I have to keep reminding you that I know very little about economics. My opinions don’t matter much. If we didn’t live in a free society, I probably wouldn’t be allowed to have them; I certainly wouldn’t be allowed to publish them. Thank god for free speech; how else would you get to hear alternative opinions?
When I was a lad at school, we were told about things called primary industries. These were things like agriculture, mining, shipbuilding, power generation, construction, engineering and manufacturing. These industries were the backbone of the nation; they created its wealth.
We also learned of something called output. In simple term this was the total value of all the primary industries added together. Put another way around it was the total of everything a country made. The other benchmark we learned about was called the Balance of Payments. This was the difference between what a country sold (its exports) and what it bought (its imports). A positive Balance of Payments meant a country was paying its way; a negative Balance of Payments meant the country had to borrow to keep things going.
America, Germany and Britain used to be the powerhouses of the world economy. That was until somebody invented Globalisation. The simple idea behind Globalisation is to move jobs to where they are the cheapest. As a result millions upon millions of jobs have been lost in the West and transferred to China, India and the Far East. The net result is production in the West has fallen, and Balance of Payments of Western economies is in the red.
Our politicians don’t want us to know about these things, so they stopped concentrating on Balance of Payments as a measure of economic success. Instead they now focus on a new measurement called GNP (Gross National Product). GNP includes all economic activities, primary industries and services carried out by Irish businesses all over the world. It’s been growing, because the service and public sectors have been expanding. So the Government is able to claim the economy is growing, even though the West isn’t making anything anymore.
Confused? Don’t be, the difference between real output and GNP is easy to understand. Let’s imagine an average family; father and mother, a grown up son and two children still at school. Dad works full time, Mum works part-time; the grown up son works overseas, the two younger children are still at school and don’t work. The family’s true output is Dad’s and Mum’s income; it’s the amount of money the family brings in from outside. Their GNP on the other hand includes Dad and Mum’s income earned in Ireland, plus the grown up son’s income earned overseas, plus everything they do for each other. Since Dad and Mum are authority figures, we can liken what they do for the children as similar to the public sector. Dad does for Mum, what Mum does for Dad, what the kids do to help their parents or do for each other, is similar to the services sector. So, Dad taking the kids to school, Mum cooking dinner, the kids mowing the lawn and so on and so on, all contribute to the family’s GNP in the same way that the public sector and service sector contribute to the country’s GNP. What the grown up son earns is like overseas investment. It too is included in the family’s GNP, even though he doesn’t send it home to the family.
If Mum loses her job, the money coming into the family goes down; but the family’s GNP can still go up if the grown up son’s salary increases, and Mum spends the time she has on her hands doing things around the home. If she gets busy redecorating the house, sorting out the garden, cooking home-made meals for the freezer and so on, the GNP method would say the family is better off, even though they don’t have Mum’s money any more, nor do they have the grown up son’s increase in salary.
Nuts isn’t it? The family has less money to spend; and yet the GNP figure would suggest they are wealthier than they were.
That’s how it works in the overall economy. The jobs we do for each other are services. They’ve been on the increase over the last few years; that’s why we’ve all been busy. We haven’t been selling Irish goods overseas; we’ve been working busy working for each other. The problem now is that the services sector, as well as all the other sectors, is in decline. The result is economic disaster.
The real problem is, because we don’t make anything anymore, we have nothing to sell to other countries and no money coming in to the country. That in turn means we have to borrow more and more; and you’ve guessed it, we don’t have enough money coming in to pay these loans back.
What a way to run a country?
Copyright © David Jones 2009
