GDP

Dear 7.30.
The statements being made by politicians and commentators re the size and growth of the population/immigration intake are (deliberately) ignorant, seriously uninformed or deliberately politically biased. And the coverage of this issue by your program and ABC journalists more generally also lack quality research, lack of 'joining the dots', failure to question unfounded claims by the above and, in some cases, unquestioned acceptance and repeat of demonstrably untrue statements.
Please consider the following demonstrable facts and follow the inevitable conclusion.

Infrastructure, including, schools, hospitals, police stations, utilities for water and electricity, roads etc. do not last forever. It's estimated that across the broad sweep of all infrastructure, infrastructure has a life of ~50 years. Thus 2% of the total capital value of all infrastructure must be spent every year just to maintain but not to improve infrastructure for the existing population.

Recently, largely due to high immigration intakes, our population has been growing at 1.6% pa. Not long ago the rate was as high as 2%. But at 1.6% this means that 3.6% of the total capital value of all infrastructure must be spent each and every year just to maintain the level of service; that is an 80% increase in the cost of infrastructure just to maintain the same level of service.

This cost is not only ignored when it is claimed that high immigration is economically beneficial, the error is massively compounded and used to mislead by the way in which GDP is used as the criterion of economic benefit. The additional cost of the required 80% increase in infrastructure is added to GDP not subtracted. This is a function of the way GDP is calculated. It adds together all the dollars spent on goods and services whether the 'goods' are 'goods' or 'bads'. This money spent on expanding infrastructure cannot be spent on other things to improve real welfare for the existing population. Everyone seems to agree that the infrastructure required by the deliberately expanded population (through the Federal Government's immigration policy) should be built before the new intake arrives. Witness the very loud and universal applause on your QandA program when this point was made. Thus the burden falls on the existing population one way or another. If the infrastructure is not built before the new intake arrives, existing citizens suffer a decline in service, if it is built before the new intake arrives it is the existing citizens who pick up the cost. This is consistent with several Productivity Commission reports that it is not the existing population that benefits but the migrants.

Nor does the dishonesty over claimed economic benefits of high immigration stop there. As populations increase and cities expand most ordinary citizens bear increased costs: car maintenance, travel distances, petrol etc. These are real costs borne by these citizens but they add, yes add to GDP. It is this failure of GDP to measure, but to be used by many, including ABC journalists, to be a surrogate measure of quality of life that is used to mislead.

Another related matter poorly presented by the ABC. The Premier of S.A. is calling for an increase in migration to South Australia, again claiming economic benefit, yet at the same time hospital services have broken down badly: ambulances are banking up at emergency departments (ramping) and nurses and doctors are bitterly complaining about inadequate facilities to serve their patients. There are 4,794 public hospital beds in South Australia. If our population is to grow by 1.6% per year we would need an additional 77 beds this year and an exponentially increasing number in following years as populations became larger. Against this 77 extra beds the Marshall Government has pointed with some pride at reopening 20 beds in the old Repat Hospital. The hospital problem is clearly related to the issue of high population growth rate but journalists are not making the connection.

This is not in any way to blame migrants for these problems. It is the Federal Government that is responsible for the migration program, not the migrants. Nor is the above any reflection on the composition, religious background, sex or sexual orientation of migrants. This is simply about numbers and the failure of most media including the ABC and your program to do some simple maths and join the dots.
Yours sincerely,
John Coulter

You probably would have noticed the media attention given to the Australian economies historic 26 year reign of economic growth which has been claimed is breaking that held by the Netherlands. Apart from being incorrect, (The Netherlands’ real GDP declined by 0.3% in the June quarter of 2003, and by 0.01% in the September quarter of that year) that record should go to Japan. In fact, if Japanese GDP data were available on a quarterly basis earlier than 1960, it’s likely that this run of continuous economic growth would have been even longer, perhaps as long as 38 years, inferring from annual data available back to 1955. Not bad for a nation mocked for its decision to abandon population growth and actually reduce its population.

Our current reliance on GDP as an economic indicator harkens back to a war-time measure where it was considered necessary to measure production (of war material) in order to fight the war. After the war finished it seems logical to continue to use GDP in order to create the materials necessary to repair shattered infrastructure, a situation that is no longer logical when we should be caring for the economic casualties of this process.

The weakness of GDP as an indicator has been pointed out by many, none better than US senator Robert Kennedy who said "GDP measures everything but tells us nothing," and it certainly does not show growth was achieved or even if it was beneficial. Switching to non-sustainable resource dependency was certainly not to our long term benefit and while the total value of goods and services has increased due to population increases so has income inequality, poverty, homelessness, mortgage stress and many more unpleasantness including government corruption. Perhaps more importantly all this growth in GDP came at the expense of a government debt of $551b and a household of about $2t - the third highest in the world - leaving us vulnerable to a housing bubble implosion. Then there has also been a welter of public asset sales - now called recycling - often used for re-occurring expenses just to keep governments functioning. Many of these sales, like our gold reserves that were flogged off by Peter Costello or the GPO which went for a paltry $150m, indicate that we are not getting good value for our assets, despite the $3.5b that went to financial advisers in order to facilitate these sales.

Scarcely a recommendation for good governance.

The Group of 20 (G20) is meeting in Brisbane this week to discuss the global economy. William Bourke says we should focus less on the GDP and instead look at real progress indicators like high employment, a diverse economic base and sustainable resource management.

At the G20 Finance Ministers and Central Bank Governors meeting in February, Australia’s Treasurer Joe Hockey pleaded with participating nations to increase their aggregate Gross Domestic Product (GDP) by 2 per cent per annum. GDP growth will again top the billing at this week’s G20 Leaders' Summit in Brisbane.

But few if any commentators have paused to ask a simple question: What does GDP growth provide for ordinary citizens?

GDP is the primary indicator used by governments and media to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period. But there are serious problems with this indicator. GDP theory not only presumes an impossible world of unlimited resources – such as forests, oil, fish stocks, arable land and water – it counts many negative elements as positive contributions. For example, did you know that both cancer and a car crash can increase GDP? They both demand goods and services.

Another major weakness in GDP is that the depletion of our non-renewable environmental resources such as minerals and natural gas is counted as a positive, instead of a negative as is required in proper accounting standards (via depreciation).

It is also improper that the headline GDP figure does not account for population growth. If GDP grows at (say) .3 per cent in a quarter, but population growth is .5 per cent, we are going backwards on the GDP scale. During the GFC Australia had a per capita recession, with negative per capita GDP over two consecutive quarters. But only one or two economists mentioned this, and the myth still exists that Australia has had over 20 years of unbroken ‘growth’. Even today population growth is well over half the rate of aggregate GDP. At the very least we should be reporting GDP per capita.

The bottom line with Joe’s aggregate GDP growth obsession is that he’s forgotten to ask whether ordinary citizens are actually happier. GDP is a useful measure of economic activity, but it doesn’t measure human wellbeing or happiness, or equality.

In a step towards true social justice, we need to redefine ‘growth’ in our finite world. Not just for our sake, but for future generations. If we are to secure a prosperous economy, healthy environment and better quality of life, growth must focus on quality, not quantity. At present, who could argue that Australia’s economy, environment or quality of life are heading in the right direction? Under the current political duopoly, we're getting much bigger, without getting better.

Australia’s economic prosperity does not depend on the GDP statistic. In fact, GDP is a side-show. It would be more accurate to say that our economic prosperity is underpinned by three key pillars:

1. Investment in better education and skills training to improve job security, workforce participation and innovation

2. Encouragement of a diverse range of productive industries and

3. Maintenance of our natural economic advantage via careful management of food, water, energy and mineral resources.

This third point is often overlooked in economic terms, and like the others, is undermined by rapid population growth. Rapid population growth acts as a disincentive for local training and education, and skews scarce economic investment into relatively unproductive city-building assets, like high-rise apartments.

We should not obsess over Joe’s arbitrary GDP target. In fact we should ignore it and focus on genuine progress indicators. If we achieve high employment, a diverse economic base, and sustainable resource management, GDP will take care of itself. We can be better without getting bigger.

William Bourke is President of the federally registered Sustainable Population Party.

Simon Kuznets who, devised the GDP in the
early 1930's for US President Roosevelt for a
purpose almost entirely different to what it has
since been used for.

Bandicoot's otherwise excellent article What is Australia's population "carrying capacity"? suffers from one minor flaw. Of the Gross Domestic Product (GDP), which economists have insisted upon using to tell us how our prosperity has increased, Bandicoot writes:

Also, GDP per capita is a better measure of the economic well-being of a country than total GDP, as it takes into account population size – very populous countries may have very large overall GDP, but when divided by population size the resultant GDP per capita figure will give a much clearer indication of the country’s comparable wealth.

Of course it is plainly ridiculous to use Gross Domestic Product and not per capita GDP as a measure of prosperity, particularly, prosperity economists dishonestly claim to be the result of population growth.

The Australian Bureau of Statistics (ABS) graph at:

http://www.abs.gov.au/AUSSTATS/[email protected]/Lookup/1383.0.55.001Main+Features132009

... makes even per capita GDP figures, and not just Gross Domestic Product (GDP) figures, look good. According to this, per capita GDP "went up from $41,000 to $51,000 in real (chain volume) terms, an annual average increase of 2.2%."

So, either Bandicoot is wrong about population growth reducing per capita GDP (whilst allowing gross GDP to grow) or there is something badly flawed about the GDP, even when used on a per capita basis.

In fact, the GDP has been used and is being used by the ABS and most orthodox Australian economists in a way different from what its originator Simon Kuznets intended. In his very first report to the US Congress in 1934, he wrote:

...the welfare of a nation can, therefore, scarcely be inferred from a measure of national income...₁

One of the things wrong with the way that the GDP is used by the ABS and orthodox economists is that it doesn't accurately measure many increases in the cost of living. Many it ignores completely.

30 or 40 years ago one car per family would have been adequate. Today, the same family needs two or three cars in order to be able to travel around to all the places they could once get to in plenty of time in one car, on foot, on bicycle or on public transport.

So, a family which earns enough to buy two cars today looks substantially wealthier in per capita GDP terms than a family of 30 or 40 years ago who could afford only one car, but in real quality of life terms, I would argue that they are not and any family which could afford to buy one car, but which could not afford a second car, would, in real quality of life terms, be poorer.

Much car parking which used to be free is no longer so. Our local shopping mall charges a minimum of $1 for less than one hour's parking up to a maximum of $10 per day. Parking charges in CBDs of major cities such as Brisbane are vastly more extortionate, being of the order $50 in order to park your car just long enough to see a movie.

There are a large number of additional things on which people need to spend money, which they didn't have to 30 or 40 years ago.

The most obvious is shelter. Real housing costs, the massive increases of which have impoverished broad layers of previously prosperous Australians, cannot possibly have been accurately taken into account in the above GDP figures.

Those no longer able to afford secure shelter must also bear a range of costs caused by substandard accommodation or frequent changes of abode, which I doubt that economist/propagandists take into account: time and money spent searching for new accommodation, time and money spent changing residence, rent or bond money that one is often forced to forego as a result of residence change, loss of possessions that can't be fitted into or transported to a new residence, having to secure your possessions against incompatible people you may have to share a roof with.

How much more income is consumed in buying alarms, stronger padlocks, deadlocks, etc? How much more needs to be spent on insurance of household items against theft?

How about mobile phones and the Internet? Whilst I think these are good things on the whole, it is not good that so many must have these things and pay for them in order to go about life and work.

I think that if all the increases in costs of living, including costs that we didn't have to meet in the past, and all the losses in quality of life were taken into account by the GDP, I think it would show a massive decline in average income instead of the claimed $10,000 annual increase, and that is not even taking into account our non-renewable natural capital, which is being destroyed at an increased rate.

So, it appears that even the per-capita GDP figures are being fraudulently used to cover up a massive decline in our standard of living caused by our politicians in the service of Australia's wealthy elite. This fraud must be brought to the attention of ordinary Australians. Any economist or any other public figure who uses this fraud to justify they way they are running the country must be judged accordingly.

See also: Living standards and our material prosperity of 6 Sep 07 and comments, What is Australia's population "carrying capacity"? of 31 Dec 10.

Footnotes

1. back I first learnt of this, from memory, on page 6 of Australian author Geoff Davies' Economia, published in 2003.

The population of Australia is now over 22.5 million and increasing rapidly, currently at a rate of 1.7% increase per year. Despite the deceptively small number, it still means a doubling of population every 41 years, and the subsequent increases of food, water, infrastructure, environmental degradation and housing. Opinions differ, but economic and politics demand ongoing and maximum population growth for their own agendas.

What the experts say – Tim Flannery

Professor Tim Flannery, Australian of the Year 2007, calculated a long-term carrying capacity of between 8 million and 12 million. We had that population in 1950 and 1968 respectively, not so long ago. The population is now over 22.5 million and increasing rapidly, currently at a rate of 1.7% increase per year.

Despite the deceptively small number, it still means a doubling of population every 41 years, and the subsequent increases of food, water, infrastructure, environmental degradation and housing.

Human, social and economic systems must remain within the carrying capacity of Planet Earth. Carrying capacity is defined here as the maximum number of human population that can be supported by a particular ecosystem or eco-region or physical landscape on a continued basis without irreversibly degrading the health and ecological processes.

His report, Tim Flannery - Biological considerations in determining an optimum human population for Australia
Our diversity of species in Australia is extremely high, with slow growing and reproducing plants and a very small number of warm-blooded carnivores, with a correspondingly minutely adjusted ecosystem incorporating highly specialised characteristics and co-operative behaviours. We do not have the mountainous and fertile soils with predictable seasonal patterns of Europe.

On the contrary, Southeast Asia has very productive soils, plentiful rainfall and plenty of sunshine, with a large ability to provide food for cheap. Australia has the oldest soils on the planet - very depleted, dependent on fertilisers, plentiful sun shine, but rainfall is the limiting factor.

The world ability to supply food for a growing population depends on the population carrying capacity. The population carrying capacity depends on the soil quality and the level of technology applied.

Australia's unique landscape and environment
With Australia's population projected (boosted) to reach 35 million by 2049, critics continue to express concern about the pressure this growth will place on resources.

Humans are large warm-blooded omnivores. They have high energy demands. This makes them potentially vulnerable in Australian environments. Human populations in Australia have always been small and dispersed, being an order of magnitude or more smaller than the average density found on other continents (Birdsell 1953).

Virtually all hunter-gatherer societies seem to possess a 'golden rule' of population. This is, that in "normal" times, the human population of a given area rarely exceeds 20-30% of the carrying capacity of the land. (Sahlins 1968).

Surely, Flannery states, It would appear to make good sense to observe the 'golden rule' of population in determining Australia's 'carrying capacity'.

1994 Australian Parliament House of Representatives Standing Committee

In late 1994 The Australian Parliament House of Representatives Standing Committee on Long Term Strategies delivered a report entitled Australia's Population 'Carrying Capacity'. One Nation—Two Ecologies. This report argued that Australia should adopt a population policy.

Obviously, it's worrying that the population trajectory has most likely already exceed the long-term carrying capacity.

Australian Academy of Sciences Symposium:

In 1994, Australian Academy of Sciences held the Symposium, "Population 2040: Australia's choice". The joint statement said:
the quality of all aspects of our children's lives will be maximised if the population of Australia by the mid-21st Century is kept to the low, stable end of the achievable range, i.e. to approximately 23 million.

Australia's land mass, though large, is less rich than other continents in many biologically important elements. As a consequence, its ecosystems are relatively fragile, and human impact on the environment is particularly severe. This impact has been documented even for the relatively sparse, low-consumption Aboriginal societies. The impact of modern Australian society is much more severe.

Stable Population Party of Australia

The Stable Population Party of Australia is advocating a stable population at 23 million in line with the Australian Academy of Science findings. To obtain this option we would need to have zero net migration and phase out the baby bonus.

MP Kelvin Thomson

Kelvin Thomson's 14 Point Plan for Population Reform aims to set out the reasons why I believe the world’s projected population levels are too high and unsustainable – global warming, food crisis, water shortages, housing affordability, overcrowded cities, transport congestion, fisheries collapse, species extinctions, increasing prices, waste, war and terrorism.

We are already in “ecological overshoot”. Land size does not equate to carrying capacity. Our lifestyles, for the most, are spiraling downhill due to the stress of population growth and the associated costs and loss of social capital. Once ecosystems melt down, they are gone. It doesn't depend on what we want, but how many people our land can realistically and desirably support. Big is not necessarily better.

Treasury 2010 Intergenerational Report

According to the Treasury 2010 Intergenerational Report, the best way to respond to the economic and fiscal pressures of an ageing population is to support strong, sustainable economic growth. Economic growth will be supported by sound policies that support productivity, participation and population — the '3Ps'.

They assume that if Australia's productivity growth could be increased above the long-run average, the economy would be bigger, living standards would be higher and fiscal pressure from the ageing of the population would be reduced. If, for example, annual productivity growth was to average 2 per cent over the next 40 years, then:

• annual real GDP growth would average over 3 per cent over the next 40 years and the economy would be $570 billion bigger in 2049?50; and
• real GDP per capita in 2049?50 would be 15 per cent (or around $16,000) higher.

It assumes that the main purpose of the economy is to GROW, even to our own detriment. Costs of economic growth include increased pressure on social relationships and environmental degradation, whilst non-welfare issues include distribution, poverty and intergenerational equity. Also, GDP per capita is a better measure of the economic well-being of a country than total GDP, as it takes into account population size – very populous countries may have very large overall GDP, but when divided by population size the resultant GDP per capita figure will give a much clearer indication of the country’s comparable wealth.

The same baseless argument of "keep the economy growing" is being proved as a sham. As for a worry of populations going down, why is this a bad thing? While GDP overall may decrease, GDP per person (or GDP per capita) will certainly increase. Higher populations don't create wealth, it just redistributes. Production is the engine room of economic growth!

So as populations go down, the average citizen is better off. Only people reliant on growing markets ie, CEO's, politicians, producers of consumer goods etc would be worse off.

Japan is presented as a "loser" in the population stakes, where India is "the big winner". Makes you wonder about the value of winning that particular economic growth race!

Tony Burke Minister for Population

The nation's first Population Minister, Tony Burke, ruled out setting population targets in the strategy that he will draw up over the next 12 months. He ruled out a model that could take into account lour “chronic” labour shortages, with any precision. With a growing population happening "no matter what", the federal government would not focus on an arbitrary population target. His recent “report” is a sham. Our population growth is not arbitrary or inevitable, but manipulated by political decision. What about shortages in water, energy, food, land and funds for education and training?

Tony Burke needs to take a holistic viewpoint, and not just base his assumptions on limitless growth. 

Global threats
We are not the only country in the world that has raised the population question. Global population is an increasing threat, and once natural resources and amenities outstrip supply, we could be facing famine, lack of potable water, pollution of oceans and waterways, and environmental degradation - leading to further decline of species, and extinctions. Afghanistan, Bangladesh and Pakistan are other Asian countries that are facing food security problem due to limited arable land to support the ever increasing population.

Evolutionary Trait to expand
An evolutionary trait of species is to consume and increase numbers and overtake the territories and resources of other species is very well developed in humans. Once populations tip over a level that supports an economy of scale, the downside could be disastrous.  As species capable of a moral and spiritual dimensions, can we justify the mass extinctions of other species on the planet, for our own expansion? Each species lost means a decline in the health and robustness of our ecologies.

As Dr. Paul Ehrlich said, All causes are lost causes without limiting human population.

Birdsell, J.B. (1953). Some environmental and cultural factors influencing the structure of Australian Aboriginal populations. American Naturalist 87:171-207.

Sahlins, M. (1968). Notes on the original affluent society. Pp 85-89 In Man the Hunter. R.B. Lee & I DeVore (eds). Aldine Publishing Company, Chicago.