Is there a new way to measure the economy? There is only one way, the correct way, and at long last it could be that the people at the top have an inkling of what it is.
For most of us, wealth means money in our pockets, money in the bank, maybe gold, shares in a company and so on. In reality, real wealth comes from productivity, this means goods and services. The value of the money in our pockets is purely psychological. Governments can and do create money - the note and coin issue - and if they issue it irresponsibly, the people end up papering their walls with it. The main reason the world is currently in such a terrible financial mess is because the role of the issue of money has been usurped by the banks who issued it irresponsibly on two counts: as a debt, and out of all proportion to the goods and services in the economy. The result was that the stock market went up and up and up, then as the saying goes, what goes up, must come down. It did so, more than once, often in spectacular fashion. Here is Libertarian academic Murray Rothbard explaining how the banksters hijacked the world’s biggest economy, the United States.
For decades the men at the top of the banking system treated it like their own personal fiefdom with us little people as their surfs. In this endeavour they were aided and abetted by overpaid lackeys including the gullible, and the not-so-gullible. The result was that, unrestrained, their greed got the better of them, creating money which was not backed up real wealth, the banking indeed the entire world financial system became one big Ponzi scheme, and when the bubble could be sustained no longer, it came crashing down around our heads.
When this happened during the so-called Great Depression, most people had no idea what was going on, and the voices of those few who did – like Major Douglas – were drowned out by their amen corner. In the Internet age, this is no longer possible, and with the latest obscenities – which include PPI and LIBOR – people are demanding not only payback from the banks, but that they be held accountable for their crimes, or even stripped entirely of their power to create credit.
As things stand it is still true that with the exception of government intervention on a modest scale, the economy is dependent on the banks, but purchasing power belongs to producers, not book-keepers. The wealth of a nation is currently measured by something called its gross domestic product, which is precisely what it sounds like, but GDP is a meaningless number. During war-time the GDP of the nation – every nation involved in the conflict - rises. And what is the result? The wealth that is created is destroyed as fast as or even faster. Coffins, bodybags and artificial limbs for invalid soldiers are counted as part of that GDP. What does that say about how wealth is calculated?
The American Government is shortly to alter the way GDP is calculated; this is to be welcomed, but will those responsible get it right? Research and development is to be included in the new definition, but again, like GDP, figures for this are misleading because much research is wasted, ditto much development. A company may spend a hundred million dollars developing a new computer add-on, but if the product flops and nobody buys it, all that money has been wasted.
So if the US Government has still got it wrong, how is the economy to be measured? The first question we should ask is do we need to measure it at all? Obviously the government needs to know in general terms how to plan the future, and for that it needs to collect data, including statistics, but this is for things like population and major infrastructure. The government does not need to manage the private sector, nor should it attempt to.
What it should do is strip the banks of their power to create credit, and create its own credit responsibly as recommended by the Australian Royal Commission On Money as far back as 1937. (Relevant extract from findings here). The people at the top of the government – all governments – need also to change the way they think about many other aspects of economics, even its sacred cows. For example, do we really need full employment, and what will be the result of pursuing such a policy when we have machines that can do 95% plus of the work we do, and do it better, faster and for no appreciable cost, or even for no cost at all?
[The above op-ed was first published June 4, 2013.]
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