Welcome to Eureka Street

back to site


It's time to ditch GDP

  • 23 September 2008

From any ethical perspective, the prime objective of economic theory, policy and practice needs to be the wellbeing of all individuals and households. That demands pursuance of 'the common good' whereby each and every person has the opportunity to achieve their potential. Recent decades have witnessed the ascendancy of the neo-liberal or neo-conservative economic philosophy. It emphasises paramount principles of unfettered free markets, supremacy of the individual, self interest and the profit motive to maximise the common good.

It is claimed this approach will maximise production of goods and services and maximise national wealth for the benefit of all, so that and even the most disadvantaged will enjoy the benefits that will 'trickle down'. This approach has been a major factor in spawning the current global financial crisis through the sub-prime debacle in the USA. A pure and unregulated profit motive driven by self-interest caused trillions of dollars to be loaned to often disadvantaged people who could not afford repayment.

Meanwhile, billion dollar corporations made huge profits, and their executives reaped multi-million dollar salaries and other rewards. Sensible and just regulation and oversight could have prevented this financial fiasco which should never have been permitted to develop. While the 'trickle down' of wealth proclaimed by neo-liberalism is highly debatable, the hardships and problems of sub-prime activities descend on the disadvantaged with the speed and finesse of a freight train. Hence hundreds of thousands of low income Americans have lost their homes, many more are on the way to losing them, and millions of lower income Americans have seen their most important single asset decimated.

Millions of would be retirees have seen their forthcoming pensions wiped out or reduced to future welfare dependent levels. Credit has been severely restricted, affecting the production and sale of a wide range of goods and services. This in turn will have a wide and serious impact on employment levels. Even in Australia there have been adverse impacts. Due to eagerness for short term profit and inadequately researched investment activities by some investment funds, hundreds of thousands of Australians face sharp declines in future superannuation benefits, particularly those on low incomes.

Some local councils in Australia have suffered losses from funds indirectly invested in the sub-prime debacle. In addition billions of dollars have been wiped off Australian share market values. This will cause financial institutions to demand the scaling down of existing company loans and strong restrictions on new loans,