A Different Kind of Economic Stagnation
Words By Alexi Barnstone
The talk had just ended and most of the attendees had vacated. I waited in the short line of inquisitors for Richard Denniss, Chief Economist at the Australian Institute, ready to ask him my question.
The presentation had been about infrastructure spending and the importance of good governance, smart investment, and long term goal setting. It had been held at the New South Wales Parliament House. Around thirty people were in attendance.
Richard Denniss was the ideological spearhead of the afternoon. As the front cover face of the think tank that feeds policy into the labour party and a renowned author for his books Econobabble and Curing Affluenza Denniss is a respected economic voice, not just in that room but in the world.
The roots of his speech were in line with his past publications. He spoke of the importance of investing in long term infrastructure plans that had tangibly beneficial outcomes for the economy. He spoke of the boom and bust cycle that is quintessential to capitalism, forecasting an inevitable dip the Australian economy will eventually experience. It was crucial to the Chief Economist of the Australian Institute that we use today’s wealth to ensure a stronger tomorrow. That we invest the money we make now in improving the economy for the future. He spoke of the current expenditure as wasteful - the $730 million Australian taxpayer dollars spent on a stadium rebuild, $2.1 billion on a light rail, and $400 million on expanding Port Botany. Richard Denniss could not make sense of spending the money “on Port Botany when we have a perfectly good port in Newcastle that is sitting there gaining dust.” Why spend money on a new stadium when the old one was perfectly functioning?
According to Richard Denniss the Australian government is spending for the sake of spending. Not thinking about the way the money is used but simply infusing the economy by recycling taxpayer dollars, buying large contracts for massive infrastructure projects. Projects that bring no real benefits to the Australian economy in the long term, but creating short term jobs and activity. He derided the expenditure as irresponsible. “The Economy will not always be as good as it is now, and if we waste all of our money on things that don’t improve our lives in the future, then we will not be ready for when darker times come.”
Denniss attributed all this foolishness to one fundamental flaw in the way we perceive economic success. “It is a problem that makes us appreciate expenditure no matter what the outcome.” He blamed our use of GDP (Gross Domestic Product) as a measure of economic success for all the calamitous decision making.
Gross Domestic Product is a measure of the amount of things happening in the economy. It adds up all the economic activity to output a number that quantifies the amount of stuff going on. Many economists these days work tirelessly to debunk its value in understanding success. The measure does not explain how we have spent money, what activity is going on, or how it benefits the population.
GDP does not help us understand if our lives are getting better, if the poor are getting richer or if the suffering are getting healthier. It is a simple measure of the amount of ‘stuff’ happening in the economy. Politicians cite their favorite number and say things like ‘this government has had massive success improving the economy, with a growth rate of 5%.’ But what does it mean? To lend an example from Richard Denniss book Curing Affluenza; you could run down the street and smash all the windows and that would create ‘economic activity’, but it wouldn’t do any good.
How did it become the measure of success in the politics of economics? In the 30s politicians began to adapt it as an indicator, against the warnings of many. Creator Simon Kuznets had designed the measure. After presenting it to members of US congress for the first time in 1934 even he said that it should not be considered a baseline for the success of an economy.
Many other measures exist for gauging the success of a country. Take, for example, the happiness index, life expectancy, or the Gini index. These measures help us understand our nation by looking at how happy people are, how long they live for and what the income disparity between the rich and poor is. You could have an economy with amazing growth in GDP because the richest single man gets billions more while everyone else gets poorer. GDP doesn’t account for it. None of these measures have been able to take precedence over GDP. The majority of the world still sees GDP as the defining number, the number that makes us campaign to vote them back in or vote them out.
There is one woman between me and Richard Denniss. She has approached him less with a question and more a statement. She tells him that she doesn’t agree with his argument, that something ‘feels wrong’. The economist is composed and polite, he smiles and listens to her berate him with unfounded criticisms. Eventually she tires and exits stage left.
I ask him my question.
I tell him I, like so many others, resonate whole heartedly with his message. That I believe he is unequivocally correct. But that I fail to comprehend one thing. How he intends to get people to accept that the measure of economic success that they have grown up with, that their parents have grown up with, is fundamentally wrong.
I asked how he thought that he could avoid making people feel as though they were being belittled by him, that I thought it seemed too easily for his battle to be manipulated to fit the longstanding anti-elitist sentiment. That people would discredit the whole movement away from GDP.
How do you change people’s perception of success in economics, a field that most of them have no understanding of, in such a fundamental way?
“Don’t belittle them, don’t name call them. Show them that they are stupid because they are wrong.”