Economic clichs and misconceptions – Daily Times

Gross Domestic Product (GDP) measures both the economys total income and the economys total expenditure on goods and services. GDP per person tells us the income and expenditure of the average person in the economy. In an age where a huge cause of social dislocation is inequality, GDP has nothing to say about distribution. A society comprising 100 people where5 out of 100 people have annual incomes of Rs50 million (510 million), 10 peoples annual income is Rs 1 million (10x Rs 100,000), and 85 people have annual income of Rs 1.7 million (85x Rs 20,000), the total GDP would be Rs10 million, and the average per capita income will be Rs53,000.Averages are misleading, as a rise in average GDP could actually be retrograde if it leaves 85 percent of people resentful at how the five percent is making good. GDP says nothing about the distribution of income.

This is the reason that economists are thinking beyond GDP. David Pilling, author of The Growth Delusion: Wealth, Poverty and the Well Being of the People in his recent article in Time stated: This year, New Zealand became the first nation to formally drop gross domestic product as its main measure of economic success. The government of Prime Minister Jacinda Ardern said that budget would aim not at maximising GDP but instead on maximising well-being.

The nexus between poverty and poor social indicators is quite obvious, as lack of access to education, primary health care, population welfare, and basic infrastructure limits the potential for gainful employment. In addition to lack of social justice, economic determinants vis--vis lack of infrastructure, inadequate savings and investment and burgeoning debt burden, whereby a considerable part of the budget is allocated for debt servicing, and inflation are some of the causes for abject poverty in the country.

There is a misconception that an increase in the GDP and consequently an increase in per capita income improves the lives of the people. Evidence suggests that the best of economic revival plans cannot succeed unless benefits of economic growth are fairly distributed among the factors of productions. In other words, only equitable economic growth can reduce the incidence of poverty. However, the challenge in Pakistan is enormous, and therefore, conscientious efforts have to be made to alleviate poverty and ensure a decent life to the people.

Lack of access to education, primary health care, population welfare, and basic infrastructure limits the potential for gainful employment

A major constraint in this regard is that distribution of economic and political power is not equal especially due to the feudal factor and mindset. Poverty is indeed the most serious challenge, as it is the basic reason for hunger, disease, ill health, extremism, crimes and other social malaises in a society. A common method used to measure poverty was based on incomes or consumption levels.

A person was considered poor if his consumption of calories level fell below 2,300 or income level fell below $1 or 1.25 per day. To confuse the issue, some economists relate it to deprivation of citizens who are denied political liberty and civil rights by authoritarian rulers. The World Bank, however, described poverty comprehensively in these words: Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not having access to school and not knowing how to read. Poverty is not having a job, is fear for the future, living one day at a time.

The problem is that the policies framed by economic managers are predicated on the assumption that if people on the higher social pyramid generate a lot of wealth, common people would automatically benefit from the trickle-down effect of economic growth.

But that never happens, and the result invariably is that the rich become richer and the poor poorer.

In Pakistan, it is difficult to have reliable statistics, and even if available they fail to capture multi-dimensional perspectives of poverty. Various governments in Pakistan took steps for encouraging investment for revival of economy with a view to generating job opportunities to provide gainful employment to the unemployed, and also to generate revenue to be able to invest in human resource development. But that could not help alleviate poverty as the targeted revenues could not be generated due to corruption, tax evasion and plundering of national resources. There is a perception that then informal economy is about 50 percent of the formal economy, and hence the loss of revenue to the extent of 50 percent of the revenue from the informal or unregistered economy.

There is another clich that the increase in the price of shares in bourses is an indicator of the good health of economy. Though ups and downs in the shares are hallmark of stock exchanges throughout the world but the share market of Pakistan is the most unpredictable and its mechanism incomprehensible with the result that steep rise and fall in price structure of scrips does not come within the ambit of logical reasoning. In fact, a few local manipulators working in tandem with global investors invest targeted shares to increase its price, and the result is a bull Run. Then they unload the shares and make good profit.

Since 1994 the plummeting of share prices after a years escalation of prices has become a regular feature. It is not difficult to conclude from the financial statements of the listed companies that the market value of the shares of many companies has no relevance to the book value or realistic value of the shares.

The writer is a freelance columnist

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Economic clichs and misconceptions - Daily Times

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