fewer Australians travelled, while the light-blue bar captures both the decline in spending on Australian education and travel, and the effects of fewer working migrants, as fewer visitors arrived. </p>
<p>Both are swamped by stimulus, which is marked in dark and light orange. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/445332/original/file-20220209-21-s0r1nv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Stacked column chart showing the change in GDP per person due to border closures and stimulus. The effect of fewer departures is mostly offset by fewer arrivals. Monetary and fiscal policy are large in comparison" src="https://images.theconversation.com/files/445332/original/file-20220209-21-s0r1nv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/445332/original/file-20220209-21-s0r1nv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=415&fit=crop&dpr=1 600w, https://images.theconversation.com/files/445332/original/file-20220209-21-s0r1nv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=415&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/445332/original/file-20220209-21-s0r1nv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=415&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/445332/original/file-20220209-21-s0r1nv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=522&fit=crop&dpr=1 754w, https://images.theconversation.com/files/445332/original/file-20220209-21-s0r1nv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=522&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/445332/original/file-20220209-21-s0r1nv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=522&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://grattan.edu.au/news/whats-driving-australias-record-low-unemployment-border-closures-or-stimulus/">Estimates are current Australian dollars per person per year and subject to revision. Grattan analysis of ABS 5302.0 and IMF and various RBA publications. Click on link for detailed notes</a></span>
</figcaption>
</figure>
<hr>
<p>The Federal Government set aside <a href="https://treasury.gov.au/coronavirus">$291 billion</a> for stimulus payments. Including tax breaks and state government support, the International Monetary Fund comes up with a total of <a href="https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19">$362 billion</a>. </p>
<p>While some JobKeeper ended up in the hands of shareholders, the scale of the stimulus cannot be denied. Assuming a relatively conservative <a href="https://theconversation.com/cutting-unemployment-will-require-an-extra-70-to-90-billion-in-stimulus-heres-why-141376">fiscal multiplier</a> of 60 cents for each dollar of fiscal support, these supports are set to boost Australian gross domestic product by $217 billion, or roughly $8,600 per person. </p>
<p>The Reserve Bank’s actions might have added $70 billion to GDP over two years. Without these supports the economy would have found itself in a huge hole during the pandemic. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/unemployment-below-3-is-possible-if-australia-budgets-for-it-176025">Unemployment below 3% is possible – if Australia budgets for it</a>
</strong>
</em>
</p>
<hr>
<p>Our low unemployment today is a testament to the success of economic policy. </p>
<p>Attributing it to closed borders runs the risk of leaving us with the wrong lesson the next time the economy turns down.</p><img src="https://counter.theconversation.com/content/176457/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute's board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities, as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Alex Ballantyne and Will Mackey do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Attributing Australia’s economic success to closed borders runs the risk of leaving us with the wrong lesson the next time the things turn down.Brendan Coates, Program Director, Economic Policy, Grattan InstituteAlex Ballantyne, Senior Associate, Economic Policy, Grattan InstituteWill Mackey, Senior Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1733722021-12-16T13:29:15Z2021-12-16T13:29:15ZWhy spending $2 trillion on child care, health care and fighting climate change won’t make inflation any worse than it already is<figure><img src="https://images.theconversation.com/files/437849/original/file-20211215-15-16p8jap.jpg?ixlib=rb-1.1.0&rect=54%2C54%2C5137%2C3394&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">You get the metaphor. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/dripping-sap-royalty-free-image/496074811?adppopup=true">Edwin Remsberg/The Image Bank via Getty Images</a></span></figcaption></figure><p><a href="https://www.bloomberg.com/news/articles/2021-11-17/top-economists-see-biden-s-spending-plan-adding-to-inflation">One of the main concerns</a> raised by critics of President Joe Biden’s Build Back Better plan is that <a href="https://www.businessinsider.com/build-back-better-lift-inflation-higher-joe-manchin-price-growth-2021-12">it will drive up inflation</a>, which <a href="https://theconversation.com/why-is-inflation-so-high-is-it-bad-an-economist-answers-3-questions-about-soaring-consumer-prices-173572">is already running at the fastest pace in four decades</a>. </p>
<p>The Senate is currently considering a <a href="https://apnews.com/article/climate-immigration-joe-biden-health-lifestyle-bff841da156cb12cd47a564f9e0267eb">roughly US$2 trillion bill</a> <a href="https://www.congress.gov/bill/117th-congress/house-bill/5376">passed by the House</a> that would spend money on health care, education, fighting climate change and much else over the next decade. But Republicans and a handful of Democrats like Sen. Joe Manchin of West Virginia argue the risk that <a href="https://www.marketwatch.com/story/manchin-says-inflation-unknown-is-bigger-problem-than-the-need-for-bidens-build-back-better-plan-11638918421">more spending could push inflation even higher is too great</a>. </p>
<p>As <a href="https://scholar.google.com/citations?user=rlbLcnEAAAAJ&hl=en&oi=ao">an economist</a>, I believe these concerns are likely overblown. Here’s why. </p>
<h2>Putting $2 trillion in context</h2>
<p>High inflation <a href="https://econofact.org/rising-inflation">is clearly a problem at the moment</a> – as the Federal Reserve’s Dec. 15, 2021, <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20211215a.htm">decision to accelerate its withdrawal</a> of economic stimulus signals. </p>
<p>The most recent statistics show inflation, as measured by the annual increase in the Consumer Price Index, <a href="https://www.bls.gov/news.release/cpi.nr0.htm">was 6.8% in November 2021</a>. This is the highest level since 1982 – yet still a long way from the double-digit inflation experienced back then. </p>
<p><iframe id="6wzps" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/6wzps/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The question, then, is: Could an additional large spending increase cause inflation to accelerate further? </p>
<p>To answer this, it’s useful to put the numbers in some context. </p>
<p>The price tag of the Build Back Better plan passed by the House of Representatives <a href="https://apnews.com/article/climate-joe-biden-business-health-congress-44c43fab00aa95a268a2cba420713d22">is about $2 trillion</a>, to be spent over a 10-year period. If the spending is spread out evenly, that would amount to about $200 billion a year. That’s only about 3% of <a href="https://datalab.usaspending.gov/americas-finance-guide/spending/">how much the government planned to spend in 2021</a>. </p>
<p>Another comparison is to the <a href="https://www.investopedia.com/terms/g/gdp.asp">gross domestic product</a>, which is the value of all goods and services produced in a country. U.S. GDP is <a href="https://www.bloomberg.com/news/articles/2021-12-04/goldman-cuts-u-s-gdp-forecast-saying-omicron-is-drag-on-growth">projected to be</a> $22.3 trillion in 2022. This means that the first year of the bill’s spending would be about 0.8% of the GDP.</p>
<p>While that doesn’t sound like much either, it’s not insignificant. Goldman Sachs <a href="https://www.bloomberg.com/news/articles/2021-12-04/goldman-cuts-u-s-gdp-forecast-saying-omicron-is-drag-on-growth">estimates U.S. economic growth at 3.8%</a> in 2022. If the increased spending translated into economic activity on a dollar-for-dollar basis, that could lift growth by over one-fifth.</p>
<p>[<em>More than 140,000 readers get one of The Conversation’s informative newsletters.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-140K">Join the list today</a>.]</p>
<p>But what really matters here is how much the bill would spend in excess of any taxes raised to pay for the program. The <a href="https://taxfoundation.org/build-back-better-plan-reconciliation-bill-tax/">higher taxes on the wealthy and corporations that the House version of the bill calls</a> for would reduce economic activity – by taking money out of the economy – offsetting some of the impact of the spending that would stimulate it. </p>
<p>The <a href="https://www.cbo.gov/publication/57619">Congressional Budget Office estimates</a> that the bill would increase the deficit by $150.7 billion over a decade, or about $15 billion a year. Again assuming this is spread evenly over the 10 years, it would amount to less than one-tenth of 1% of GDP. </p>
<p>In other words, even if the proposed spending has an <a href="https://www.stlouisfed.org/on-the-economy/2017/december/government-spending-stimulate-economy">unusually large impact on the economy</a>, it would still be barely noticeable on a macro level. </p>
<h2>But it won’t reduce inflation either</h2>
<p>Some proponents of the bill – <a href="https://www.whitehouse.gov/briefing-room/press-briefings/2021/11/15/press-briefing-by-press-secretary-jen-psaki-november-15-2021/">including the White House</a> and <a href="https://www.newsweek.com/56-economists-tout-benefits-bidens-build-back-better-act-despite-gop-inflation-concerns-1658224">some economists</a> – have gone further. They have argued that the proposed spending package would actually reduce inflation by increasing the productive capacity of the economy – or its maximum potential output.</p>
<p>This seems implausible to me, at least given the current level of inflation. Historical evidence shows <a href="https://www.stlouisfed.org/publications/regional-economist/january-1998/a-brave-new-economic-world-the-productivity-puzzle#5##5">a more productive economy can grow more quickly</a> with relatively little upward pressure on prices. <a href="https://www.federalreserve.gov/boarddocs/speeches/1997/199710142.htm">That’s what happened in the U.S. in the 1990s</a>, when the economy grew strongly with little inflation. </p>
<p>In addition, it takes time for investments like those in the bill to translate into gains in productivity and economic growth – meaning many of these impacts will be slow to materialize. </p>
<p>Current inflation is likely an acute problem <a href="https://theconversation.com/why-are-prices-so-high-blame-the-supply-chain-and-thats-the-reason-inflation-is-here-to-stay-169441">reflecting supply chain disruptions</a> and pent-up demand, challenges that won’t be resolved by expanding the economy’s productive capacity five or more years down the road. But again, neither would inflation likely get any worse by spending $2 trillion to <a href="https://www.nytimes.com/article/build-back-better-explained.html">improve access to</a> affordable child care, fight climate change and increase health care coverage. </p>
<p>Whatever the arguments for or against passage of the bill, I don’t believe its potential impact on inflation should be one of them.</p><img src="https://counter.theconversation.com/content/173372/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Klein receives funding from the Peter G. Peterson Foundation, the Alfred P. Sloan Foundation, the Smith Richardson Foundation and the Calvin G. Kazanjian Foundation.</span></em></p>Republicans and a few Democrats say the Build Back Better plan would increase the already fast pace of inflation.Michael Klein, Professor of International Economic Affairs at The Fletcher School, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1708202021-12-13T14:19:16Z2021-12-13T14:19:16ZGDP ignores the environment: why it’s time for a more sustainable growth metric<figure><img src="https://images.theconversation.com/files/436964/original/file-20211210-149721-10wthgw.jpg?ixlib=rb-1.1.0&rect=0%2C17%2C5975%2C3950&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Researchers have estimated the gross ecosystem product (GEP) of Qinghai province in China.</span> <span class="attribution"><span class="source">Jiaye Liu / shutterstock</span></span></figcaption></figure><p>For more than 70 years, Gross Domestic Product, or GDP, has been the key yardstick by which nations have measured economic progress. But GDP is designed to exclusively account for the monetary benefits accrued from economic activity. It is blind to the degradation of the natural environment, finite resources and human wellbeing. It’s time we came up with something better.</p>
<p>Without ever having to acknowledge how nature has contributed to economic growth, GDP has promoted unsustainable practices that have contributed to the climate and biodiversity emergencies. To put it another way, GDP is like a ledger that will not accept red ink. Like an accounting trick, it has allowed us to vent greenhouse gasses into the atmosphere, destroy habitats and neglect human wellbeing without ever having to worry about the consequences.</p>
<p>Of course, the current environmental disaster was something that the economist Simon Kuznets did not have to consider when he <a href="https://foreignpolicy.com/2011/01/03/gdp-a-brief-history/">developed the concept</a> in the aftermath of the Great Depression in the 1930s. But notwithstanding its limitations, something Kuznets was himself aware of, GDP has become the main economic indicator in use today. This puts policy makers who are trying to limit global warming in somewhat of a bind.</p>
<h2>Gross Ecosystem Product</h2>
<p>As such, we need to start looking at alternative metrics such as Gross Ecosystem Product (GEP) so that we can account for nature’s contribution to economic activity and human wellbeing.</p>
<p>Although research into <a href="https://www.pnas.org/content/117/25/14593">calculating GEP</a> is only in its infancy, it attempts to place a monetary value on things like clean water, soil quality, food security, healthcare and the culturally-significant landscapes that contribute to our happiness. In other words, GEP assigns a dollar value to the work of bees who act as nature’s pollinators, bogs that sequester carbon, and the stimulating effect nature has on our mental health.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/437216/original/file-20211213-13-3f7s4e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="two bees and a yellow flower" src="https://images.theconversation.com/files/437216/original/file-20211213-13-3f7s4e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/437216/original/file-20211213-13-3f7s4e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=325&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437216/original/file-20211213-13-3f7s4e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=325&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437216/original/file-20211213-13-3f7s4e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=325&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437216/original/file-20211213-13-3f7s4e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=409&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437216/original/file-20211213-13-3f7s4e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=409&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437216/original/file-20211213-13-3f7s4e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=409&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Bees: good for GEP.</span>
<span class="attribution"><span class="source">RUKSUTAKARN studio / shutterstock</span></span>
</figcaption>
</figure>
<p>While GDP looks exclusively at the value of production – or outputs – GEP instead places a value on nature’s input and incentivises policy makers to invest in nature. It would be naive to simply add both measures together and come up with an overall figure, since both metrics overlap in numerous areas. But the two measures can still provide decision makers with complementary information that could help allow for sustainable economic growth into the future.</p>
<h2>Exporting ecosystem services – and boosting GEP</h2>
<p>For example, the Chinese government has been experimenting with the implementation of GEP in Qinghai province – a remote region of the Tibetan plateau that contains the source of the Mekong, Yangtze and Yellow Rivers.</p>
<p>There, researchers found that GEP was far greater than GDP in the year 2000, 81.5 vs. 26 billion Yuan. At that point, there was considerably more useful ecosystem activity than human economic activity. </p>
<p>However by 2015 GEP had shrunk to three quarters the size of GDP, <a href="https://www.pnas.org/content/117/25/14593">185.4 vs. 242 billion Yuan</a>. This suggests greater investment had been made in traditional economic growth at the expense of the environment. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/437218/original/file-20211213-13-4xfcmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="River winds through large valley" src="https://images.theconversation.com/files/437218/original/file-20211213-13-4xfcmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/437218/original/file-20211213-13-4xfcmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437218/original/file-20211213-13-4xfcmu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437218/original/file-20211213-13-4xfcmu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437218/original/file-20211213-13-4xfcmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437218/original/file-20211213-13-4xfcmu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437218/original/file-20211213-13-4xfcmu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Several huge rivers begin on the high plateaus of Qinghai province.</span>
<span class="attribution"><span class="source">DMHJ / shutterstock</span></span>
</figcaption>
</figure>
<p>Intriguingly, as Qinghai is the source of three major rivers, the study also found that the province “exports” ecosystem services like drinking water and fertilising nutrients, which show up in the GEP accumulated by other Chinese provinces and neighbouring countries. </p>
<p>The ability to measure the value of Qinghai’s ecosystem “export” could set in train a process whereby financial compensation is paid to the province by neighbouring regions. Such a programme could create the economic incentive for communities to conserve and grow ecosystem assets. To put this in a global perspective, imagine if Brazilian farmers were paid by European countries to manage the rainforest based on the amount of carbon it sequesters.</p>
<p>Similarly, in Ireland where I live, GEP would allow bogs and woodlands to contribute to the economy. In such a scenario, Irish cities could be compelled to pay rural regions to store some of the carbon they produce or to maintain culturally significant landscapes that enhance mental health and wellbeing.</p>
<p>By placing a value on the benefits that we derive from our natural environment, GEP would also encourage us to think differently about how we manage, maintain and grow those regions that have been neglected in favour of centralised growth strategies.</p>
<p>However, for now at least, it would be impractical to implement a system like GEP or the UN’s <a href="https://seea.un.org/">System of Environmental-Economic Accounting</a>. Apart from being hugely complex and largely unproven, adopting it would require a global economic consensus on a scale not seen since the international financial order was devised <a href="https://theconversation.com/uk/topics/bretton-woods-11536">after the second world war</a>.</p>
<p>Nevertheless, if we are to manage the complex trade-offs needed to mitigate the climate crisis, then radical new thinking is required.</p><img src="https://counter.theconversation.com/content/170820/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Onakuse does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Radical new thinking is required to fight climate change, and ‘gross ecosystem product’ might help.Stephen Onakuse, Senior Lecturer, Department of Food Business and Development, and Deputy Director of the Centre for Sustainable Livelihoods, University College CorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1729502021-12-01T05:18:35Z2021-12-01T05:18:35ZSure, the national accounts show GDP going backwards, but look at what’s to come<p>The most revealing graph presented in Wednesday’s <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">September quarter national accounts</a> is one showing what has happened just beyond the end of the September quarter, in the one we are in now.</p>
<p>Melbourne’s lockdown ended on October 27. </p>
<p>The graph uses anonymised bank account data to show what happened to spending in Victoria as soon <a href="https://www.abs.gov.au/articles/impact-lockdowns-household-consumption-insights-alternative-data-sources">as the lockdown was lifted</a>.</p>
<hr>
<p><strong>Selected Victorian spending data</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Aggregated bank data. Index for May 2020 = 100.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/articles/impact-lockdowns-household-consumption-insights-alternative-data-sources">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>Spending on clothing, furnishings, recreation, transport and restaurants and hotels surged.</p>
<p>As happened after last year’s lockdowns, Victorians returned to spending pretty much what they had before.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/gdp-is-like-a-heart-rate-monitor-it-tells-us-about-life-but-not-our-lives-172762">GDP is like a heart rate monitor: it tells us about life, but not our lives</a>
</strong>
</em>
</p>
<hr>
<p>The September quarter national accounts released on Wednesday are a statement of their time – they show what things were like when NSW, Victoria and the ACT were locked down.</p>
<p>Australia’s gross domestic product shrank 1.9% in the three months to September, after climbing for four consecutive quarters following the record hit of 6.8% from the first wave of COVID and last year’s lockdowns.</p>
<hr>
<p><strong>Australian quarterly gross domestic product</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/434882/original/file-20211201-27-19flwj6.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/434882/original/file-20211201-27-19flwj6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/434882/original/file-20211201-27-19flwj6.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434882/original/file-20211201-27-19flwj6.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434882/original/file-20211201-27-19flwj6.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434882/original/file-20211201-27-19flwj6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434882/original/file-20211201-27-19flwj6.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434882/original/file-20211201-27-19flwj6.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Chain volume measures, seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>The biggest hit to GDP came from household spending, down 4.8% in the quarter.</p>
<p>National spending on hotels, cafes and restaurants fell 21.2%, spending on recreation and culture fell 11.8%, and spending on transport fell 40.8%.</p>
<hr>
<p><strong>Household final consumption expenditure</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/434887/original/file-20211201-18-ur2hec.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/434887/original/file-20211201-18-ur2hec.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/434887/original/file-20211201-18-ur2hec.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434887/original/file-20211201-18-ur2hec.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434887/original/file-20211201-18-ur2hec.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434887/original/file-20211201-18-ur2hec.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434887/original/file-20211201-18-ur2hec.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434887/original/file-20211201-18-ur2hec.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Chain volume measures, seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>But the decline was anything but national.</p>
<p>Whereas spending in hotels, cafes and restaurants collapsed 33% (or more) in each of the states that were locked down, in the states that weren’t, it barely suffered.</p>
<p>Aggregate spending shrank 6.5% in NSW, 1.4% in Victoria and 1.6% in the ACT, while climbing strongly in the states that weren’t locked down, surging an impressive 4% in the Northern Territory and 4.2% Tasmania.</p>
<hr>
<p><strong>State final demand, September quarter</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/434891/original/file-20211201-26-qdcqjr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/434891/original/file-20211201-26-qdcqjr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/434891/original/file-20211201-26-qdcqjr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=201&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434891/original/file-20211201-26-qdcqjr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=201&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434891/original/file-20211201-26-qdcqjr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=201&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434891/original/file-20211201-26-qdcqjr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=253&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434891/original/file-20211201-26-qdcqjr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=253&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434891/original/file-20211201-26-qdcqjr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=253&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>Nationally, personal saving soared, with the jump centred in the lockdown states as those households whose income hadn’t taken a hit saved more because of concern about the future and fewer opportunities to spend.</p>
<p>The national household saving rate bounded back up to an extraordinary 19.8% of household income from the 11.8% it fell to in March, after hitting an all-time high of 23.3% in the first wave of lockdowns.</p>
<hr>
<p><strong>Household saving ratio</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/434886/original/file-20211201-25-jlm2h2.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/434886/original/file-20211201-25-jlm2h2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/434886/original/file-20211201-25-jlm2h2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434886/original/file-20211201-25-jlm2h2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434886/original/file-20211201-25-jlm2h2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434886/original/file-20211201-25-jlm2h2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434886/original/file-20211201-25-jlm2h2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434886/original/file-20211201-25-jlm2h2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Ratio of saving to net-of-tax income, seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>The bank-sourced data on post-lockdown spending in the lockdown states suggests household saving is already on the way down.</p>
<p>At his parliament house press conference, Treasurer Josh Frydenberg spoke of the unusually high saving rate as a source of future spending.</p>
<p>“Not all of it is going to be spent,” he said. “But it’s a lot of damn money that’s been accumulated”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/four-gdp-graphs-that-show-how-well-australia-was-doing-before-delta-166817">Four GDP graphs that show how well Australia was doing, before Delta</a>
</strong>
</em>
</p>
<hr>
<p>If household spending had been the only thing driving changes in gross domestic product, it would have been down 2.5%. Working in the other direction this quarter was a jump in net exports and a jump in government spending. Neither business investment nor housing construction changed much.</p>
<p>Organisation for Economic Co-operation and Development forecasts released late Wednesday have the Australian economy growing 4.1% in 2022, up from 3.8% this year, slipping back to 3% in 2023.</p>
<h2>Sustained low unemployment forecast</h2>
<p>The <a href="https://www.oecd.org/">OECD Economic Outlook</a> has Australia’s unemployment rate falling to 4.7% in 2022 and 4.3% in 2023. It says as inroads are made into unemployment, wage and price pressures will build, but are expected to “remain contained”.</p>
<p>The organisation welcomes Australia’s commitment to net zero emissions by 2050, but says the strategy should be “comprehensive, effective and inclusive”. Its report backs a call for an independent review of the Reserve Bank.</p>
<p>It forecasts global growth of 4.5% and 3.2% in 2022 and 2023.</p><img src="https://counter.theconversation.com/content/172950/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The economy shrank 1.9% in the September quarter, but figures released on Wednesday show spending roaring back as soon as the lockdowns ended.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1727622021-11-30T04:24:30Z2021-11-30T04:24:30ZGDP is like a heart rate monitor: it tells us about life, but not our lives<figure><img src="https://images.theconversation.com/files/434613/original/file-20211130-21-ihs9bh.jpg?ixlib=rb-1.1.0&rect=356%2C267%2C2801%2C1680&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>How much cash would you need to be paid to agree to live without a smartphone for a year? </p>
<p>If you are like the typical American, the answer is <a href="https://www.hoover.org/sites/default/files/research/docs/kane_webreadypdf.pdf">US$10,000</a> – which is far, far more than what we are actually charged for having and using smartphones.</p>
<p>How much would you need to be paid to live without a computer? </p>
<p>According to the same research, just published by Stanford University’s Hoover Institution, a typical American would want US$25,000 to live computer-free for a year.</p>
<p>For the GPS system that lets us map where we are on all our devices, the answer is US$3,000; for streaming services such as Netflix the answer is another US$3,000.</p>
<p>For refrigeration the answer is US$10,000; for air conditioning, another US$10,000; and for running water US$50,000.</p>
<p>The point of this study, by economist <a href="https://www.hoover.org/sites/default/files/research/docs/kane_webreadypdf.pdf">Tim Kane</a>, is that if we add up the worth to us of everything the economy produces each year, we get much, much more than the gross domestic product – even though GDP is meant to be a summation of the prices paid each year.</p>
<p>Not a day goes by when we don’t get astounding value for money: on Kane’s estimate, about 20 times what we pay.</p>
<h2>GDP monitors changes, not our lives</h2>
<p>It’s a useful perspective to bear in mind ahead of the latest Australian gross domestic product figures, being released <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">on Wednesday</a>. </p>
<p>Those figures will show Australia spent less, earned less and produced less in the lockdown-affected September quarter months of July, August and September than in the three months before – about 3% less on private estimates.</p>
<p>It won’t be a “recession” because in Australia that’s generally taken to mean two consecutive quarters of those things going backwards. And we already know spending, earning and production all started climbing as soon as the lockdowns ended at the beginning of the quarter we are in now.</p>
<p>The GDP has the same relationship to life as a heart rate monitor has to health.</p>
<h2>There’s more to GDP than you might think</h2>
<p>Behind the headline figure you hear about are actually three different measures.</p>
<p>GDP(P) is a measure of everything that’s <em>produced</em> in the quarter. The Bureau of Statistics has the unenviable job of adding up most things that are produced at market prices (and having a stab at trying to infer market prices where they are not apparent) in industries as diverse as mining, financial services and education.</p>
<p>It tries to count each thing only once, which is difficult because some things are used as inputs to others. Its work is made harder by relying partly on surveys and partly on complete sets of data from organisations such as the Tax Office.</p>
<p>Ask whether it uses guess work, you will be told it uses “<a href="https://unstats.un.org/unsd/economic_stat/china/pgdp/The%20Production%20Approach%20to%20Measuring%20GDP.pdf">informed judgement</a>”. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/four-gdp-graphs-that-show-how-well-australia-was-doing-before-delta-166817">Four GDP graphs that show how well Australia was doing, before Delta</a>
</strong>
</em>
</p>
<hr>
<p>GDP(E) is a totalling of government and household <em>expenditure</em> to buy those products. After adjusting for imports and exports it ought to equal GDP(P), but imperfections in measurement mean it usually doesn’t. </p>
<p>Then there’s GDP(I), which is a measure of the <em>income</em> households and businesses get from working and selling those products. Again, it ought to equal the other two, but it usually doesn’t.</p>
<p>After trying to get the three measures nearer each other (perhaps there was something somebody missed) the technicians in the bureau simply average the three, producing GDP(A). That’s what goes up on the <a href="https://www.abs.gov.au/">ABS website</a> at 11:30am AEDT Wednesday, followed by a Treasurer’s press conference and loads of analysis.</p>
<h2>It needn’t indicate an underlying condition</h2>
<p>Just as a heart rate monitor needn’t tell us much about health, because even in healthy people hearts beat slower while sleeping and faster while awake, GDP needn’t tell us that much about the condition of our lives.</p>
<p>A lot of the economy went to sleep during this year’s and last year’s lockdowns and is now waking up. The GDP will show that, but at least on Wednesday it won’t tell us more than that.</p>
<p>As it happens, economic growth has been weakening over time. Annual GDP growth is no longer the 3-4% it typically was between the early 1990s recession and the 2008 financial crisis. In the decade leading up to COVID it has been much lower, rarely touching 3%.</p>
<hr>
<p><strong>Annual financial year GDP growth</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/434627/original/file-20211130-13-1t9mgkr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/434627/original/file-20211130-13-1t9mgkr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/434627/original/file-20211130-13-1t9mgkr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434627/original/file-20211130-13-1t9mgkr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434627/original/file-20211130-13-1t9mgkr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434627/original/file-20211130-13-1t9mgkr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434627/original/file-20211130-13-1t9mgkr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434627/original/file-20211130-13-1t9mgkr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Financial year on financial year growth, 2002-03 to 2018-19.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-system-national-accounts/2020-21#data-download">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>Put starkly, for little-understood reasons unrelated to quarterly fluctuations or COVID, we are getting better off more slowly than we were.</p>
<p>There are always people who say this doesn’t matter, we should be happy with what we had (and as I noted, much of what we’ve had isn’t counted in the GDP).</p>
<h2>There is an underlying condition nonetheless</h2>
<p>But it matters a good deal, because ever since economic growth took off in the 1870s we’ve grown used to things continually getting better, and have come to expect it. </p>
<p>US economic historian Brad Delong uses an 1880s science fiction book to illustrate how much we’ve come to regard improving living standards as a birthright.</p>
<p>In <a href="https://www.google.com.au/books/edition/Looking_Backward/xpHtvz4bNZ0C">Looking Backward</a>, Edward Bellamy purports to look back from the year 2000. </p>
<p>At one point a hostess asks if he would like to hear some music. Instead of playing the piano, she merely touched one or two screws and “immediately the room was filled with the music of a grand organ”, one of four she could dial up by landline.</p>
<p>It appeared to him that</p>
<blockquote>
<p>if we could have devised an arrangement for providing everybody with music in their homes, perfect in quality, unlimited in quantity, suited to every mood, and beginning and ceasing at will, we should have considered the limit of human felicity already attained, and ceased to strive for further improvements.</p>
</blockquote>
<p>He got it wrong.</p><img src="https://counter.theconversation.com/content/172762/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This story is part of a series on financial and economic literacy funded by Ecstra Foundation.</span></em></p>Looking beyond the latest quarterly GDP figures, the truth is we’re getting better off more slowly than before.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1673092021-09-03T14:38:00Z2021-09-03T14:38:00ZSouth Africa has rebased its gross domestic product (GDP). The how and the why<figure><img src="https://images.theconversation.com/files/419269/original/file-20210903-17-w6798o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Statistics South Africa recently <a href="http://www.statssa.gov.za/?p=14614">rebased</a> South Africa’s GDP. </p>
<p>Does it matter?</p>
<p>To start with, let’s unpack what rebasing is – and what it is not – and then put this statistical exercise in the context of the changes that economies go through.</p>
<p>First things first. </p>
<p>What is the GDP of an economy? There are three definitions. All are equivalent. GDP can be measured:</p>
<ul>
<li><p>as the value of the final goods and services produced by an economy in a particular period (a year, or a quarter); or </p></li>
<li><p>as the sum of value added in an economy in a particular period; or</p></li>
<li><p>the sum of incomes in the economy in a particular period. </p></li>
</ul>
<p>So why the need to periodically rebase an economy’s GDP? Because economies change over time, in particular developing ones. How often rebasing is done in a country like South Africa depends on resources and priorities. Statistics South Africa used to do rebasing exercises every five years. Rebasing was done in 1999, 2004, 2009 and 2014. It has taken a bit longer for the latest one because of the pandemic. </p>
<p>The frequency matters because of the structural transformation in an economy, inflation and technological progress. For instance, during the process of economic development, or of structural transformation, economies go through a process of urbanisation, where more and more people live, study, work and produce goods and services in cities. This leads to the growth of certain sectors, such as services and manufacturing which are more productive and demand more human capital compared with sectors like agriculture. The effect of this is that the relative importance of the agricultural sector diminishes as services and manufacturing increase. </p>
<p>This process of structural transformation is general. Countries like the US and the UK have all gone through it. South Africa is going through it right now. </p>
<p>The change means that the weight of particular sectors changes in the measurement of GDP. For example, if there are less and less people working in agriculture, wages in that sector will be different than five years ago. If general prices are increasing inflation has to be taken into account and fast technological progress affects prices and wages – and demand and supply of human capital – as well.</p>
<p>Other things change too. </p>
<p>Governments need to periodically know how and where the GDP is being produced, so that better policies can be implemented (accompanied by fairer taxation as well). In addition, prospective investors need to know what sectors of an economy are growing, which tend to be the most profitable ones, so that better investment choices are made.</p>
<p>In all, the weights matter. </p>
<p>Rebasing the GDP every five years is important for more updated data, but we do not expect to see dramatic changes. This means that, overall, in relative terms nothing has really changed much in, say, how South Africa fares in relation to other African countries. South Africa still has the third largest GDP in Africa. That was true before the rebasing too.</p>
<p>Nevertheless it’s worth unpacking what major changes were made this time round. </p>
<h2>How it’s done</h2>
<p>Government agencies that calculate GDPs use a base year. For instance, Statistics South Africa, before the latest rebasing, was using 2010 prices to get the real South African GDP. To get to the real GDP in 2018, the South African nominal GDP in 2018 was being multiplied by a 2010 price index. </p>
<p>And prices change, not only because of inflation, but also because of changes in quality. Think of an intel processor and how it has changed its speed over time, or how banking used to be done in 2010 – in the branch – and how it was done in 2018 – on the smart phone. </p>
<p>Nominal and real changes happen in an economy over time. Therefore the need for periodical rebasing so that the data are always accurate.</p>
<p>We do not expect dramatic changes attached to rebasing exercises happening every five years. South Africa is a developing economy, which has been changing and growing over time, but its growth rates are not as dramatic as say, a country like China. So, we expect some changes, but not dramatic ones. </p>
<p>For example, services have had substantial (but not dramatic) positive changes with the rebasing – in other words it has increased in relative size to other sectors. </p>
<p>To make sense of that, just think in terms of the massive developments around the city in areas such as Rosebank and Sandton. All those new buildings are being occupied by people providing services, and with human capital. In two words, structural transformation. </p>
<p>Agriculture, on the other hand, has barely changed with the rebasing. </p>
<p>Perhaps more worrying in terms of policy, or public goods provision, is the reduction of general government services. It is perhaps too early for conclusions, but worth investigating why. </p>
<p>Furthermore, gross fixed capital formation, or investment for short, has barely changed. From first principles, this is not necessarily bad, investment is not one of the main drivers of economic growth. Technological progress is, as well as human capital. </p>
<h2>What it’s not about</h2>
<p>Rebasing is not about making economies richer by decree, and South Africa’s relative economic position in Africa illustrates that well. Rebasing is about providing updated data, in this case, rising importance of the services sectors, little change in agriculture, stagnation of general government services, so that better policies (and fairer taxation) can be implemented.</p>
<p>So, rebasing of the GDP matters, so that more updated data are made available. With more and better data available, better analysis and estimates are obtained, better policies are designed and hopefully welfare improves.</p><img src="https://counter.theconversation.com/content/167309/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Manoel Bittencourt works for University of Pretoria. He receives funding from NRF. He is affiliated with ERSA. </span></em></p>Rebasing matters because it makes updated and better data available so that better policies can be designed.Manoel Bittencourt, Professor of Economics, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1659072021-08-15T09:02:43Z2021-08-15T09:02:43ZNigerian health research needs more regular funding<figure><img src="https://images.theconversation.com/files/415687/original/file-20210811-15-sy8umz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"> Nigeria must increase funding for health research </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/technician-handles-samples-from-truck-drivers-testing-for-news-photo/1212974088?adppopup=true">Brian/AFP via Getty Images</a></span></figcaption></figure><p><em>Nigeria’s <a href="https://tetfundserver.com/">Tertiary Education Trust Fund</a> has <a href="https://punchng.com/fg-approves-n8-5bn-for-medical-research-others/">approved</a> N8.5bn (US$16.83m) for medical research this year an increase of 13.33%. Of this amount, N1bn (US$1.98m) is specifically for research on COVID-19. The fund was set up in 1993 to improve federal and state tertiary education in Nigeria, partly by supporting research and publications. Its main source of income is the 2% education tax paid by registered companies. It’s managed by an 11-member board of trustees. The Conversation Africa’s Wale Fatade asked Friday Okonofua, professor of medicine and <a href="https://www.ondoevents.com/unimed-ondo-gets-new-vice-chancellor/">pioneer vice-chancellor</a> of Nigeria’s <a href="https://www.unimed.edu.ng/news.php">first</a> university of medical sciences, to comment on the latest announcement.</em></p>
<hr>
<h2>Is this a step in the right direction in funding medical research?</h2>
<p>I believe so. Nigeria is currently one of the countries with the lowest health research funding in the world. It contributes <a href="http://www.jogh.org/documents/issue202001/jogh-10-010321.htm#R2">0.22% of its GDP</a> to research. Despite the plethora of health issues in the country, and the <a href="https://data.humdata.org/dataset/who-data-for-nigeria">poor health indicators</a>, very little appropriation exists in the <a href="https://www.budgetoffice.gov.ng/index.php/resources/internal-resources/budget-documents/2021-budget">national budget</a> for addressing health research. The budget for research was N5bn ($9.9mn) in <a href="https://nairametrics.com/2021/07/29/buhari-promises-50-increase-in-education-budget-approves-n8-5-billion-for-medical-research/">2019</a> under the National Research Fund. It was raised to N7.5bn ($14.85mn) in 2020 and is still the same this year. It is to this fund that N1bn ($1.98mn) has just been added. This extra is specifically for research around COVID-19. The National Research Fund is managed by the Tertiary Education Trust Fund. I believe this intervention is not enough to address the inadequate provision for health research in the country. It is also important because global research and development pipelines for diseases that affect African countries are <a href="https://gh.bmj.com/content/4/2/e001047#T2">inadequate</a>.</p>
<h2>How is medical research funded generally in Nigeria?</h2>
<p>Medical research is not well funded in Nigeria. I have never seen any provision made for health research funding by any teaching hospital in Nigeria. Most universities provide little or no funding for health research. Existing funds for research come from donor organisations. These include the Gates Foundation, the <a href="https://www.idrc.ca/en">International Development Research Centre, Canada</a> and the World Health Organisation. The federal government got a <a href="https://www.worldbank.org/en/news/press-release/2014/04/15/world-bank-centers-excellence-science-technology-education-africa">loan</a> in 2014 from the World Bank which enabled the establishment of some centres of excellence in Nigerian universities. A few of these centres focus on health issues. Very little funding for health research comes from within the country. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/science-and-technology-hold-the-key-to-nigeria-reaching-its-full-potential-45055">Science and technology hold the key to Nigeria reaching its full potential</a>
</strong>
</em>
</p>
<hr>
<h2>What percentage of medical research funding comes from the federal government in Nigeria?</h2>
<p>It is tough to say specifically apart from figures we have on research generally. While the education trust fund has done well in funding specific health-related research in some Nigerian universities, it is not enough. Some medical researchers across the country have accessed these funds for their research. Apart from this, I am not aware of any other intervention of the federal government to address health research in Nigeria. </p>
<h2>How can we improve funding for medical research?</h2>
<p>The answer is simple. The federal government and all state governments should allocate funds for health research in their annual budgets. This should be for health research specifically and not research generally. The education trust fund should continue its present great work. But its contribution is not sufficient to handle the quantum of health challenges that need to be resolved in Nigeria, along with innovations that need to be identified to promote the health and social well-being of all Nigerians. </p>
<p>Health is a critical component of the <a href="https://www.undp.org/sustainable-development-goals?utm_source=EN&utm_medium=GSR&utm_content=US_UNDP_PaidSearch_Brand_English&utm_campaign=CENTRAL&c_src=CENTRAL&c_src2=GSR&gclid=CjwKCAjwx8iIBhBwEiwA2quaq3EcK5XfnWcUA7C6cTwmVnYs7R_gdWC6Nl4MFW00pdQGUOO9mIBKERoCBhMQAvD_BwE">Sustainable Development Goals</a>. And as COVID-19 has demonstrated, it is essential for any country’s prospective development. Research is needed to galvanise Nigeria’s health system, which ranks <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6811780/">187th out of 195</a> countries (according to the World Health Organisation).</p>
<h2>What lessons can we learn from other countries’ approach to funding medical research?</h2>
<p>Regarding the contribution of governments to research, it is evident that African countries have performed relatively poorly as compared to other countries. In total, available evidence indicates that sub-Saharan African countries contribute <a href="http://www.jogh.org/documents/issue202001/jogh-10-010321.htm#R2">0.4%</a> of their gross domestic product (GDP) to research, compared to Europe, Asia, and North America that contribute 27%, 31%, and 37%. Nigeria contributes <a href="http://www.jogh.org/documents/issue202001/jogh-10-010321.htm#R2">0.22%</a>, one of the lowest in the world. </p>
<p>Furthermore, the Nigerian government is often unable to synthesise research evidence for decision-making. This limits its ability to understand and prioritise the importance of indigenous research in health within the context of health improvement and social development. A proper integration of research frameworks within policy making in Nigeria is critically important to improve the integrated performance of the country’s healthcare system. This should include capacity building for managers and policymakers to enable them to make adequate provisions in the annual budget and development planning for research, their involvement in setting research agendas, planning for the delivery of health research, and the effective use of research results.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-it-will-take-to-produce-vaccines-in-nigeria-moneys-just-the-first-step-153497">What it will take to produce vaccines in Nigeria: money's just the first step</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/165907/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Friday Okonofua does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More funding is needed to galvanise
Nigeria’s health system as medical research is not well funded.Friday Okonofua, Professor of Obstetrics and Gynaecology, University of BeninLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1648162021-07-21T12:16:49Z2021-07-21T12:16:49ZCOVID-19 recession: One of America’s deepest downturns was also its shortest after bailout-driven bounceback<figure><img src="https://images.theconversation.com/files/412543/original/file-20210721-25-1d6g103.jpg?ixlib=rb-1.1.0&rect=85%2C38%2C5090%2C3406&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The U.S. economy bounced back in record time.
</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TrampolineGymnasts/4142c475b52d40b29e8b1e0aded3c976/photo?Query=trampoline&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=964&currentItemNo=445">AP Photo/Gerald Herbert</a></span></figcaption></figure><p>Thanks to a <a href="https://news.wttw.com/2021/05/05/us-economy-surges-back-economists-forecast-2021-boom">roaring economy</a>, <a href="https://www.marketwatch.com/story/u-s-unemployment-claims-drop-to-new-pandemic-low-of-360-000-11626353365">plunging joblessness</a> and a <a href="https://www.wsj.com/articles/consumer-spending-personal-income-inflation-may-2021-11624563378">consumer spending spree</a>, it probably won’t come as a surprise that the COVID-19 recession is officially over.</p>
<p>We didn’t know this, formally, however, until July 19, 2021, when a <a href="https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021">group of America’s top economists determined</a> that the pandemic recession ended two months after it began, making it the shortest downturn on record.</p>
<p>As an <a href="https://www.bu.edu/questrom/executive-education/our-faculty/jay-zagorsky/">economist</a> who has <a href="http://businessmacroeconomics.com/">written a macroeconomics textbook</a>, I was eagerly waiting to know the official dates. This is in part because I recently asked my <a href="https://www.bu.edu/questrom/degree-programs/online-mba/">Boston University MBA</a> students to make guesses, and we all wanted to know who was closest to the mark. While many of my students ended up nailing it, I was off by a month.</p>
<p>But why did it take over a year to learn the recession ended?</p>
<h2>What’s a recession?</h2>
<p>When an economy is in recession, <a href="https://www.forbes.com/advisor/investing/what-is-a-recession/">it simply means</a> economic growth is falling.</p>
<p>You may have <a href="https://www.nytimes.com/2020/09/02/business/australia-recession.html">read in a news story</a> that a recession means <a href="https://www.investopedia.com/terms/r/recession.asp">two quarters of consecutive declines</a> in <a href="https://theconversation.com/the-us-economy-produced-about-21-7-trillion-in-goods-and-services-in-2019-but-what-does-gdp-really-mean-130685">gross domestic product</a>, which is the market value of all goods and services produced within a country’s borders.</p>
<p>This is basically shorthand used by journalists because the formal way of determining when a recession ends can take a long time – in this case over a year.</p>
<h2>America’s economic scorekeeper</h2>
<p>In the U.S., the dates of when recessions begin and end are determined by a nonpartisan organization called the <a href="https://www.nber.org/">National Bureau of Economic Research</a>. Or more specifically, a <a href="https://www.nber.org/research/business-cycle-dating/business-cycle-dating-committee-members">group of eight prominent economics professors</a> makes the call.</p>
<p>The group, however, does not use two quarters of falling GDP as their guide.</p>
<p>Instead, the <a href="https://www.nber.org/research/business-cycle-dating">National Bureau of Economic Research uses changes in GDP plus many other factors</a> like employment, personal income, industrial production and even retail sales. The group relies on its members’ expert judgment rather than fixed rules. </p>
<p>The National Bureau of Economic Research <a href="https://www.cnbc.com/2020/06/08/the-us-entered-a-recession-in-february-according-to-the-official-economic-arbiter.html">didn’t officially declare</a> a recession had begun until June 2020, three months after its actual start in February. Technically, it declared the peak of an expansion lasting 128 months, the longest ever.</p>
<p>And now we know that the recession ended in April. One reason the economists wait so long to declare the start or end of a recession is because <a href="https://www.nber.org/business-cycle-dating-procedure-frequently-asked-questions">they don’t want there to be any doubt</a>.</p>
<p>Though it was the shortest recession on record, it was also the <a href="https://fred.stlouisfed.org/series/A191RL1Q225SBEA">deepest since the U.S. began recording quarterly data</a> in 1947. The trillions in dollars of spending by the <a href="https://www.forbes.com/sites/leonlabrecque/2020/03/29/the-cares-act-has-passed-here-are-the-highlights/?sh=232c5ebf68cd">federal government</a> and <a href="https://fred.stlouisfed.org/series/WALCL">Federal Reserve</a> in March and April 2020 likely contributed significantly to the swift return to expansion.</p>
<h2>Most recessions last a while</h2>
<p>A two-month recession is incredibly brief. </p>
<p>The <a href="https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions">previous shortest recession</a>, which began in January 1980, was six months long.</p>
<p>Economists have tracked the length of U.S. recessions since 1854, shortly before <a href="https://www.history.com/topics/american-civil-war/american-civil-war-history">the U.S. Civil War began</a>. Since then, the <a href="https://www.nber.org/sites/default/files/2021-07/bcdc_07192021_0%20%281%29%20%283%29.xlsx">average recession has lasted 17</a> months, even when including the most recent one in 2020.</p>
<p>Recessions have gotten steadily shorter. Since the end of World War II, they’ve lasted an average of just 10 months, in part because governments have become more active and have had more tools to fight their effects. This activism started in 1946 with the “<a href="https://www.federalreservehistory.org/essays/employment-act-of-1946">Employment Act</a>” whose goal was to “promote maximum employment, production, and purchasing power.”</p>
<p>[<em>Over 106,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p>
<h2>Avoining a double-dip</h2>
<p>Could there be a “double-dip” recession? </p>
<p>This happens when an economy returns to recession before fully recovering from the previous one. The U.S. experienced this in July 1981, a little more than a year after the six-month recession in 1980 ended.</p>
<p>While some observers were concerned about a double-dip recession late last year, the U.S. government <a href="https://www.bbc.com/news/business-56019033">has showered the economy</a> with about US$3 trillion more in <a href="https://www.cnn.com/2020/12/27/politics/trump-relief-bill-christmas-eve/index.html">additional aid</a> since then, which has led economists to worry <a href="https://www.politico.com/news/2021/07/13/larry-summers-biden-inflation-499502">more about spurring too much growth than too little</a>. Too much growth can be a bad thing, because it can lead to high inflation, which may force the Fed to raise interest rates. That can result in a recession.</p>
<p>There’s nothing you or I can do to stop another recession if it’s in the cards, but <a href="https://mint.intuit.com/blog/planning/how-to-prepare-for-a-recession/">there are actions we can take</a> to prepare during times of growth. Try to set aside extra money in your savings. Pay down credit card debt and other loans.</p>
<p>Doing these things during times of relative plenty will prepare you for when times aren’t so abundant.</p><img src="https://counter.theconversation.com/content/164816/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An economist explains what a recession is, who decides and why it took so long to learn that the COVID-19 downturn was officially over.Jay L. Zagorsky, Senior Lecturer, Questrom School of Business, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1566212021-04-09T12:56:20Z2021-04-09T12:56:20ZPandemic recovery will take more than soaring growth – to fuel a more equitable economy, countries need to measure the well-being of people, too<figure><img src="https://images.theconversation.com/files/392669/original/file-20210330-17-1e4qiee.jpg?ixlib=rb-1.1.0&rect=18%2C24%2C4118%2C2803&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Researchers have long been searching for a more comprehensive way to assess national progress than GDP. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/stock-market-crash-royalty-free-illustration/912364524?adppopup=true&uiloc=thumbnail_similar_images_adp">erhui1979 via Getty Images</a></span></figcaption></figure><p>Once a country’s economy reaches a certain level of wealth, gross domestic product – which puts a single dollar value on a country’s total economic output – is no longer a good measure of its overall success. </p>
<p>That’s a main finding of our economic research, <a href="https://www.oecd-ilibrary.org/social-issues-migration-health/how-was-life-volume-ii_3d96efc5-en">published in March with the Organization for Economic Cooperation and Development</a>. When we examined the development of nations worldwide since 1820, we found that among rich Western countries like the United States, the Netherlands and France, improvements in income, education, safety and health tracked or even outpaced rising gross domestic product for over a century. </p>
<p>But in the 1950s, even as economic growth accelerated after World War II, well-being in these countries lagged. From the 1970s onward, <a href="https://data.worldbank.org/country/EU">growth in median incomes slowed down, as did education</a>. <a href="https://www.jstor.org/stable/1147382?seq=1">Crime rose</a>. In recent years, health outcomes have even declined. </p>
<p>The gap between well-being and GDP became particularly evident after the 2008 global financial crisis. Even as rich countries’ economies recovered, unemployment, poverty and housing insecurity stayed higher for years.</p>
<p>This pattern can also be observed in middle-income countries. In recent decades, countries like Russia, Argentina, Turkey and China have begun to show slower increases in well-being, while growth in GDP per capita – total GDP divided by population – remains high. </p>
<p><iframe id="s45cK" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/s45cK/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>These insights validate widespread feelings of people in many Western countries – and the U.S. in particular – that <a href="https://theconversation.com/globalization-and-its-discontents-why-theres-a-backlash-and-how-it-needs-to-change-68800">the fruits of economic growth have passed them by</a>. They also raise concerns about how, and indeed whether, policymakers will know when their country has actually recovered from the pandemic.</p>
<h2>Rethinking GDP</h2>
<p>GDP measures the total economic output of a country, from goods and services to trade, in monetary terms.</p>
<p>Since the inception of GDP in the 1930s, the growth of GDP per capita – that is, GDP divided by a country’s population – was widely considered the best indicator of material progress, or progress in general. The <a href="https://doi.org/10.1017/CBO9781316452035">OECD</a> and World Bank have both advised countries to make boosting their GDP per capita a priority.</p>
<p>Starting about a decade ago, however, scholars <a href="https://theconversation.com/the-us-economy-produced-about-21-7-trillion-in-goods-and-services-in-2019-but-what-does-gdp-really-mean-130685">started to question this assumption</a>, noting that GDP does not include the value of unpaid work, often performed by women, such as household work or child and elder care. </p>
<p>Economic growth often has negative consequences, too, that can offset its positive effects. Intensive use of natural resources, for example, <a href="https://www.weforum.org/agenda/2016/04/gdp-ignores-the-things-that-matter-like-climate-change/">harms the environment</a> and the living conditions of people in those areas. Longer working hours reduce quality of life. </p>
<p>Moreover, economic inequality – <a href="https://wid.world/document/world-inequality-report-2018-english/">which is growing in many Western countries</a> – cannot be seen in an average like GDP per capita, but it does affect average well-being.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/392671/original/file-20210330-21-phlem9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Older men sit around a communal table with red plastic cups. Bowls of hot soup can be seen in the foreground" src="https://images.theconversation.com/files/392671/original/file-20210330-21-phlem9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/392671/original/file-20210330-21-phlem9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/392671/original/file-20210330-21-phlem9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/392671/original/file-20210330-21-phlem9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/392671/original/file-20210330-21-phlem9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/392671/original/file-20210330-21-phlem9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/392671/original/file-20210330-21-phlem9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A soup kitchen in Berlin in 2009. Poverty in Germany, already rising, was exacerbated by the financial crisis.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/visitors-arrive-to-eat-hot-soup-at-a-soup-kitchen-of-the-news-photo/92146346?adppopup=true">Sean Gallup/Getty Images</a></span>
</figcaption>
</figure>
<p>In 2011 the OECD introduced the “<a href="http://www.oecdbetterlifeindex.org/about/better-life-initiative/">Better Life Initiative</a>.” It ranks all 37 OECD member states based on 11 dimensions that contribute to citizens’ well-being: job security, education, health, civic engagement, purchasing power, housing, safety, work-life balance, social connections, environmental quality and subjective well-being. </p>
<p>The Better Life Initiative is important in broadening our view of success. But it lacks GDP-per-capita’s appealing simplicity of being a single, comprehensive number. </p>
<h2>A new single-number index</h2>
<p>In 2016, the interdisciplinary team of researchers I lead at Utrecht University created the <a href="https://www.uu.nl/en/research/better-well-being-index">Better Well-Being Index</a>. This integrated measure of well-being enables researchers and policymakers to critically assess whether economic growth translates into well-being – and rate well-being with a single, easy-to-understand number.</p>
<p>Our index uses the same 11 dimensions as the OECD’s Better Life Initiative, and it rates each country’s score on these dimensions on a scale of 0 to 1, using international benchmarks. Next, the figures are weighted to reflect how important each country’s population has reported each dimension to be. </p>
<p>All these inputs are then combined to result in a single measure of well-being.</p>
<p>When we tested our new system on the Netherlands, comparing its well-being rating with GDP per capita, we found that they diverged markedly <a href="https://esb.nu/esb/20051405/vervolgstappen-voor-integrale-welvaartsmeting">in the aftermath of the 2008 financial crisis</a>.</p>
<p><iframe id="K564h" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/K564h/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p><a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2019&locations=NL&start=2005">Per capita GDP recovered</a> within a few years, and in 2016 surpassed its pre-crisis peak. However, well-being as measured by our Better Well-being Index remained depressed for much longer, largely due to <a href="https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?end=2019&locations=NL&start=2005">high unemployment</a>. </p>
<p>Many everyday Dutch people knew this all too well. What our data showed, empirically, is that the Dutch had just reached their pre-2008 level of well-being when the COVID-19 crisis hit. </p>
<h2>Measuring the pandemic recovery</h2>
<p>Our results are already stimulating <a href="https://www.regiofoodvalley.nl/regio-deal/actueel/koningin-maxima-in-gesprek-over-brede-welvaart-in-regio-foodvalley">societal and political debates</a> in the Netherlands. Dutch policymakers, including regional governments, are starting to use well-being indexes to <a href="https://www.oecd-ilibrary.org/docserver/9789264217416-12-en.pdf?expires=1617263411&id=id&accname=guest&checksum=83CCEB18F53C3A03C52B67D74E0D9717">measure the effects of their policies and investment programs</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/392672/original/file-20210330-23-14wauzt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Woman in heavy winter coat pushes a full shopping car" src="https://images.theconversation.com/files/392672/original/file-20210330-23-14wauzt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/392672/original/file-20210330-23-14wauzt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/392672/original/file-20210330-23-14wauzt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/392672/original/file-20210330-23-14wauzt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/392672/original/file-20210330-23-14wauzt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/392672/original/file-20210330-23-14wauzt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/392672/original/file-20210330-23-14wauzt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Homelessness and lack of affordable housing are the main problems dragging down well-being in the Netherlands today.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/an-homeless-person-is-seen-after-dutch-prime-minister-mark-news-photo/1207469529?adppopup=true">Pierre Crom/Getty Images</a></span>
</figcaption>
</figure>
<p>The Better Well-Being Index has not yet been applied to the United States – though it could easily be adapted to the American context – so we can’t yet measure empirically how well-being compares with economic growth in the U.S. </p>
<p>But studies suggest the divergence may be even larger than in the Netherlands. In recent decades, the U.S. has increased its lead over European countries in GDP terms but <a href="https://doi.org/10.1787/ad930641-en">lags behind them in life expectancy, safety and income distribution</a>.</p>
<p>We believe well-being is especially important for countries to monitor in the COVID-19 recovery period, whether using our index, the OCED’s or another comprehensive tool. As our historical analysis shows, people may still be suffering in many ways well after a country’s economic growth returns – and <a href="https://www.nature.com/articles/s41599-021-00763-4">crises typically exacerbate inequalities</a>.</p>
<p>Countries seeking to explicitly counteract the negative effects of the pandemic need a good compass to guide their recovery plan. And that won’t be GDP.</p>
<p>[<em>Insight, in your inbox each day.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=insight">You can get it with The Conversation’s email newsletter</a>.]</p><img src="https://counter.theconversation.com/content/156621/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bas van Bavel receives funding from the Dutch Research Council (NWO).</span></em></p><p class="fine-print"><em><span>Auke Rijpma receives funding from the Dutch Research Council (NWO).</span></em></p>GDP only measures economic growth – not inequality, poverty or unpaid work like elder care. So researchers in the Netherlands developed a new way for governments to see how people are actually doing.Bas van Bavel, Distinguished Professor of Transitions of Economy and Society, Utrecht UniversityAuke Rijpma, Lecturer in Economic and Social History, Utrecht UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1491452020-11-07T18:38:41Z2020-11-07T18:38:41ZWhy Republicans and others concerned about the economy have reason to celebrate Biden in the White House<figure><img src="https://images.theconversation.com/files/368177/original/file-20201109-19-1kf2fn2.jpg?ixlib=rb-1.1.0&rect=234%2C198%2C3164%2C1987&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">President-elect Joe Biden speaks to supporters on Nov. 7 in Wilmington, Del.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Election2020Biden/ff1eb344b5274dafbda614d08d10b83f/photo?Query=biden%20AND%20del&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=3496&currentItemNo=15">AP Photo/Carolyn Kaster</a></span></figcaption></figure><p>On day one, a <a href="https://theconversation.com/biden-wins-experts-on-what-it-means-for-race-relations-us-foreign-policy-and-the-supreme-court-149327">newly inaugurated President Joe Biden</a> will have to address a devastated economy – much like <a href="https://www.theatlantic.com/politics/archive/2020/04/joe-biden-oversaw-recovery-during-last-recession/609646/">he and former President Barack Obama did</a> a decade ago. </p>
<p>What can the country expect? </p>
<p>Forecasting how the economy will perform under a new president is generally a fool’s errand. How much or <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwil76-ll-7sAhWLc98KHWegAAMQFjADegQIAxAC&url=https%3A%2F%2Fwww.nytimes.com%2F2017%2F01%2F17%2Fupshot%2Fpresidents-have-less-power-over-the-economy-than-you-might-think.html&usg=AOvVaw3BW2mwqHa7y24ANz8_HI9R">how little credit</a> the person in the White House deserves for the health of the economy is a <a href="https://fortune.com/2020/10/12/us-economy-president-impact-trump/">matter of debate</a>, and no economist can confidently predict how the president’s policies will play out – if they even go into effect – or what challenges might emerge. </p>
<p>Regardless, <a href="https://www.marketwatch.com/story/why-neither-trump-nor-clinton-can-save-the-economy-2016-06-20">voters tend to believe</a> it makes a difference. And going into the election, 79% of registered voters – and 88% of Trump supporters – <a href="https://www.pewresearch.org/politics/2020/08/13/important-issues-in-the-2020-election/">said the economy was their top concern</a>. Given that, historical data suggests that those who are concerned with the economy have reason to be fairly satisfied with the election results: The economy generally fares better under Democratic presidents.</p>
<h2>Inheriting a struggling economy</h2>
<p>Biden will be inheriting an economy with serious problems. Things have improved markedly since the darkest days – at least, so far – of the pandemic back in the spring, but the economy remains in a dire state.</p>
<p>The latest jobs report shows that <a href="https://www.bls.gov/news.release/empsit.nr0.htm">11 million people remain unemployed</a> – a third of whom have been without a job for at least 27 weeks – down from a peak of <a href="https://data.bls.gov/cgi-bin/surveymost">23 million in April</a>. <a href="https://fortune.com/2020/09/28/covid-buisnesses-shut-down-closed/">Tens of thousands of small businesses</a> and <a href="https://www.businessinsider.com/retailers-filed-bankruptcy-liquidation-closing-stores-2020-2">dozens of major retail chains</a> have closed or filed for bankruptcy. Many states, cities and municipal agencies are reeling from the tremendous costs of spring lockdowns. And the economy <a href="https://fred.stlouisfed.org/series/GDP">has contracted 2.8%</a> since the end of 2019. </p>
<p>And that doesn’t include the <a href="https://www.healthline.com/health-news/the-us-is-likely-headed-for-a-dark-winter-heres-what-that-means">impact of what some officials</a> – including Biden – have dubbed a “dark winter,” as severe coronavirus outbreaks in many regions of the U.S. prompt new economic restrictions. </p>
<figure class="align-center ">
<img alt="People celebrate the election being called for Biden outside the Pennsylvania Convention Center in Philadelphia on Nov. 7." src="https://images.theconversation.com/files/368087/original/file-20201107-13-1gcmt87.jpg?ixlib=rb-1.1.0&rect=202%2C159%2C3886%2C2562&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/368087/original/file-20201107-13-1gcmt87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/368087/original/file-20201107-13-1gcmt87.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/368087/original/file-20201107-13-1gcmt87.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/368087/original/file-20201107-13-1gcmt87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/368087/original/file-20201107-13-1gcmt87.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/368087/original/file-20201107-13-1gcmt87.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">People in Philadelphia celebrate the election being called for Biden.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Election2020Philadelphia/ed99055a46284214977a792c4fa05c96/photo?Query=biden&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=29916&currentItemNo=0">AP Photo/Rebecca Blackwell</a></span>
</figcaption>
</figure>
<h2>Democrats have a better economic track record</h2>
<p>In trying to get a sense of what kind of impact the election result will have on the economy, the past is a useful guide.</p>
<p>I study how the economy performs depending on which political party is in charge. Earlier this year, I <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3542494">did an analysis</a> of this question, focusing on 1976 to 2016, and recently updated the data to include 1953 through October of this year.</p>
<p>In general, since President Dwight D. Eisenhower took office in 1953, the economy – as measured by gross domestic product, unemployment, inflation and recessions – has typically performed better with a Democrat in the White House. GDP growth has been significantly higher; inflation – a measure of the change in prices – has been lower; and unemployment has tended to fall. </p>
<p><iframe id="XMv2d" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/XMv2d/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The stock market tends to perform better with a Democratic president, rising 11% per year on average compared to 6.8% for Republicans. Despite <a href="https://twitter.com/realDonaldTrump/status/1315697299192975362">his claims to the contrary</a>, the stock market’s performance under President Donald Trump <a href="https://www.cnn.com/interactive/2019/business/stock-market-by-president/index.html">has been about average</a>.</p>
<p>Perhaps the most striking difference I found is in the number of months the economy was in recession, as <a href="https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions">determined by the National Bureau of Economic Research</a>. From 1953 to 2016, Republicans controlled the White House for 432 months, about 23% of which were spent in recession. Democratic presidents held the reins for 336 months in that period, just 4% of which were in recession. The 2020 recession began in March has not been officially declared over. </p>
<p>One suggested explanation for this dramatic difference is that <a href="https://www.theguardian.com/us-news/2020/sep/29/why-joe-biden-is-better-than-donald-trump-for-the-us-economy">deregulation implemented during Republican administrations</a> leads to financial crises, which in turn cause recessions. Another is that factors a president does not have any control over, <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20140913">like a sudden increase in oil prices</a>, are the usual causes of recessions. Others suggest that the economy’s better performance under Democrats is simply <a href="https://www.usatoday.com/story/news/factcheck/2020/05/28/fact-check-do-gop-presidents-oversee-recessions-dems-recoveries/5235957002/">due to luck</a>. </p>
<p>So even though voters <a href="https://www.pewresearch.org/politics/2020/08/13/important-issues-in-the-2020-election/">tend to think Republicans</a> do a better job steering the economy, historical data shows otherwise. Whether Biden continues that streak, of course, remains to be seen, especially given <a href="https://www.cnn.com/2020/11/03/politics/senate-2020-balance-of-power/index.html">he’ll likely have</a> a Republican-controlled Senate, which could frustrate his policy initiatives. </p>
<h2>A silver lining in divided government</h2>
<p>In my analysis, I also examined the impact of Congress and how having all, part or none of the legislative branch controlled by the president’s party affected the economy’s performance. </p>
<p>Interestingly, the U.S. has not seen Democrats in control of the <a href="https://www.whitehouse.gov/about-the-white-house/presidents/">White House</a> and the <a href="https://history.house.gov/Institution/Party-Divisions/Party-Divisions/">House of Representatives</a> with <a href="https://www.senate.gov/history/partydiv.htm">Republicans in charge of the Senate</a> since 1889, when Grover Cleveland was president. So my dataset, going back to 1953, doesn’t shed any light on this particular legislative configuration. </p>
<p>However, I did find that the economy did pretty well when a Democratic president faces either one or both houses of Congress controlled by the opposition. During the 144 months when one of those conditions were true, the U.S. was never in recession. And when Republicans controlled Congress under a Democratic president, average monthly unemployment was the lowest of any condition, at 4.85%. </p>
<p><iframe id="dBCdt" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/dBCdt/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Of course, this doesn’t mean a divided government will lead to good results today. A pessimistic take is that <a href="https://www.msn.com/en-us/news/politics/political-gridlock-is-delaying-another-coronavirus-relief-bill-and-it-has-potentially-devastating-consequences-for-the-us-economy/ar-BB1aCQfV">there will be gridlock</a>, and nothing will get done. In order to <a href="https://www.cato.org/publications/commentary/government-works-better-when-divided">pass and sustain major initiatives</a>, bipartisanship will be needed.</p>
<p>There’s an <a href="https://www.usatoday.com/story/news/politics/elections/2020/11/03/election-2020-senate-republicans-democrats-majority/6073785002/">off chance that Democrats take control of the Senate</a> if two runoff elections scheduled for January in Georgia both fall into the Democrats’ column. Historically, such a <a href="https://www.lowyinstitute.org/the-interpreter/us-election-democratic-trifecta-within-sight">Democratic trifecta</a> existed for 192 months, 14 of which – 7% – were in recession. </p>
<p>[<em><a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=experts">Expertise in your inbox. Sign up for The Conversation’s newsletter and get expert takes on today’s news, every day.</a></em>]</p>
<h2>Tough road ahead</h2>
<p>History also has a lot to say about recovering from an economic collapse, which keeps taking longer. </p>
<p>For example, it took only 11 months for the job market to recover from the 1980 recession, but 77 to recover the jobs lost in the Great Recession that lasted from 2007 to 2009. If this trend continues, it could be 2027 or later before the job market fully recovers from the pandemic-induced recession. </p>
<p><iframe id="7YIA4" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/7YIA4/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>But the past doesn’t predict the future, and I believe the policies a president pursues and is able to implement still matter.</p>
<p>During the campaign, Biden <a href="https://joebiden.com/made-in-america/">proposed several ambitious spending plans</a>, such as “build back better,” which would invest in American infrastructure and clean energy, as well as “buy American.” In all, Biden <a href="http://www.crfb.org/papers/cost-trump-and-biden-covid-response-plans">has proposed US$2 trillion to $4.2 trillion</a> of additional measures to fight the pandemic’s economic effects, according to an analysis by the nonpartisan Committee for a Responsible Budget. </p>
<p>His economic plan cannot be implemented without the cooperation of Congress. Investment in infrastructure has historically had <a href="https://www.forconstructionpros.com/infrastructure/article/21201708/industry-experts-predict-bipartisan-support-for-infrastructure-in-2021">bipartisan support</a> so Biden and Senate Majority Leader Mitch McConnell may find some common ground there. But although McConnell has indicated fiscal relief <a href="https://www.cnbc.com/2020/11/04/election-2020-mcconnell-says-stimulus-will-be-senates-top-priority-before-end-of-2020.html">will be a top priority</a>, he has opposed another large coronavirus bill. </p>
<p>It’s impossible to predict whether Republicans will choose bipartisanship or <a href="https://www.washingtonpost.com/opinions/republican-obstructionism-is-nothing-new/2016/02/15/2d856c12-d42c-11e5-b195-2e29a4e13425_story.html">obstructionism</a>, but I remain hopeful – given <a href="https://www.politico.com/magazine/story/2019/04/30/biden-bipartisan-dealmaking-backfire-226758">Biden’s history of moderation</a> – that the new president and Congress will do what is needed to move the economy forward.</p><img src="https://counter.theconversation.com/content/149145/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Chittenden does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The US economy historically does better under Democratic presidents than Republicans, with far fewer months spent in recessionWilliam Chittenden, Associate Dean for Graduate Programs and Presidential Fellow, Texas State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1491162020-10-29T16:46:16Z2020-10-29T16:46:16ZThe US economy’s record swings: 4 essential reads<figure><img src="https://images.theconversation.com/files/366502/original/file-20201029-17-mxbqf8.jpg?ixlib=rb-1.1.0&rect=44%2C22%2C3648%2C2790&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Back in the swing of things.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/GermanyWeather/2e5351bfb83f477093389be73b2d6dd4/photo?Query=child%20on%20swing&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=45&currentItemNo=26">AP Photo/Michael Probst</a></span></figcaption></figure><p>The <a href="https://www.bloomberg.com/news/articles/2020-10-29/u-s-economy-expands-at-record-33-1-pace-after-covid-plunge?srnd=premium&sref=Hjm5biAW">U.S. economy rebounded</a> from its unprecedented coronavirus plunge in the spring with a record surge over the summer, giving the president some good news just days before Election Day. </p>
<p>Gross domestic product climbed 33% in the third quarter, from July through September, according to the Commerce Department’s initial Oct. 29 estimate, as companies and individuals returned to work following the spring lockdown. Still, U.S. GDP remains 3.5% below its pre-COVID-19 level. </p>
<p>But why do we care about GDP in the first place? We plumbed our archive to provide a bit of context for a piece of data that is already a bit old.</p>
<h2>1. What is GDP?</h2>
<p>GDP, dubbed one of the greatest inventions of the 20th century, is followed very closely by policymakers, businesses and financial markets to make critical decisions about hiring, spending, investment and economic policy, writes Dan Sichel, an economist at Wellesley College.</p>
<p>But what is it really? </p>
<p>Sichel <a href="https://theconversation.com/the-us-economy-produced-about-21-7-trillion-in-goods-and-services-in-2019-but-what-does-gdp-really-mean-130685">takes a dive inside the economic indicator</a> to show what goes into it (products and services) – and what’s left out (well-being).</p>
<h2>2. Before the coronavirus</h2>
<p>Just a few months before the pandemic hit and forced lockdowns across the country – and world – the U.S. economy had just entered its longest expansion in history, lasting over a decade. </p>
<p>With the economy now in recession, it’s worth asking who benefited or didn’t from all those gains. In other words, who was best and least prepared for the economic catastrophe Americans are now experiencing?</p>
<p><a href="https://theconversation.com/the-us-economy-likely-just-entered-its-longest-ever-expansion-heres-whos-benefiting-in-3-charts-119577">It’s exactly who you’d expect</a>, writes Colorado State University economist Steven Pressman, who points to three charts that show who gained the most from America’s record economy.</p>
<h2>3. That old yarn about GDP</h2>
<p>President Donald Trump is wasting no time in claiming credit for “the great American comeback” as a reason he deserves re-election. Whether he deserves it or not, ultimately he’s just telling a story about the numbers, presumably one that paints him in the best light possible. His rival, former Vice President Joe Biden, will have his own version of the story. </p>
<p>And that’s really all economists themselves are doing: <a href="https://theconversation.com/economists-are-more-like-storytellers-than-scientists-dont-let-the-nobel-for-economic-sciences-fool-you-147722">telling stories about the data</a>, argues Carolin Benack, a literary scholar who researches economics and its history at Duke University. The next time you hear an economist – or a politician – tell you what the numbers supposedly mean, remember they’re just storytellers, not scientists, she says.</p>
<h2>4. GDP and well-being</h2>
<p>Investors, policymakers and politicians follow changes in GDP very closely, whether it’s to help them decide how to invest money, adjust policies or keep score for the electorate.</p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>“While it is convenient to focus on one number, it turns out <a href="https://theconversation.com/the-us-needs-to-get-over-its-obsession-with-gdp-101065">GDP alone is inadequate</a> to measure the economic performance of a country,” writes Sophie Mitra, a professor of economics at Fordham University. She explains the problems with GDP and points to better ways to measure economic well-being of a country’s citizens.</p>
<p><em>Editor’s note: This story is a roundup of articles from The Conversation’s archives.</em></p><img src="https://counter.theconversation.com/content/149116/count.gif" alt="The Conversation" width="1" height="1" />
The US economy’s record pandemic plunge was followed swiftly by a record upswing. But what does it all mean?Bryan Keogh, Managing EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1306852020-01-30T16:23:14Z2020-01-30T16:23:14ZThe US economy produced about $21.7 trillion in goods and services in 2019 – but what does GDP really mean?<figure><img src="https://images.theconversation.com/files/312891/original/file-20200130-41516-151z0l4.jpg?ixlib=rb-1.1.0&rect=65%2C191%2C3928%2C2461&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's just dollars and cents.</span> <span class="attribution"><span class="source">mrfiza/Getty Images</span></span></figcaption></figure><p><em>Editor’s note: The Bureau of Economic Analysis reported on Jan. 30 that U.S. Gross Domestic Product climbed to an estimated nominal value of US$21.7 trillion. But what does that really mean? We asked Dan Sichel, an economist at Wellesley College, to explain what goes into that massive number – and what does not.</em></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/312893/original/file-20200130-41490-jz204v.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/312893/original/file-20200130-41490-jz204v.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=237&fit=crop&dpr=1 600w, https://images.theconversation.com/files/312893/original/file-20200130-41490-jz204v.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=237&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/312893/original/file-20200130-41490-jz204v.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=237&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/312893/original/file-20200130-41490-jz204v.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=298&fit=crop&dpr=1 754w, https://images.theconversation.com/files/312893/original/file-20200130-41490-jz204v.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=298&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/312893/original/file-20200130-41490-jz204v.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=298&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>The economic measurement known as gross domestic product has been called <a href="https://fraser.stlouisfed.org/files/docs/publications/SCB/pages/2000-2004/35260_2000-2004.pdf">one of the great inventions of the 20th century</a>. </p>
<p>Vital for understanding a nation’s economy, GDP is defined as the market value of all goods and services produced within a country’s borders during a given period of time, typically reported in terms of a year or quarter. For example, the latest <a href="https://www.bea.gov/news/2020/gross-domestic-product-fourth-quarter-and-year-2019-advance-estimate">estimate shows that U.S. GDP reached $21.7 trillion</a> in nominal terms at the end of 2019. By that measure, the U.S. is the world’s largest economy. </p>
<p>Changes in the value of GDP are widely used by policymakers, businesses and financial markets to make critical decisions about hiring, spending, investment and economic policy. In the fourth quarter, U.S. GDP grew by an inflation-adjusted 2.1%, which means the economy is continuing to expand at roughly the same steady pace that it has for the past five years. </p>
<p>Before the methodology for GDP <a href="https://fraser.stlouisfed.org/files/docs/publications/SCB/pages/2000-2004/35260_2000-2004.pdf">was developed</a> in the 1930s, it was very difficult to know how an economy was doing. Is it weak or strong? Does it need stimulus in the form of more spending or tax cuts to offset a recession? Or is there a risk that the economy is running too hot and may lead to out-of-control inflation? </p>
<p>Now, with GDP, policymakers have an important tool to help them understand how the economy is doing. But what do these numbers really tell us about the economy? And what do they ignore? </p>
<p>As every student in <a href="https://www.lse.ac.uk/study-at-lse/Summer-Schools/Summer-School/Courses/Secure/Economics/EC102">introductory macroeconomics</a> learns, GDP is the sum of household purchases of goods and services, business investment, government purchases and the trade balance. Government officials use administrative and survey data to calculate the value of each piece, which are then added together to get overall GDP – an estimate of the value of everything produced in a country.</p>
<p>When divided by the population of a country, <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD.">GDP per person</a> often is taken as a rough proxy for living standards and for comparisons across time and among countries. That is not unreasonable given that a per person average of the quantity of goods and services produced in a country is likely to be correlated with well-being. </p>
<p>However, it is important to recognize that GDP is a measure of production, not well-being or value. That distinction has <a href="https://www.nytimes.com/2019/12/15/opinion/gdp-america.html">spawned a growing effort</a> to <a href="https://theconversation.com/us/topics/beyond-gdp-13319">go “beyond GDP”</a> to find a way to measure an economy more broadly than just <a href="https://ec.europa.eu/eurostat/documents/118025/118123/Fitoussi+Commission+report">tallying the sum of goods and services</a> bought and sold. </p>
<p>GDP fails to capture quite a few items that generate value. For example, GDP does not include the value of important types of household activity, such as meal preparation, child and elder care, the time you spend making a plane reservation or writing a Wikipedia entry. Not does it fully capture all the benefits of the digital revolution, such as the widespread availability of GPS and online search.</p>
<p>Additionally, GDP does not fully measure well-being. On its own, GDP does not include any information on the distribution of income, health or mortality. So it can’t help us measure inequality or whether the population is becoming less healthy. And it does not say anything about climate change or the state of a country’s environment. </p>
<p>All of these factors feed into well-being and are important to measure and account for in policy decisions. Economists including me have highlighted a number of approaches to <a href="https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080218-030439">going beyond GDP</a>, such as <a href="http://global-perspectives.org.uk/wp-content/uploads/2017/10/CFGHJSW_Indigo_Prize_submission_15Sep17_submitted.pdf">combining the per-person average with data on distribution</a> or <a href="https://theconversation.com/the-science-of-happiness-can-trump-gdp-as-a-guide-for-policy-57004">using surveys to assess happiness</a>. </p>
<p>Each approach has advantages and disadvantages, and establishing the best ways to go beyond GDP is an active area of research and debate in the economics profession. </p>
<p>[ <em>Like what you’ve read? Want more?</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=likethis">Sign up for The Conversation’s daily newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/130685/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dan Sichel has received grant funding from the U.S. Bureau of Economic Analysis and the U.S. National Telecommunications and Information Administration. He is a Research Associate at the National Bureau of Economic Research and serves on the Advisory Committee of the Bureau of Economic Analysis.</span></em></p>An economist who has studied new ways to improve measures of gross domestic product explains what GDP is and how it could better reflect an economy and the well-being of its inhabitants.Dan Sichel, Professor of Economics, Wellesley CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1265792019-11-08T03:48:35Z2019-11-08T03:48:35ZVital Signs: does monetary policy work any more?<p>In its quarterly <a href="https://www.rba.gov.au/publications/smp/2019/nov/overview.html">statement on monetary policy</a>, released today, the Reserve Bank of Australia declared its preparedness to “ease monetary policy further if needed”.</p>
<p>This suggests the bank still thinks monetary policy – in this case lowering interest rates to stimulate the economy – could help “support sustainable growth in the economy, full employment and the achievement of the medium-term inflation target”.</p>
<p>But in the wake of the bank last month lowering the official interest rate to a record low and the current somewhat sad state of the Australian economy, <a href="https://www.afr.com/policy/economy/monetary-policy-has-run-its-race-costello-20191015-p530ys">many commentators</a> have speculated that <a href="https://www.rba.gov.au/monetary-policy/">monetary policy</a> doesn’t work any more.</p>
<p>Is that right?</p>
<hr>
<p><strong>Reserve Bank cash rate</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/294952/original/file-20191001-173393-1b2cjw9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/294952/original/file-20191001-173393-1b2cjw9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/294952/original/file-20191001-173393-1b2cjw9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=158&fit=crop&dpr=1 600w, https://images.theconversation.com/files/294952/original/file-20191001-173393-1b2cjw9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=158&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/294952/original/file-20191001-173393-1b2cjw9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=158&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/294952/original/file-20191001-173393-1b2cjw9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=199&fit=crop&dpr=1 754w, https://images.theconversation.com/files/294952/original/file-20191001-173393-1b2cjw9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=199&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/294952/original/file-20191001-173393-1b2cjw9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=199&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/statistics/cash-rate/">Source: RBA</a></span>
</figcaption>
</figure>
<hr>
<p>There are a number of variants of the “monetary policy doesn’t work” argument. The most basic is that the Reserve Bank has this year cut rates from 1.50% to 0.75% without any improvement to the Australian economy.</p>
<p>This is a textbook example of one of the classic logic fallacies known as “<a href="https://www.britannica.com/topic/fallacy#ref1102390">post hoc ergo propter hoc</a>” (from the Latin, meaning “after this, therefore because of this”). </p>
<p>Put simply, it assumes the rate cuts have had no effect and doesn’t account for the possibility things might have been worse had there been no cuts.</p>
<p>Things might have been even worse. We’ll never know. </p>
<p>It also ignores what might have happened if the RBA had cut sooner. Again, we can’t know for sure. It is possible, though, to make an educated guess. </p>
<h2>When to cut rates</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/300967/original/file-20191110-194650-2metj6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/300967/original/file-20191110-194650-2metj6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/300967/original/file-20191110-194650-2metj6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/300967/original/file-20191110-194650-2metj6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/300967/original/file-20191110-194650-2metj6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/300967/original/file-20191110-194650-2metj6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1221&fit=crop&dpr=1 754w, https://images.theconversation.com/files/300967/original/file-20191110-194650-2metj6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1221&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/300967/original/file-20191110-194650-2metj6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1221&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Reserve Bank governor Philip Lowe should have acted earlier.</span>
<span class="attribution"><span class="source">DARREN ENGLAND/AAP</span></span>
</figcaption>
</figure>
<p>Had Reserve Bank governor Philip Lowe acted, say, 18 months earlier to cut rates, he would have signalled that Gross Domestic Product growth was indeed lower than desired, that the sustainable rate of unemployment was more like 4.5% than 5%, and, most importantly, that he understood the need to act decisively. </p>
<p>That would have sent a powerful signal.</p>
<p>It would also have ameliorated the huge decline in housing credit that pushed down housing prices in Sydney and Melbourne by double digits. </p>
<p>That, in turn, would have prevented some of the weakening in the balance sheets of the big four banks that has occurred (witness this annual general meeting season). </p>
<p>All of this would have pumped more liquidity into the economy and put households in a much stronger position, likely leading to stronger consumer spending than we have seen.</p>
<h2>Bank pass through</h2>
<p>One gripe both the Reserve Bank governor Philip Lowe and federal treasurer Josh Frydenberg have had with the banks is their <a href="https://www.abc.net.au/news/2019-10-14/josh-frydenberg-asks-accc-to-investigate-banking-sector/11598614">failure to fully pass through the RBA cuts</a>.</p>
<p><a href="https://theconversation.com/four-questions-about-mortgages-the-accc-inquiry-should-put-to-the-big-four-banks-125224">It is true there is a problem</a> with banks not being able to cut deposit rates below zero, and as a result having less scope to cut mortgage rates, which are majority funded from deposits.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/our-leaders-ought-to-know-better-failing-to-pass-on-the-full-rate-cut-neednt-mean-banks-are-profiteering-124874">Our leaders ought to know better: failing to pass on the full rate cut needn't mean banks are profiteering</a>
</strong>
</em>
</p>
<hr>
<p>But there are, of course, other ways monetary policy can work. The leading example is quantitative easing (QE). </p>
<p>This is where the central bank pushes down long-term interest rates by buying government and corporate bonds. At the same time this expands the money supply, thereby adding some upward inflationary pressure. </p>
<p>There is <a href="https://theconversation.com/below-zero-is-reverse-how-the-reserve-bank-would-make-quantitative-easing-work-118843">little reason</a> to think such measures wouldn’t work.</p>
<h2>The power of free money</h2>
<p>Perhaps paradoxically, the closer interest rates get to zero the more powerful those rates may end up being.</p>
<p>To put it bluntly, if someone shoves a pile of money into your hand and asks almost nothing in return, you’re likely to use it. In fact, you would be pretty silly not to.</p>
<p>Suppose your mortgage rate really goes to zero – as <a href="https://www.abc.net.au/news/2019-09-13/european-central-bank-ecb-cut-rates-negative-record-low/11508704">has happened in Europe</a>.</p>
<p>You might decide to redraw that and spend the money on a home renovation or some other productive purpose. Or you might decide to buy a more expensive house. </p>
<p>Such spending provides an economic boost. </p>
<p>The effect is all the more pronounced if people expect interest rates to be low for a long period of time. Aggressive cutting coupled with quantitative easing – which lowers long-term rates – signal just that.</p>
<h2>But not only monetary policy</h2>
<p>Just because monetary policy still has some effect at near-zero rates doesn’t mean we should pin all of our economic hopes to it. </p>
<p>A near consensus of economists have argued repeatedly for the use of more aggressive fiscal policy – including more infrastructure spending and more tax cuts. </p>
<p>Indeed, Philip Lowe has raised eyebrows by <a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-08-09.html">speaking so forthrightly</a> on this issue. That doesn’t make him wrong, though.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/we-asked-13-economists-how-to-fix-things-all-back-the-rba-governor-over-the-treasurer-126283">We asked 13 economists how to fix things. All back the RBA governor over the treasurer</a>
</strong>
</em>
</p>
<hr>
<p>There is little doubt the Reserve Bank should have acted much earlier to cut official interest rates. There is also a very good chance it will need to begin to use other measures such as quantitative easing in the relatively near future.</p>
<p>All of that says the Australian economy, like most advanced economies around the world, is in bad shape.</p>
<p>But it doesn’t mean monetary policy has completely run out of puff.</p><img src="https://counter.theconversation.com/content/126579/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Reserve Bank of Australia says it’s prepared to ease monetary policy further if needed to stimulate the economy. But is the policy working when interests rates are so low?Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1181692019-06-03T20:07:12Z2019-06-03T20:07:12ZThe search for an alternative to GDP to measure a nation’s progress – the New Zealand experience<figure><img src="https://images.theconversation.com/files/277512/original/file-20190602-69055-3fsh1o.jpg?ixlib=rb-1.1.0&rect=82%2C706%2C4492%2C2311&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">New Zealand's well-being budget was based on a set of measures that include cultural identity, environment, income and consumption, and social connections. </span> <span class="attribution"><span class="source">from www.shutterstock.com</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>There is consensus among New Zealand policymakers and researchers that GDP is not a good measure of a nation’s well-being. But the debate about what metric should replace GDP is ongoing.</p>
<p>Last week’s <a href="https://budget.govt.nz/index.htm">well-being budget</a> was based on the Livings Standards Framework (<a href="https://treasury.govt.nz/information-and-services/nz-economy/living-standards/our-living-standards-framework">LSF</a>), a set of well-being measures that include cultural identity, environment, income and consumption, and social connections. But these provide no overall index of the nation’s performance. </p>
<p>Our research uses the Genuine Progress Indicator (<a href="https://www.investopedia.com/terms/g/gpi.asp">GPI</a>). <a href="http://www.massey.ac.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=8581767A-167D-4E43-A520-3862512B319D">It shows</a> that by that measure, New Zealand may be only <a href="http://www.massey.ac.nz/massey/about-massey/news/article.cfm?mnarticle_uuid=B7BC6F27-DE80-42CA-8E23-2171CB31BF62">half as well off</a>, compared to conventional measures such as GDP.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/new-zealands-well-being-approach-to-budget-is-not-new-but-could-shift-major-issues-116296">New Zealand's well-being approach to budget is not new, but could shift major issues</a>
</strong>
</em>
</p>
<hr>
<h2>Accounting for costs and benefits of economic activity</h2>
<p>Globally, the GPI is the most widely used <a href="https://www.sciencedirect.com/science/article/pii/S0921800913001584">method to replace GDP</a>. It is essentially a macro-scale analysis of the costs and benefits of activities associated with economic activity. It includes personal consumption of goods and services as one of the largest benefits, but it balances this with costs, which may include social factors such as income inequality and environmental factors such as water pollution and the emission of greenhouse gases. </p>
<p>We show that overall, on a per capita basis, New Zealand’s GDP has increased by 91% since 1970. But the GPI gives a more accurate measure of the nation’s well-being, an increase of only 53%. </p>
<iframe title="Comparison between GDP and GPI" aria-label="Interactive line chart" src="https://datawrapper.dwcdn.net/GkrDv/1/" scrolling="no" frameborder="0" style="border: none;" width="100%" height="400"></iframe>
<p>Personal consumption is the highest value in both GPI and the GDP during the 1990s. It grew strongly with an improving economy, but there is a widening gap between GDP and GPI because of the increasing cost of environmental problems and other externalities, such as the high cost of increasing commuting time. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-time-to-vote-for-happiness-and-well-being-not-mere-economic-growth-heres-why-116061">It's time to vote for happiness and well-being, not mere economic growth. Here's why:</a>
</strong>
</em>
</p>
<hr>
<h2>Sustainability as the beacon</h2>
<p>The struggle to find something better than GDP has a long history in New Zealand. The first attempts to find a GDP replacement were heavily influenced by the idea of sustainable development as an overarching concept of societal progress. In 2002, the <a href="https://www.mfe.govt.nz/">Ministry for the Environment</a> commissioned a <a href="http://www.inderscience.com/offer.php?id=5078">review of headline indicators</a> for tracking progress towards sustainability. This identified seven factors that were considered critical for successful indicators of progress. Of the 33 indicators reviewed, two were eventually implemented: the <a href="https://www.researchgate.net/publication/320935388_Ecological_Footprints_of_New_Zealand_and_its_Regions_2003-04">ecological footprint</a> and the genuine progress indicator.</p>
<p>In 2008, towards the end of the Labour government term, <a href="https://www.stats.govt.nz/">Stats NZ</a> developed a conceptual framework for measuring progress towards a “<a href="http://archive.stats.govt.nz/browse_for_stats/snapshots-of-nz/Measuring-NZ-progress-sustainable-dev-%20approach/sustainable-development/innovation.aspx#">sustainable development approach</a>”. This substantive work did not come up with a replacement for GDP, but instead listed trends under 15 topic areas, grouped under the themes of environmental responsibility, economic efficiency and social cohesion. From an analytical standpoint, it was hard to see how this laundry list of indicators explicitly linked to the concept of sustainable development, which this tool set was purportedly measuring.</p>
<p>With the National Party coming to power in 2009, sustainability literally became a banned concept. All the work on sustainability was halted and, in many cases, annihilated. The Ministry for the Environment removed commissioned reports on <a href="https://www.researchgate.net/publication/320935388_Ecological_Footprints_of_New_Zealand_and_its_Regions_2003-04">ecological footprints</a> from its website. </p>
<h2>Living standards research</h2>
<p>From 2011, Treasury began developing the Livings Standards Framework (<a href="https://treasury.govt.nz/information-and-services/nz-economy/living-standards/our-living-standards-framework">LSF</a>) as an alternative to GDP. Many took notice as Treasury, one of the last true believers in GDP, was questioning its usefulness as the indicator of national progress. The <a href="https://treasury.govt.nz/information-and-services/nz-economy/living-standards/our-living-standards-framework">framework</a> is based on the idea that four capitals – human, financial, social and natural – provide the basis for “intergenerational well-being”. It includes 12 measures of well-being.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/277473/original/file-20190601-69067-zy4a9g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/277473/original/file-20190601-69067-zy4a9g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/277473/original/file-20190601-69067-zy4a9g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/277473/original/file-20190601-69067-zy4a9g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/277473/original/file-20190601-69067-zy4a9g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/277473/original/file-20190601-69067-zy4a9g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/277473/original/file-20190601-69067-zy4a9g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>The theoretical underpinnings of this framework are diverse, drawing on concepts of sustainability as well as a capabilities framework, as outlined in economist <a href="https://www.nobelprize.org/prizes/economic-sciences/1998/sen/biographical/">Amartya Sen</a>’s 1985 book <a href="https://global.oup.com/academic/product/commodities-and-capabilities-9780195650389?cc=nz&lang=en&">Commodities and Capabilities</a>. Treasury released the well-being indicators last year. </p>
<p>Unfortunately, when you drill down into the detail of these indicators, you realise that, in many cases, they are very subjective and dependent on how survey questions are framed. For example, there are subjective questions like “the perceived state of New Zealand’s environment on a 1 to 5 scale”. In my view, that could be much better answered if hard environmental data, like water quality indicators, were used. </p>
<p>The living standards indicators also provide no guidance on whether the country is worse off or better off in an overall sense. The data is deliberately disaggregated and there is no attempt to come up with an overall index of the nation’s performance. </p>
<h2>Progress indicators for the regions</h2>
<p>From 2007 onwards, there were a number of useful attempts by central and local government to develop workable progress indicator systems. The Waikato Regional Council, developed a <a href="https://www.waikatoregion.govt.nz/community/waikato-progress-indicators-tupuranga-waikato/">composite index for their region</a>, covering economic, social and environmental aspects of progress. The Wellington Regional Council’s <a href="http://www.gpiwellingtonregion.govt.nz/assets/WRGPI2001-2013.p%200:%20%208-144">index</a> was derived by adding up 85 equally weighted indicators covering economic, environmental, social and cultural well-being. </p>
<p>The struggle to find a replacement for GDP has not led to any firm conclusions, and one can’t ignore the role of politics at both a government and inter-departmental level. </p>
<p>Governments of various persuasions have attempted to impose their own view of what a GDP replacement would look like. Until this situation stabilises, and there is an enduring and robust replacement that is accepted by all, then by default GDP will continue to be the pre-eminent indicator of the nation’s progress.</p><img src="https://counter.theconversation.com/content/118169/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Foundation of Research Science and Technology </span></em></p>New analysis shows that if New Zealand replaced GDP with the Genuine Progress Indicator, which accounts for social and environmental costs, it would be only half as well off.Murray Graham Patterson, Professor in Ecological Economics, Massey UniversityLicensed as Creative Commons – attribution, no derivatives.