The GDP is rigged?

Someone earlier asked me about the latest comment made by the Prime Minister.

Yesterday when the PM was asked about the growth numbers and financial positions, he replied:

“Regarding the numbers indicating our financial position, I realize many of these figures are false.”

I am sure Department of Statistics Malaysia (DOSM) and Bank Negara Malaysia (BNM) are losing their my mind now. As matter of fact, I think the central bank’s communication department is writing their reply at this moment (They are quite active lately).

Here is what I disagree with Tun M: No I do not think the numbers are rigged, since the methodology DOSM and BNM are compliance with international standards.

Here is what I “kinda” agree with Tun M: The national account is never a good proxy to measure the well being of a country.

Let’s have an overview of Malaysia’s growth last year. Our country’s economy grew to 5.9% on annual basis. Not only us, our neighboring countries including Singapore, Thailand and Indonesia were experiencing the same high growth as well. Thanks to exports.

Because it was driven by exports, you have the right to ask “Well, what does export have anything to do with me?”

The answer is: Depends, if you work for a manufacturing company that exports a lot of its products, there is a big chance you have a big bonus in the end of the year.

The national account (GDP) in my opinion, is never a good measurement, since it only calculates consumption, investment, government spending, and exports.

Did you know, that our spending on weapon system is also calculated into our national account? The best part is, it is calculated as asset. (Read part 3.3.2).

That is Malaysia. If you go to other countries, the UK included prostitution into their account, Italy included drug activity, and our neighbor Singapore included gambling into their national account as well.

I remember a couple of years ago, Ireland growth was up to 20%. Tax haven reasons.

So the debate is, why are we using GDP to calculate growth? If you are an economist, that goes back to your school of thought. John Maynard Keynes that every activities, legal or illegal should be calculated, to get the idea how demand works. My view is, the national account is just a report card that tells us what or how the country is doing. It is never a good proxy to measure the well being of a country.