Be calm, its only figures
Columns of newspapers are lately filled with reports that seek to suggest that not only is Ghana’s economy “ailing” but the figures upon which financial decisions are made by the financial managers could also be all wrong!
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Such bold claims have also dominated radio and television discussion programmes for some days mainly because a former deputy governor of the Bank of Ghana has raised such concerns again in a recent public lecture.
Surprisingly also, the public lecture, which mostly poked at whether the country’s planned bailout programme with the International Monetary Fund (IMF), expected this month, would help in improving the economic fortunes of the country, has rather become a subject of intense political debate.
The sum effect today is that many a consumer is now not sure about the true state or possibly the true meaning of data provided by agencies and institutions of government.
So for those of you who have been consumed by the “economic” arguments lately, my advice to you is that you should remain calm, for it is only figures!
Yes, it is only figures, and this is why economic figures have not always received universal acceptance. And this is very true and that is the main reason(s) why we always find economists at each other’s throat, trying to (dis)prove one theory or another.
In fact there has been so much worry about the reliance on statistics in economics that a group of economics students in France in the late 80s staged a demonstration to protest the use of mathematical models in the teaching of the subject.
The students opined that such mathematical models had made the subject “autistic science,” meaning it was out of touch with reality.
Now let us examine the much -touted assertion of the GDP being the “best” indicator of economic growth to find whether there are no problems.
The Gross Domestic Product (GDP) of a country is the money value, at market prices, of goods and services produced in the country over a certain period of time. When you include all this plus income earned abroad, GDP now becomes GNP, which is the Gross National Product.
Armed with this information, let us, again, look at how these indices are calculated. The calculation of these two indices, because we are using “market prices” exclude much of what occupies the time of a significant number of people, and indeed much of what people value the most.
Look at housework and raising of children as examples to understand this further. Housework and childcare by nursing mothers are viewed as “voluntary” in this case, and because we cannot estimate with certainty a market price for them, it is excluded. Yet, if you paid for such services, it will be added. You see how it works now?
Good. It is the same as growing your vegetables or planting your own flowers as opposed to buying them from the market. If you grow your own vegetables and flowers they are not included in the GDP, while if you sell the odd pound of tomatoes to the local market they are (or should be) added.
With a large subsistence level of farming activities in the country, you can now imagine the “value” that is left out of the calculation of GDP; not only in Ghana, but in all the countries of the world, where economic growth is of interest and, therefore, they would like to measure it periodically.
Another area of concern is the informal sector and the cash-based transactions that are undertaken in this country.
If you call out for the services of a registered plumbing or drainage company, you will normally pay for services the proper way, and this will form part of the GDP calculation.
But since most of the artisans and tradesmen operate outside the formal sector, they are not included in the GDP calculation or the value of their services could only be ‘guesstimated’. Can we therefore say that about 12 per cent of GDP is not captured?
Or, with the exclusions, can we throw away GDP and use other indicators? Yes, to an extent but largely the world over, GDP has become a useful measure of economic growth and it is a highly dependent upon indicator of economic growth.
Indeed, several years back, the World Bank developed a “new wealth accounting system” because it was realised that GDP did not include the four kinds of assets in wealth calculation of nations - natural capital, produced assets, human resources and social capital - and therefore could not be the be-it –all indicator of economic growth.
So, yes, be calm. Figures alone should not move you to the point of despair. And indeed this submission is not in any way to try and prove that GDP is not a good indicator. No.
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It is rather the opposite; to make you understand that there may be flaws in economic data collection, processing and interpretation and yet there is always a baseline for analysis. And GDP is one of such baseline indicators.
Predicting human behaviour is always a complex science and as economists and other behavioural scientists try to do their best in anticipating human behaviour, in most cases they end up giving theories on what it ought to be, and not what it actually is!
The economic indicators are useful, and it is always good to look at the indications but since the real economics is what is played out on the street, your well analysed situation always gives you the best reference.
What is the use when the economy is doing so well and yet your bank account is not that good or there are more people committing suicide because of hardship? Ah…the economist will throw at you, at that point, the concept of wealth distribution!
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So the creation of wealth could be a problem, and so too is its distribution. Good or bad, there are opportunities that you could take advantage of.
(botabil@gmail.com)