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No growth? It’s both inflation AND population – apologies for not making this clear

Two days ago, I used the fact that our GDP/capita was stagnant to suggest that the Government’s claims that “Britain has the fastest growth of any developed economy” were total and utter bllx.

One reader disagreed with my argument and wrote “Our population growth rate is 0.6% per year. Our GDP growth rate is 2.9%”. The reader then triumphantly concluded “Article failure”.

Well, no actually. Not an “article failure” – just a little carelessness on my part for forgetting to mention that the GDP/capita figures were adjusted for inflation.

Let me explain. Say a country has an impressive GDP growth of 5% a year, but has an inflation level of 10%. Then, while the politicos will no doubt claim the country’s economy is “growing faster than any other country”, in fact, due to the level of inflation, the economy is actually shrinking in real terms and people are getting poorer.

This is what has been happening in Britain under the economic policies of the Coalition.

The chart below shows in green the GDP growth rate for each year under the Coalition and in red the rate of inflation for each year:

gdp vs inflation

As you’ll see, for 2010, 2011, 2012 and 2013, the rate of inflation has been higher than the rate of GDP growth. Therefore the economy has actually been shrinking in real terms. In 2014, the rate of GDP growth at 2.6% was higher than the rate of inflation of 2.3%, so there was real growth in GDP of 0.3%. Yippeee!!!

However, when you look at GDP/capita, you have to factor in an increasing population of about 0.6% to 0.7% a year. When you do this, then you arrive at the conclusion – although our GDP may look like it is growing, our real wealth – our GDP/capita – has fallen every year under the Coalition.

However, it is probable that in 2015, after the Coalition has been booted out by voters unable to understand why a country should only spend what it earns, that with falling inflation we will see both real GDP growth and real GDP/capita growth. But that depends on how much chaos the “tragic trio” of Miliband, Balls and Salmond manage to inflict on our fragile economy in the remaining eight months of the year.

So, I thank the reader for picking me up on my omission. But I stick with my original conclusion that the Government’s claim that “Britain has the fastest growth of any developed economy” while theoretically true, is actually completely misleading as it fails to take account of either inflation or population growth.

Furthermore, I stick with my original belief that inflation-adjusted GDP/capita is a much better measure of a country’s economic success than just GDP.

Meanwhile over at Oxfam…

Oxfam have just launched an urgent appeal for money to help provide clean water in the Republic of Congo. In their ad, Oxfam naturally fail to mention that the Republic of Congo already receives about $200m in aid each year and that the country’s rulers steal around $1.5bn each year from their country (figures from the OECD and the Global Financial Integrity project).

Moreover, Oxfam also fail to question how the Congo’s former ruler, Mobutu Sese Seko, managed to amass a fortune of around $5bn making our favourite multimillionaire politician Tony Blair look like a penniless pauper in comparison.

So, as I suggest in my YouTube video, the solution to Africa’s problems is not ever more of our money, it’s clamping down on corruption:

But that’s something the foreign aid gravy-train riders at Oxfam and other such charities would never admit.

3 comments to No growth? It’s both inflation AND population – apologies for not making this clear

  • MGJ

    I am not an economist (just like to make that clear!) but I believe GDP figures use a rather flaky concept known as an ‘Implied Deflater’ to supposedly reflect inflation.

    Don’t get me wrong – GDP figures seem to me to be riddled with fraud and inaccuracy and I broadly agree with you but I think there is some nominal attempt to account for inflation in the figures.

  • Ooops. I guess you’re right. However, the GDP price deflator tends to run at around 1% lower than the most accurate measure of inflation – RPI. So, the situation is not is not as bad as I suggest. In future, I’d better keep away from economics as I clearly understand very little, unlike the many economists who advise Governments leading to the worst recession in more than a century

  • ross

    High immigration increases GDP in the short to medium term as more people require more goods & services to meet their needs. This explains why politicians are so addicted to the idea of high immigration.

    It’s a ponzi scheme that they cannot escape as stopping it will cause the economy to crash.

    It will eventually crash anyway like an overcrowded bar that cannot extend its size & cannot make a profit unless it crams more & more customers into its premises each week. Eventually it hits a point at which its business model simply doesn’t work anymore and it crashes.

    The UK is like this, it will eventually reach a point where the welfare system, housing market & public services simply cannot function anymore

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