One little letter means a lot
Gimme that old-time religion, the gospellers used to sing, and I want to testify. It occurred to me last week that I had been losing the faith.
The faith in GNP, that is. It had been quite a theological debate during the boom years; as to whether GNP (gross national product) or GDP (gross domestic product) was the better way to assess the Irish economy.
The disputations centred on public spending. When GDP was counted, Irish public spending looked relatively low in many areas. It therefore followed, said many, that spending could, and should, rise faster than GDP to catch up with other countries.
The counter argument, to which I subscribed, held that this was a dangerous illusion. GDP tries to measure the total production of goods and services; from a visit to the barber to the latest blockbuster drug from Big Pharma. But the effects of those two activities on national income (GNP) are very different.
Very little of the value of a haircut leaves the country - the shampoo might be imported - but most of the cost is labour, rent and so on, and the barber probably keeps his profit at home.
It is the other way round with pharmaceuticals produced by foreign companies. It seemed unwise, to say the least, to increase public pay and numbers on the basis of income belonging to Pfizer Inc.
We in the GNP Tendency had some success with the argument but not, alas, with policy. Public spending as a percentage of GNP rose to eurozone average levels, and beyond, even as the cries of deprivation and demands for more money continued.
The crash has made things worse. Since its peak in 2007, GDP has fallen by 16% in money terms, but GNP has shrunk by a calamitous 22%. The collapse is just as bad in what is often regarded as the best measure of the country's genuine annual earnings - gross national disposable income (GNDI).
The recent dramatic revisions by the Central Statistics Office to the estimate for output last year widened the gap still further. It now believes that GDP rose by 1.6% in nominal (money) terms, which is what is used to measure debt and deficits. So the national debt is put at 106.5% of GDP, rather than the 108% in earlier estimates.
One welcome effect of this revision, pointed out by NCB stockbrokers, is that it helps restore the reputation of the monthly Exchequer returns as an early guide to what is going on in the economy.
The 8% rise in tax revenues did not sit well with the first estimate of a 0.8% growth in GDP, but are more in line with the new figure. That is about all the consolation, though, for GNP fell again, down 2.4%.
So, while the debt ratio fell last year, as a percentage of GDP, it rose when set against GNP. In the past, the difference between the two was generally 20%. It is now 25%. Changing the figures by a quarter completely changes the picture.
I favoured the GNP measure when things were on the up, so consistency demands that we use it on the way down. Still, one must be grateful that the troika deals with the deficit of 9% of GDP, rather than basing its programme on 12% of GNP.
They are well aware of the distinction, of course, but are reluctant to mention it. Setting targets based on GNP could certainly frighten the horses, but the markets seem sanguine enough at the moment.
Just because the troika and the markets seem ready to base their actions on GDP does not mean that we should be content to use it as the sole measure for policy at home.