A note on GDP

Anti-Dismal points out the fact that Colin James seems to have run into a little confusion around the GDP statistics.  Now, I can understand this confusion AND I agree that we need to think more sensibly about what income is before we run around making comparisons.  In this sense, all I want to point out is how the confusion came about.

Now it is true, Australia releases production, expenditure, and income measures of GDP.  However, I would note that they set the chain volume measure of these indicators equal with a “statistical discrepancy” figure.

In New Zealand, our statistics department releases production and expenditure GDP, but does not force them to be equal.  They state that they believe the production figure is more reliable overall – and that is why people discuss this figure.

Of course, GDP misses many “non-market” forms of value-added, it is a measure of “production” so misses the fact that a higher terms of trade increases NZ’s implicit income, furtermore it misses “international transfers” which are highly negative for an indebted nation like NZ.

Furthermore, we have to ask why we are looking at the figures.  Is our concern that someone in the same role gets more $$$ in Aussie and so has the incentive to move over there?  If that is the case, why not just compare the PPP adjusted wages for those professions?  Simply looking at GDP misses the fact that our two economies produce different things, and hire different types of labour.

I am not a fan of cross-country comparisons at this type of aggregate level, and I think we should be thinking carefully a little more carefully about what our concerns are regarding the NZ economy directly – rather than focusing on the arbitrary target of our relative living standards compared to other nations.  I realise these relative standards might give us some information on “what we could do” – but unless we are careful when looking at the NZ economy they will lead us towards policy mistakes.