Shock as UK economy shrunk by 0.5% at end of 2010

• ONS blames wintry weather for most of the contraction
• Economists now fear 'stagflation'
• Pound and FTSE 100 fall
• George Osborne defends economic plan

Full story:

[www.guardian.co.uk]

I'm particularly stupid so can someone bright please explain something to me?

1. Does it matter if the GDP goes up or down? I can't say it's ever made any difference to my life, nor the lives of anyone I've ever met. But maybe someone on here can say if it has affected their life.

2. Is the measurement accurate? 0.5% doesn't sound like a lot to me.

3. What is GDP anyway? What difference does it make?

4. Why such an obsession with growth? How come sometimes they get upset because it's 'only grown' by a little amount, or less than was expected? Why can't things just stay the same? Why do we get unhappy if it doesn't constantly grow?

5. Is anybody outside the media and financial analysis actually bothered about any of this?

6. There's always a lot of talk about debt and deficit and cuts - but who are we in debt to? And how come they've got so much money to lend out? Would it be a problem if they just said, hey, don't worry about it?

7. And for that matter, what's the deal with interest rates and inflation and pretty much everything else? Couldn't we just live without all that stuff and let things take their natural course without getting all het up?

Smart people explain please.

minkturtle - it sounds like you're living in bliss - I hope no one spoils it for you by answering any of your questions - just be happy that you don't know: you really don't want to know - trust me!

Hal
Best answer you have ever given!!

I shall try and heed that advice if you don't think it's worth bothering with. Seems like I was in pretty much the same boat with the credit crunch and that all seems to have blown over without too much trouble.

Hmmmm, I recall someone predicting the self-destruction of our capitalist economy on another thread (within decades too)!




*chuckles quietly*

minkturtle - actually I don't think you sound stupid at all. These questions have probably occurred to most people at some point, and it's better that you ask the questions than pretend to know the answers.

Economic growth is important, as it is strongly correlated to employment rates.

We are in debt to whoever wants to lend us money (i.e. buy bonds)... governments, banks, hedge funds, private individuals, etc.

You're probably not alone in thinking that the credit crunch was a storm in a teacup, but there were heavy job losses - with many more to come.

> minkturtle - actually I don't think you sound
> stupid at all. These questions have probably
> occurred to most people at some point, and it's
> better that you ask the questions than pretend to
> know the answers.

I think that is one of your best posts to date Jeremy! I whole-heartedly agree. Except: where has anyone suggested that minkturtle sounds stupid?

Opening of minkturtle's first post... "I'm particularly stupid..."

Ooops...sorry Jeremy.



Edited 1 time(s). Last edit was 2011:01:27:21:55:48 by Ladymuck.

minkturtle Wrote:
-------------------------------------------------------
> I'm particularly stupid so can someone bright
> please explain something to me?
>
> 1. Does it matter if the GDP goes up or down? I
> can't say it's ever made any difference to my
> life, nor the lives of anyone I've ever met. But
> maybe someone on here can say if it has affected
> their life.

Not sure of your age minkturtle, but by my age many people have lost their job in a recession at least once, maybe more.
(But at least things are not as bad as in Spain, where the youth unemployment rate is more than 40%, and the overall unemployment rate is now over 20% - that's one in five.)

>
> 2. Is the measurement accurate? 0.5% doesn't sound
> like a lot to me.

0.5% of a very large number is a very large number.

>
> 3. What is GDP anyway? What difference does it
> make?

The value of all the goods and services we produce.

>
> 4. Why such an obsession with growth? How come
> sometimes they get upset because it's 'only grown'
> by a little amount, or less than was expected? Why
> can't things just stay the same? Why do we get
> unhappy if it doesn't constantly grow?
>

Why such an obsession with growth? Why indeed. Good question.

Some would argue that growth is essential in the Western capitalist system, where individuals, firms and governments borrow huge amounts of money, and then later need to pay back both interest and principal. Without growth, there would not be a way of paying that interest. So by spending today what we will only receive tomorrow, we are making a rod for our own backs. And we are slaves to the banks (or rather, those that borrow are) who make considerable sums by lending out money belonging to others, as well as money they've conjured out of thin air.

It has also been argued that once peak oil (and peak everything else) kicks in, growth will become difficult, and the economy will just bumble along roughly on a plateau, as resources factors limit growth each time we enter the start of a growth phase.

And I don't think that was the "no more boom and bust" that Gordon Brown was thinking of back in ?2006?


> 5. Is anybody outside the media and financial
> analysis actually bothered about any of this?
>

Yes.


> 6. There's always a lot of talk about debt and
> deficit and cuts - but who are we in debt to? And
> how come they've got so much money to lend out?
> Would it be a problem if they just said, hey,
> don't worry about it?
>

A nice little 3 minute tongue-in-cheek explanation:
[www.youtube.com]

The possibility of major nations defaulting on their debt has been mooted. What exactly would the Chinese etc. do if the US said ya-boo-sucks, for example? I suspect the whole system would fall like dominoes and we could forget those things we take for granted like food on the table, cash from the cash machine, and water from the tap. All deals would be off.

> 7. And for that matter, what's the deal with
> interest rates and inflation and pretty much
> everything else? Couldn't we just live without all
> that stuff and let things take their natural
> course without getting all het up?

You clearly don't have savings, a mortgage, a loan etc. etc., or live on a pension.
If you live in the here and now (no savings, no debt) with a guaranteed income from employment that keeps up (at least) with inflation, that's fine and dandy. But you'll still find your taxes going up to pay for the behaviour of others. (If GDP is flat-lining or going down, the government still has to get the money from somewhere to pay for services, pensions, benefits, bank rescues...and wars of course :-/ and all the money it has to borrow and the interest it has to pay)


>
> Smart people explain please.

I'm not smart but I hope I've addressed some of the questions in a useful way.

"> 2. Is the measurement accurate? 0.5% doesn't sound
> like a lot to me.

0.5% of a very large number is a very large number"

i dont quite go with this - a percentage is the exact instrument to move away from absolutes

you can argue that 10% of 1,000,000 is a large number but to the person earning, say, that 1,000,000 it's not actually that big a deal.

10% of 10,000 is a much smaller number but means a lot more to the person earning just that 10,000

Ladymuck Wrote:
-------------------------------------------------------
> Ooops...sorry Jeremy.


stoopid...

Thanks louisiana, that was an excellent post

Rub it in Mick Mac...

SeanMacGabhann Wrote:
-------------------------------------------------------
> "> 2. Is the measurement accurate? 0.5% doesn't
> sound
> > like a lot to me.
>
> 0.5% of a very large number is a very large
> number"
>
> i dont quite go with this - a percentage is the
> exact instrument to move away from absolutes
>
> you can argue that 10% of 1,000,000 is a large
> number but to the person earning, say, that
> 1,000,000 it's not actually that big a deal.
>
> 10% of 10,000 is a much smaller number but means a
> lot more to the person earning just that 10,000


Sean, we were discussing GDP, not any other number.

GDP is large both in my terms and in nation state terms. Even a banker might say the number is large.
0.5% of that is a not insignificant sum, whether you are comparing that to average earnings, banker bonuses or FTSE100 profits.

As a percentage it's also an important figure when comparing to (normal) trend direction and quantum. A big movement in the 'wrong' direction.

(That assumes accuracy: my experience of compiling govt survey stats is that there's quite a margin of error.)

As far as I can fathom it 0.5% of GDP is around £7.5 billion.


Unless of course someone insider 'fiscal-ist' has later and more accurate figures than the ones I have used.

So, a similar magnitude to the amounts the government injected into Lloyds or HBOS - i.e. it is significant.

Huguenot Wrote:
-------------------------------------------------------
> Thanks louisiana, that was an excellent post

I aim to please



Edited 1 time(s). Last edit was 2011:01:31:16:33:40 by louisiana.

"Without growth, there would not be a way of paying that interest."

I should of course also said that inflation will also reduce any amount owed in real terms. So in a way governments quite like inflation because they always owe money and inflation will reduce in real terms what they owe.

So growth and inflation are the sine qua non of government debt. Though governments will always deny liking inflation; just so they don't appear to be real bastards (anti-saver etc.)

So what you're saying is the whole thing's completely mad?

Quite.

And we ain't even got started on wage slavery (whoever convinced us *that* was a good idea?) or resource depletion...