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NZ's riposte to modern economic myths

  • 02 July 2019


New Zealand's decision to introduce Gross National Well Being (GNWB) in its annual budget is not only important because it represents a broader way of tracking what is actually happening in the country. It is a step towards unravelling the fundamental myth of modern economics: that financial transactions are real, and everything else is not. It also raises a vital question that will soon become the most important question facing modern society: what is money, and what should be its proper role?

The GNWB measure is being proposed as an alternative to Gross Domestic Product, or GDP. GDP is a measure of financial transactions; it only tracks the exchange of money. Its origins date back to the 17th century, but it was popularised by the economist John Maynard Keynes during World War II, when it was considered an important way to measure resources for the war effort (he thought it would be discarded after hostilities were over).

An increasing number of commentators are noting that GDP is an arbitrary 'jerry-rigged construction' but because it is comparatively easy to calculate, it has become the global measure of national wealth and, by implication, national economic health. That it is deceptive is hardly a new insight. Robert F Kennedy famously pointed out the absurdities, commenting that GNP (a similar metric) 'measures everything except that which is worthwhile'.

The basic problem is that money can be transacted for things that are bad — Kennedy's examples were air pollution, road deaths and cigarette advertising — but as long as more transactions occur, the illusion is created that the economy is growing, which is, ipso facto, good. Thus, Japan's GDP rose sharply after the tsunami disaster, the economy 'grew'. New Zealand's GNWB initiative is a welcome departure from that financial Matrix and will track better what is really happening in the country. It is to be hoped other nations follow suit.

The initiative is important for another reason. The most pernicious trick of mainstream economics is to put money first and everything else second. This is not just ethically dubious, it is a catastrophic logical error. Money is a tool, an instrument, created by human societies. It is not a force of nature that 'flows', or 'reaches equilibrium' or any other of the intellectual sleights of hand that economists use to make it appear as if they are studying natural forces.

As the scholar Mary Mellor has pointed out, neoliberal economics