It is a marvelous measure of the wealth of bankers

GDP = private consumption + government spending + gross investment + (exports – imports)

The report predicts another six-percent growth in Haiti’s GDP for the current year. This rosy picture closely matches the forecasts for other developing nations of Latin America and the Caribbean, as well as countries in South Asia and Africa: especially those that have suffered wars and other disasters. Libya, for example, represents a smashing success, with a 2012 GDP increase of 108 percent. By contrast, the growths of Japan and other developed countries, as measured by their GDP, have stagnated at values below three percent and sometimes negative.

If you are shaking your head, thinking there must be a mistake in the World Bank’s computations, think again. They are quite correct. The problem lies, not in the calculations of GDP, but in their use to gauge economic growth and the assumption that a country’s GDP correlates with its standard of living, quality of life, and even happiness of its citizens. GDP may be calculated in at least three ways, and in every case it amounts to all the money that changes hands in an economy during one year. One common approach is to define GDP as being equal to: private consumption + government spending + gross investment + (exports – imports).

Inspect this simple mathematical expression for a moment, and you will see its implication: namely that, with the exception of imports, everything gets added to the GDP, and nothing ever gets subtracted: not even government debt! A country’s GDP should not be confused with its net worth, which is never reported. Notions such as the subtraction of red ink from black ink (or debit from credit) are not for the high-flying technocrats of the World Bank and International Monetary Fund (IMF), and certainly not for today’s heads of state who come from their ranks or follow their lead, but for pesky little people, like the world’s certified public accountants and small businessmen and women, who insist on their economy being grounded in reality. A country’s GDP merely measures the flow of money through its territory. So long as money changes hands in transactions that involve banks, the GDP rises. The IMF and World Bank should rightly be delighted with GDP growth. It is a marvelous measure of the wealth of bankers.

– Dady Chery, GDP Measures the Wealth of Bankers