The fairy tale of GNP per capita

Powerful economic propaganda makes innocent students believe in absolutely incredible myths about how economy works

Dr Asad Zaman April 30, 2016
The writer is vice-chancellor of the Pakistan Institute of Development Economics. He holds a PhD in Economics from Stanford University

Even though economists often deny it, modern economics is founded upon the trickle-down theory, which states that enriching the wealthy will bring prosperity for all. The central role of GNP per capita as a measure of growth implicitly assumes a trickle-down effect. The ‘per capita’ means that this statistic is calculated by dividing the total national income produced equally among all the people in the country. In cruel contrast to this fairy tale, the division of GNP is highly unequal, and the greatest proportion goes to the already wealthy. Recent Oxfam statistics show that the bottom half of the world lost a trillion dollars, while the top 62 people, who own more than half the planetary wealth, gained half a trillion. These statistics furnish strong evidence for a vacuum cleaner effect: a powerful suction of wealth from the bottom to the top.

The famous economist Joan Robinson said that “The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” In the battle of ideas, achieving widespread acceptance of the idea that GNP per capita is the main measure of economic progress is a deception of central importance to the wealthy. This manoeuvre has successfully displaced economic goals of central importance to the bottom 90 per cent. Economic textbooks do not mention provision of good jobs for all, health care, basic needs; instead they argue that increasing the GNP will automatically provide best outcomes for all, via the trickle-down effect.

Powerful economic propaganda makes innocent students believe in absolutely incredible myths about how the economy works. Me and my fellow students in our PhD Economics class started out as idealists, who desired to solve economic problems facing the world. During the course of our studies, we were taught to believe that free markets solve all economic problems automatically. If everyone would pursue self-interests, it would automatically lead to the best economic outcomes for all. The ideals of serving humanity were washed out of us, and replaced by the pursuit of personal ambitions. Julie Nelson has beautifully captured this brainwashing process in a paper entitled “Poisoning the Well: How Economic Theory Damages the Moral Imagination”. She states people would act in socially responsible ways, but are pushed by the economic theory of self-interested utility maximisation to be irresponsible, opportunistic, and selfish. She describes the large number of ways that economic theory counters natural moral instincts, and the tremendous harm that has resulted to societies as a result of this immorality taught by economics.

Every effort is made to ensure that economics students focus on total wealth, and not on its distribution, so that the rapid and increasing income inequality, and the vacuum cleaner effect created by the blind pursuit of growth, does not come to their attention. For example, Nobel Laureate Robert Lucas writes that: “of the tendencies that are harmful to sound economics, the most seductive, and in my opinion, the most poisonous, is to focus on questions of distribution.” Economics courses often teach deliberately deceptive myths about poverty, inequality, and income distribution: inequality does not matter, and the best way to combat poverty is through economic growth. The use of the GNP per capita measure helps sustain these myths. The rapid transfer of trillions of dollars from the bottom billion to the top 100 people will not show up in the GNP per capita statistics, which measure wealth as if it is equally divided among all. The GNP propaganda has been successful in hiding the cruel realities of an extremely unjust economic system. Some of these came to light almost by accident, when researchers stumbled upon a startling statistic: the death rates among white middle aged Americans have increased dramatically over the past fifteen years. The apparent cause is “No Money, No Honey, No Church” — economic insecurity, dissolution of marriages and social networks, and loss of meaning and purpose in life. These are reflected in increased suicides, as well as alcohol and drug abuse. These facts contradict one of the central assumptions of economic theory that increasing wealth will automatically create prosperity and well-being for all.

It would be a critical victory for the bottom billions if we could shift the focus of the debate from GNP per capita to measures of poverty, education and health. Before the well was poisoned by economic theories, it was clearly understood by all that it is our collective social responsibility to provide for education, health, jobs and social welfare needs of all members of society. If these statistics made the headlines, and governments were held responsible for improvements in the incomes earned by the bottom 25 per cent, instead of the top one per cent, there would be a significant change in policies. Some awareness of these deficiencies of GNP per capita has been created by the Stiglitz-Sen-Fitoussi report, authored by two Nobel Laureates. Unfortunately, while the gears of the statistical machinery are well-adapted to measuring GNP per capita, they have not been designed to measure the things which matter. One can only get shoddy and incomplete data on measures of inequality, unemployment, education and health which are of critical importance in assessing the welfare of nation.

All statistics are political. It is not an accident that the statistics do not display the realities which would lead to revolt against the exceedingly unfair system. Inequality, misery, and poverty are actually beneficial to the top one per cent, who have learned to enjoy the benefits of creating crises which leave millions homeless while they reap trillions from the catastrophe. Creating the consensus necessary to implement these cruel policies requires projecting certain types of statistics while hiding others from common view. A display of the statistics related to social welfare of the public would be remarkably useful in the battle for justice. But it is hard to prevail against the status quo and ignorance, especially in face of an active opposition which successfully utilises misleading and deceptive statistics to shape public opinion.

Published in The Express Tribune, May 1st, 2016.

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Feroz | 5 years ago | Reply Nobel laureate Amartya Sen was one of the few economists who believed it was the responsibility of the State to ensure that education, health, housing and eradication of poverty were basic goals. The nation whatever its income had to provide these basics to its people before it chased taller economic goals and growth.
Rahul | 5 years ago | Reply These ideas are by no means settled theories. Plenty of socialist utopias proved unsustainable and collapsed. Some utopia's like the communist ones are really dictatorships in disguise. Capitalism has its problems but the alternatives have all proved to be far worse.
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