The End of GDP?

‘The GDP was contrived in a period of deep crisis and provided an answer to the great challenges of the 1930’s. As we face our own crises of unemployment, depression, and climate change, we, too, will have to search for a new figure. What we need is a “dashboard” complete with an array of indicators to track the things that make life worthwhile – money and growth, obviously, but also community service, jobs, knowledge, social cohesion. And, of course, the scarcest good of all: time.’

– Rutger Bregman – Utopia For Realists

One of the problems with GDP is that it does try to combine all of human welfare into one number, and fails…

– Annie Quick

Social scientists often recommend that measures of subjective well-being should augment the usual measures of economic prosperity, such as GDP per capita.’

Esteban Ortiz-Ospina & Max Roser

The GDP model was invented in the inter-war years before being properly adopted in 1941 as a means to understand how much economy activity was taking place in order to determine what resources could be allocated for the war effort.

Since then GDP has become a globally recognised measure of progress and prowess. With a high GDP should come a better standard of living, the general consensus being that hard work pays off.

With polarisation between the rich and the working and welfare “classes” widening, with fiscal inequality rising and with social care, health and welfare systems being drastically underfunded. The trickle-down economic system – the system by which wealth is created in the upper echelons and eventually trickles down to smaller businesses whilst providing welfare support through taxes for those in need – has been shown to be more or less fanciful thinking than a reliable model.

The trickle-down economic model relies on the philanthropic and altruistic endeavours of wealthy individuals and organisations, companies abstaining from using automation and, most importantly, everyone paying the correct amount of taxes and not squirrelling their money away in off-shore tax havens.

Recent research suggests that off-shore tax havens are hiding half of the world’s money.

If the trickle-down model theory was put into practice, the United States, China, Japan, Germany and the United Kingdom (the top 5 strongest economies) would not be experiencing such vast levels of criminality, an abundance of mental health issues, homelessness, shortages of social care for the elderly, strangled social-mobility and ever-increasing levels of “working poor.”

Perhaps an answer to the failings of the GDP measuring system and to the trickle-down economic model; last week New Zealand made public that they were going to replace the GDP model with a new “welfare budget” in which the plan is to ‘prioritise well-being over economic growth.’

The change was announced last week by Prime Minister Jacinda Arden as part of her reformist agenda. Jacinda said: ‘Today we have laid the foundation for not just one wellbeing budget, but a different approach for government decision-making altogether.’

The Welfare Budget will focus on 5 key areas:

– Improving mental health
– Reducing child poverty
– Supporting indigenous people
– Transitioning to a low emissions economy
– Thriving in a digital age

There has been opposition to the welfare budget by (none other than) opposition parties who claim that the budget will starve essential services, including healthcare, education and housing. It has also been pointed out that the welfare budget has come at a difficult time, as the trade crisis has worsened between the United States and China – New Zealand’s biggest trading partner. Critics have also pointed out that the N.Z government are also putting more money into defence and army departments which seems to be at odds with the welfare budget.

Amy Adams of the opposition National Party had this to say about the Welfare Budget: ‘Apparently it’s about measuring your sun and moon feelings, improve you locus of control, and understanding your ability to be yourself…I have no idea what that means and, outside the Wellington bureaucracy, I’m not sure anyone does.’

A particularly derogatory statement but not one without reason. After all the welfare budget moves from providing immediately available and quantifiable results to a long-term approach at battling NZ’s dominating issues. It is a fact that budgets cannot provide cash injections of equal value into every aspect of life, but the five prioritised areas outlined above have been highlighted as New Zealand’s most pressing problems.

However, upon closer inspection, the welfare budget is arguably a more comprehensive system to improving New Zealand’s economy than through small, intermediary solutions.

20% of New Zealand’s population struggle with mental health issues, a figure not that dissimilar from the U.K. Countless studies show that preventative measures, or early-intervention, would help save billions through both easing the pressure on reactive healthcare services and also on businesses. Globally, mental health issues are the leading cause of work days missed.

By approaching and dealing with mental health issues in the early stages pressure would be alleviated from New Zealand’s health service (on which they currently spend 5% of GDP or $12 billion on acute mental health services) and businesses would benefit by avoiding the costly disruption of absenteeism and lost productivity.

The same can be said for reducing children’s poverty. By providing children with means, with education and with access to services, the welfare budget may break the poverty cycle thus easing welfare costs in subsequent generations and, more importantly, improving the lives of New Zealanders.

Whilst certain branches of capitalists might consider the idea of properly funding the welfare state “fluffy”, the truth is that the new welfare system would do more to combat the inequalities faced by New Zealanders than relying on the aforementioned trickle-down system which does very little to tackle social issues head on. When talking on podcast ‘Reasons to be Cheerful’, senior civil servant and economist Gus O’Donnell said; ‘People using GDP as a measure of how well you’re doing really do need to kind of grow up…’

New Zealand’s plan to move to a low-carbon economy is not revolutionary. It is, if anything, well overdue. Green energy economic models have been put forward for decades in pursuit of a sustainable future and it does not take a great deal of insight to see that the green energy market is being gripped by nations and companies alike.

Wind-farms, electric vehicles, hydrogen fuel-cells, hydrofoil technology, wind-sail and of course solar power are shaping domestic and business infrastructure and green energy design, production and maintenance will likely take the place of oil production and distribution as the dominating global market force.

In an age of nanotechnology, biotechnology and gigafactories, it is nothing short of embarrassing that we are still using fossil fuels to power our cars and aeroplanes.

So no, New Zealand is not doing anything revolutionary, it is simply taking a step in the right direction. When it comes to the future of the planet, the battle to fight rising temperatures, rising sea-levels, rising levels of pollution and particulates, the only people who would see this move as in any way reductionist behaviour would be those who have interest in fossil-fuel companies or else those economists who fail to see the necessity and profitability of a green energy market.

The long-standing argument that the move to green energy would lead to a loss of jobs is demonstrably true because, yes, of course it would lead to a loss of jobs, within that sector. However, within the U.S, solar power alone employs more people than oil, coal and gas combined. By offering to teach new skill sets or by altering knowledge to suit the new green energy market, job losses would be minimal and the production of new jobs would far outweigh any interruption during the changeover.

In regards to thriving in the digital age, Yuval Noah Harari speaks widely of the issues that humankind will face in the rise of the digital world. From recognising and combating ‘fake news’, the rise of automation, the change from a product-driven economy to a service-driven economy to the proliferation of biotech (the exploitation of biological processes for industrial and other purposes) and information technology. In the face of such vast and complicated change, any nation, business and individual would do well to prepare themselves.

By making “thriving in a digital age” an objective of the welfare budget, New Zealand is taking a step toward future-proofing their economy. Digital education has the potential to increase business reach and maybe even divert some of the entrepreneurial talent from places like Silicon Valley. There is also the benefit of teaching people how to spot fake news articles, recognising malware, and safeguarding children from malicious intent/content.

Social media has the ability to change the political landscape. The influence of Russian bots on twitter and facebook throughout the referendum of 2016 to leave the European Union and throughout the presidential campaign of the same year cannot be overlooked or underestimated. MP Bob Seely noted in his paper put before parliament; Russian Federation activity in the UK and globally, the danger of Russian interference within political processes throughout the world. China is also doing the same.

Having protection against this kind of intervention (digital warfare?) is absolutely key in a world where 2.1 billion people use facebook or facebook owned services every day.

There has been no hiding the fact that the welfare budget is an attempt to stymy the progress of populism within New Zealand.

Changing from the GDP to a more representative model (or from objective well-being to subjective well-being) has the ability to continue allowing nations to monitor their progress, but also take into account sustainable and improved living. As said by Christoph Schumacher; ‘GDP is a good measure of economic growth but doesn’t provide us with any information about the quality of the economic activity or the well-being of the people.’

The extra benefit of the welfare budget is that it means politicians can no longer use the GDP as evidence that all is well. It is the difference between objective well-being and subjective well-being.

Nobel Prize winning economist and inventor of the GDP system, Simon Kuznets: ‘The welfare of a nation can scarcely be inferred from a measurement of national income.’

The creation of wealth is integral to our way of life but the problem with only focusing on the GDP model is that it does not provide solutions long-standing problems. At least, not in decent time. Trickle-down economics has, until the date of writing this piece, never officially worked. So the hell with it. Why not try something new?

Trump and the Environment

Image courtesy of AllVector

President Donald J. Trump is a controversial figure. He faces questions about possible collusion with Russia, obstruction of justice, fraud and money laundering. We know for certain that he paid off Stormy Daniels. Bank account transactions and testimony from Trump’s previous confidante are proof to that effect.

The most dangerous aspect of Donald Trump’s presidential cabinet, however, is the absolute refusal to believe that climate change is a danger. Or, in some cases, is even happening.

As written by Simon Johnson in the i newspaper:

“Just 24 hours after the United Nations warned that a million species were at risk from environmentap degradation by humans, the United States has refused to sign an agreement on protecting the Arctic.

“Diplomats said the US objected to wording in the deal that stated climate change was a serious threat to the Arctic. The Trump administration has consistently downplayed or even denied climate change.”

The reason for America’s choice is clear; the melting Arctic ice holds a potential 13% of the planet’s untapped oil.

The Trump Whitehouse is overseeing the abolishment of scientific findings and irrefutable fact. Essentially ignoring common sense.

That being said, the world must pick up the slack in the green energy market. Whilst America tinkles with fossil fuels and sits firmly in a residual industrial phase, a new global player can take the leading position of innovative change.

We can only hope that the recent predictions of a decline in fossil fuels within the next five years is accurate.

A Tech Too Far

Always read the fine print. Actually, scrap that. Don’t bother. You don’t read it. I don’t read it. We all want facebook on our phones. And whatsapp. And Instagram. These things are tools of the modern age. These services provide that “connectivity” that people have been lauding. And besides, if you don’t agree with sharing your pictures, snippets of your voice picked up by microphone and data on where you live and your viewing habits, well, facebook, Whatsapp and instagram don’t want you.

No, wait. Go back to the fine print. You can choose to “out” of these options. And it is definitely for the best. Why? Well, let’s have a look.

Andy Jones, who wrote an article on behalf of the ‘i’ newspaper titled “Why your social media activity could stop you getting a mortgage” scared the s#!t out of me.

Released today (21st September, 2018), Andy reported that mortgage providers and insurance firms are trialling the use of social media services on people who are seeking their services. No longer will providers request information from banks on your spending habits, but they will look at your viewing history as well.

“Promoting their service, The Online Me, Hello Soda says: “Every time you make a submission for a loan, a house, or a job, someone is vetting your social profiles.” That’s about as comforting as the thought of a stranger standing at the end of your bed.

HMRC, that scourge of the commoner and hero of the super-rich (see upcoming blog) openly says it will “observe, monitor, record and retain internet data” which is available to everyone including “blogs and social networking sites where no privacy settings have been applied.”’

The reason that mortgage lenders and insurance companies plan to do this is because they will better get an insight into your history, your holidays, how you spend your money and so forth. If you are holidaying every month and you’re not rolling in spondulicks then they would bring in a bunch of sun-deprived voyeurs to do a thorough search. When I read that article my immediate thought was: what does my social media say about me?

You see the danger of this now?
Imagine, in a society in the not so distant future, that you go on your annual family holiday and take a picture of the whole lot of you by the pool. And then you get home and apply for home insurance. Your case is decided by someone in an office clicking their way around your facebook profile.

How did they pay for that holiday? Was it with credit? Do they have a credit card? How do they pay that money back? How often? Have they missed any payments? Did they pay for it using nectar points or clubcard points? Let’s look at that image, where did they go? They had their locations settings on when they posted. That’s handy. Spain! Aha, okay. South east Spain. A villa. Aha! Less than five minutes from the sea. On a hilltop. I bet they paid extra for that view. How much was it exactly? Okay, let’s backtrack. Where does this person live? Eastbourne? Hmm… best do a google map search and see what kind of house they have.

If you think I’m dancing with hyperbole, I’m really not. The searches undertaken by the HMRC could “include anything from evidence of lavish spending on faceback to Google Earth pictures proving you have had an extension.” Forget that you paid for that extension with cash that your grandma left you, you have had the extension and that is what matters.

Imagine you wanted to travel the world. You want to have a bunch of adventures and when you get back you want to buy a house. You want life insurance. If something were to happen to you, your partner or the person with their name on your will no longer have to worry that they cannot pay for that house. You will get back from travelling and post a travel album. There you are smiling on top of Kilimanjaro. And an insurance company now has the rights to check out your lifestyle as part of their cover.

Cue the person considering your case, clocking in, sitting at their computer, clicking a few buttons and having access to your profiles.

Ah, they like expensive hikes. Is that jacket North Face? Hmm, that looks like specialist gear to me. Perhaps they spend frivolously. That would have to be taken into consideration.

There you are, arms wide at the top of a cliff, embracing the world with the wind in your hair.

Hmm, what does that say about them? They are after life insurance after all. I’ll put in the report: “likes to take risks”. It’ll likely increase their premiums but it is for the best.

And there you are strapped to another human being as you plummet toward the earth, smiling at the camera, enjoying one of the best, most thrilling and memorable moments you will ever experience.

Okay, wow. Skydiving in New Zealand! I’ll put: “Puts themselves in harm’s way. Likes extreme sports. Higher risk of injury or casualty.”

This is purely speculative, I cannot stress that enough. But I am, however, convinced that insurance companies are becoming more malign in their actions.

In 2016 I purchased insurance for my car. Fire and theft were included. In 2017 I used a comparison site in order to find my next insurer. I found one I liked and went to their page. After answering the questions I was met with that usual five to eight pages that ask you what extras you might like to include in your policy i.e. breakdown cover, jelly-bean scent, you name it. On the first page it asked me if I wanted to include fire and theft for an extra fee. That raises two questions. The first: why was that not included? Second, why are they charging extra for something that should already be included in everyone’s insurance plan?

It is common knowledge that companies are purchasing data. Fintech is a flourishing sector and the more personal it becomes, the more effective it becomes. And the easier it becomes to separate consumers from their money. I’ll be honest, I love when Man-Booker Prize winners are announced. I know that I am probably going to buy the latest winner and probably a couple more authored by the runners-up. If these books have been shortlisted for the most prestigious award in the world of literature…I want them.
That time of the year would be an easy target for advertisers. Waterstones, Amazon, Foyles, it does not matter. I would probably be susceptible.

Let us go back to that annual family holiday. It takes place in the same few weeks every year (as most peoples do considering families are limited to school term times). You have been targeted by a whole bunch of advertisers and marketing companies putting forward things you may or may not need for your holiday. But the fear is that it could get even more personal. If an algorithm can detect brands in the photos you post, you may be directed deals from that brand in the future. Your taste in cars, motorbikes, foods, jewellery, clothes. It can all be used in order to entice people to purchase goods they do not need. But when advertisements are tailor-made around your lifestyle it would become considerably harder to resist.

When I have looked at travel destinations on google, I often get suggestions afterward on places to go and gear to buy on what I recently believed were unconnected pages i.e. pinterest and instagram. This is something that anyone with a social media account experiences day-to-day.

The things that I have mentioned are not some strange conspiracy in which the “establishment” are dominating the world, it is just the future of marketing and risk management. As Rana Foroohar says in the Financial Times post (17th September, 2018) when reporting on a senate meeting regarding fintech, the Treasury “talks approvingly of data sharing among technology companies and big banks to improve efficiency, scale and lower consumer prices.

“The report puts rather less focus on the on the systemic risk and predatory pricing that could emerge if the world’s largest technology companies and the biggest banks on Wall Street share consumer data.”

As mentioned above, this is the possible future of marketing and risk management. But it is marketing and risk management that poses the danger of exceeding a moral boundary.

We are living in an age where the online and the offline world’s perimeters are blurring. We see something funny or something bad and we either tell our friends, or tell the world via a post. Or both. We want to take photos a certain way because we have seen something like it online. We share photos (don’t even get me started on the overkill of parents posting umpteen number of baby pictures) and we share memes. We share life quotes, music videos, book recommendations and generally scream our point of view into what is essentially…storage space. And why do we do it? Because it’s fun.

Maybe it is best that, however, that you pick and choose your data settings wisely. Because fun is not worth painting yourself a target for corporate interest.