The economic ‘circle dance’

Column box-John Mangun-Outside the Box

Economic data is one of the most counterfeit information you will ever receive. The gross domestic product (GDP) is supposed to be the value of all “production” in the economy—what is made and bought and everything in between. But here is what governments do.

I have not looked closely enough to see if this occurs in the Philippines, but it does in the US. The US federal government is the largest employer (2.86 million civilians) with state and local governments having another 19.8 million. The GDP counts what those 23 million earn and spend as part of the GDP. But it also counts “government spending” as part of the GDP. Therefore, the $100,000 salary of some bureaucrat in Washington D.C. shows up twice in the GDP numbers. This is only one example of the distortion of the data.

Unless you are Singapore that has an inventory of every tree on public lands, accurate number crunching is almost impossible. Geography and demographics play a considerable role. Russia covers 11 time zones and the flying time from St. Petersburg to Vladivostok takes half a day. Can India count all the production of its 1.4 billion people? Data is extrapolated like adding the “production” of a subsistence fisherman in Quezon province to the GDP.

However, it is the analysis and interpretation of the GDP data that is a “circle dance”—using the less vulgar term for what happens—by politicians, pundits, and pontificating economists. “A pompous, self-congratulatory group discussion between like-minded individuals that validates mutual biases.”

In truth, the GDP growth rate does not mean a damn thing. Even the total GDP means almost nothing. What comes close to an accurate reflection of economic output—and that requires accepting the GDP numbers as factual and estimating current population—is “GDP per capita (PPP based), the gross domestic product converted to international dollars using purchasing power parity rates and divided by total population.” What is the value of output, computed in US dollars (the standard currency of the world) with what you can buy factored in per person.

The per capita GDP in PPP for the Philippines was $8,983 in 2019. This fell to $8,017 in 2020 and rose to $8,365 in 2021. The projection from the International Monetary Fund for 2022 is $8,790. At least that takes us a little distance from “A million deaths is a statistic” to “A single death is a tragedy” understanding of what the GDP means.

Only the left/‘progressives’ offer a legitimate understanding about the economy that the “big numbers” do not mean much to the “little people” in the short term, and especially in a developing economy like the Philippines. Unfortunately, their solution is to put everyone in government Matrix-like pods with a feeding tube at the top and a waste disposal unit shoved up the bottom.

A successful economy must provide upward economic mobility that can only come from people growing their wealth from their excess production.

Modern Jewish folklore provides this example. A man buys grain and bakes two loaves of bread. He eats one and sells the other. He does this until he has accumulated enough wealth to bake three loaves to be able to now sell two. Economic freedom will eventually move him up the economic food chain as he works to the point of hiring others for his business.

I knew a young tricycle driver stationed at the palengke who, while the other drivers were gambling for centavos, went to all the carinderias and bars in the area, offering to buy and deliver their market fresh food needs for a small mark-up. This was more than 20 years ago long before Anthony Tan and Hooi Ling Tan ever conceived of Grab Holdings.

How do we provide this upward economic mobility? It starts with the lowest possible—if any—taxes for the lowest groups that are not able to save money. It continues with government banks providing the lowest cost loans possible as micro financing has successfully shown around the world. At the bottom of the checklist for every government-funded project: “How many private sector jobs will this create now and in the future?”

E-mail me at Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.


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