Behold the Celtic Tiger! Ireland’s economy grew by a whopping 26.3 per cent last year according to the country’s official stats office, which put out revised numbers yesterday – that’s over 11 times as much as the UK, and more than three times faster than India’s widely-celebrated economic expansion. Incredible, eh?
There’s a reason why the figures are incredible, of course – it’s because they are completely absurd. Yesterday’s revision triggered mockery rather than envy, such is the ridiculous nature of the supposed jump in Ireland’s economic fortunes.
The Central Statistics Office originally estimated growth at a still-impressive 7.8 per cent. The extraordinary jump to 26.3 per cent is primarily due to “an increase in the number of new aircraft imports into Ireland for international leasing activities”, the CSO said, and “corporate restructuring” of balance sheets by international companies looking to minimise their taxes. We are told that statisticians have suddenly noticed that these two factors drove Ireland to an historic and previously unobserved super-boom.
The claim was fuel to the fire for some economists who have long criticised the use of GDP calculations to measure growth. When looking at Ireland, financial analysts often prefer to observe gross national product – but even that was revised up by a jaw-dropping degree, from 6.8 per cent to 17.5 per cent.
So how much attention should we pay to official formulae such as GDP and GNP? Critics point to many problems. Some say that GDP perpetuates the so-called “broken window fallacy”, ie. The claim that destroying wealth and then using up resources to rebuild it, somehow leaves us better off (note: it doesn’t). Others point to GDP’s failure to record unofficial economic activity, such as that which occurs within families and is not salaried. And in her book “GDP: A Brief but Affectionate History”, economist Diane Coyle argues that GDP encourages profligate government spending.
Measuring human endeavour is extremely difficult, as is recording our progress. Today’s smartphones are far superior to those of 10 years ago, for example. Twenty years ago they didn’t exist at all. The same goes for cars, restaurants, and numerous products and services. How do we measure the affordable, at-your-fingertips mobile access to news, music, films, communication with friends, and so on, that has radically reformed modern life? Shouldn’t these advances show up in measures of wealth? And what about enormous leaps in the affordability of crucial goods – why don’t these factors show up in GDP?
The answer is that GDP is not, and cannot be, a comprehensive measure of growth, wealth, and wellbeing – indeed, it does not claim to be. It is simply one attempt to reflect growth, or contraction, by observing some of the factors behind the economy’s many ebbs and flows.