Is the G.D.P. still a good measure of the economy in a very long Great Stagnation as we are facing now?
Income and wealth inequality between the two main classes – capitalist and working – has made the economic growth measurement distorted to such an extent that even the ordinary G.D.P. has become much less meaningful now than in the 1970s, let alone the per-capita G.D.P. It is no longer a reliable measure to gauge how much economic gains that the working majority has made the previous year because of the bias in increased favor of the rich and super-rich gains whose contribution to the G.D.P. accelerates almost every second, if not every millisecond, their weighting proportionality relative to that of the employed workers. (The unemployed workers do not contribute to the annual growth rate of G.D.P. in real terms but their unemployment insurance benefits are still taxable incomes, nonetheless.)
A more meaningful measure of the economic gains of the working majority than the ordinary G.D.P. is to divide it into two parts: workers’ G.D.P. (WGDP or less than $225,000 annual income) and capitalists’ G.D.P. (CGDP or greater than or equal to $225,000 annual income). The demarcation line of the CGDP is little higher than ten times of the poverty line for a family of four, or $22,050, in 2009. Based on this more accurate and much less misleading “class-based” or simply the class G.D.P.’s, the working majority will be able to know how much losses they get every year, measured by WGDP. It should be approximately the same as the gains obtained by the capitalist minority that year, measured by CGDP.
I do not think Martin Wolf and those policy makers understand that the economy is still near the bottom of a very deep hole and for a good reason – they have been brainwashed by the false evidence that capitalism is invincible. This misplaced optimism caused not only their wrong expectation of recovery but was the very reason why the financial and economic crises were unpredictable and underestimated, in the first place. Their education backgrounds were obtained in a lackadaisical way in which no one ever mentioned to them capitalism has long been proven crisis-prone and historical events such as the Great Depression specter would come to haunt the society, if not be sufficiently meticulous. Education has failed them miserably.
If they can de-learn what they wrongly acquired knowledge about capitalism, then they can think outside the box. Only being an out-of-the-box thinker, a policy maker can think clearly, productively and correctly.
Mark
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Marv Gandall on Monday, January 10, 2011 10:29 AM wrote:
On 2011-01-09, at 11:11 AM, Carrol Cox wrote:
> ... a good deal of China's growth
> tets reflected, directly or indirectly, in the balance sheets of various
> U.S. or European corporations. Walmart for example. And didn't someone a
> few
> years ago calculate how much of a car assembled in the U.S. was made up of
> parts manufactured in China or other "developing" economies?
The widely-cited example was the assembly of an iPod in China.
"Who captures Value in a Global innovation network? The case of Apple’s iPod": http://pcic.merage.uci.edu/papers/2008/WhoCapturesValue.pdf
But that is yesterday's news. It's illusory to cling to the stereotype of China as strictly a low-cost assembly platform for foreign manufacturers. Though its growth is still skewed too heavily towards exports, there is solid evidence that China has rapidly moved up the value chain in the past decade to become the world leader in high speed rail, wind turbines, solar panels, and other emerging new industries, and has become or is poised to become the the largest producer of autos, steel, aircraft and other products in the heavy manufacturing industries once dominated by the United States.
In a wide range of categories its output already exceeds that of the United States, and it graduates vast numbers of students with science and engineering degrees. Its announcement of the world's fastest supercomputer several months ago surprised and rattled the American scientific establishment. The Chinese leadership's new five year plan has targetted further investment of up to $1.5 trillion in high-end equipment manufacturing, new-generation information and energy technology, advanced materials, biotechnology, alternative-fuel cars, and other emerging sectors. Reuters noted the "the eye-popping headline figure was an indication of the government’s determination to catalyse a structural shift in the economy."
http://www.reuters.com/article/idUSTRE6B16U920101203
While the profits of Walmarts and other foreign firms continue to rely on their Chinese operations and access to the China market, Chinese state and private firms now dominate the country's major industries, with Western capital increasingly playing a subordinate role. I posted an article a few weeks ago reporting on this trend.
http://mailman.lbo-talk.org/2010/2010-December/015949.html
China has also, of course, become the world's banker, providing loans on more favourable terms to developing nations than the old imperialist powers, with the beleaguered American and European economies dependent on its continued purchase of their bonds and other assets. Cash-rich Chinese banks, commodity producers, and its sovereign wealth fund have been aggressively expanding abroad and and the first steps have been taken towards making the renminbi a major global reserve currency. These equally consequential developments would be subjects for another post.
Finally, because there seems to have been some confusion, let me re-emphasize that I'm aware that China's stunning growth has been accompanied by widening inequality, that this pattern is characteristic of a capitalist economy which China has become, and that the US, despite its current tribulations and evidence of decline, remains for now the world's leading economic and military power.
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