It determines how much a country can borrow and at what rate. But GDP is well past its sell-by date, as people are starting to realise. However brilliant the concept, a measure that was invented in the manufacturing age as a means of fighting the Depression is becoming less and less capable of imparting sensible signals about complex modern economies.
Pointing out the defects of GDP and even tentatively suggesting alternatives is no longer controversial. GDP is a gross number. It is the sum total of everything we produce over a given period. It includes cars built, Beethoven symphonies played and broadband connections made. But it also counts plastic waste bobbing in the ocean, burglar alarms and petrol consumed while stuck in traffic. Kuznets was uneasy about a measure that treated all production equally.
He wanted to subtract, rather than add, things he considered detrimental to human wellbeing, such as arms, financial speculation and advertising. You may disagree with his priorities. The point is that GDP makes no distinction. But here are a few points, all of which are covered in much greater detail in my book, The Growth Delusion: Wealth, Poverty and the Well-Being of Nations.
GDP is born of the manufacturing age. It is good at quantity, but lousy at quality. If the food or service improves in your local restaurant, GDP will not notice.
In fact, GDP might prefer a plane crash - so that it can build a new plane. GDP is flummoxed by the Internet. If I buy my own cheap airline ticket, check myself in online and pick my own aisle seat, my convenience has gone up. But GDP has gone down. I am my own travel agent, a job that would once have been performed by a fully paid-up GDP-producing employee.
However, these conditions will not last forever. Member states could sooner or later be forced to return to the ordinary regime. Which of the two European institutions — the Commission and the Council — has proved to be the fiercest over the years? Which nations have suffered the most severe sanctions? A study conducted at the State University of Milan details the pre-COVID situation and offers insights into what could happen after the current health crisis will be over. How the SGP works.
As a rule, each member state must submit its macroeconomic program to the Commission by April each year. This could be a three-year stability program or a three-year convergence program, depending on whether the country belongs to the Eurozone or not. The Commission has executive and control powers over member states. It is composed of 27 commissioners one for each member state who act independently of the national governments that nominated them.
In May, the Commission issues recommendations to national governments — the so-called country-specific recommendations CSR — for conforming economic programs to European standards. The Council of the EU is an intergovernmental institution composed of one national minister per member state. The original regulation of the GSP limited European initiative to fiscal policy. Contextually, the EU monitored that national deficit — i. In and , the GSP was reformed as part of a set of new legislative measures, known as the Sixpack.
The reformed GSP expanded the scope of European intervention to preventing macroeconomic imbalances as well as to safeguarding the stability of the financial market. The EU does so by supporting structural reforms capable of bolstering employment growth and of stimulating investments. The reform also included both the deficit criterion and the previously ignored debt criterion as necessary conditions for implementing the EU excessive deficit procedure. Member states are expected to follow the recommendations of the Commission while drafting the budgetary policies for the following year.
GDP allows businesses to judge when to expand and hire more people, and for government to work out how much to tax and spend. In the UK, new GDP figures are produced every month, but the quarterly figures - covering three months at a time - are the most widely watched. In a growing economy, quarterly GDP will be slightly bigger than the quarter before, a sign that people are doing more work and getting on average a little bit richer.
Most economists, politicians and businesses like to see GDP rising steadily. Rising GDP means more jobs are likely to be created, and workers are more likely to get better pay rises. If GDP is falling, then the economy is shrinking - bad news for businesses and workers. If GDP falls for two quarters in a row, that is known as a recession, which can mean pay freezes and lost jobs. The Covid pandemic caused the most severe recession seen in over years, hurting business and employment, and forcing government to borrow hundreds of billions of pounds to support the economy.
If GDP is growing, the government will use it as evidence to say that it is doing a good job of managing the economy. Likewise, if it falls, opposition politicians will say the government is running it badly. GDP helps government decide how much it can spend on public services and how much it needs to raise in taxes. If GDP is going up steadily, people will pay more tax simply because they're earning and spending more. This means more money for the government to spend on public services, such as schools, police and hospitals.
GDP can also help governments work out if they are borrowing too much. To find out more about the cookies we use, see our Cookies Policy. A single cookie will be used in your browser to remember your preference not to be tracked. This records an increase from the previous number of The data reached an all-time high of Explore the most complete set of 6. Entry level access to the CEIC platform for individual users. Download limits apply. Payable monthly by credit card.
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