Return to Money

Economic Health Quotient

It is generally understood that GDP is not a very good measure of the relative health or wealth of a country, as among the many items it does not take into account, unbelievably is debt, specifically national debt. But what is GDP?

Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a year, or other given period of time. GDP per capita is often considered an indicator of a country’s standard of living. The greatest strength of GDP as a measure is its general acceptance and the level to which it is understood.

 

Rank Country/Region GDP (Millions of US$)
 World 72,689,734
1  United States 16,244,600
2  China 8,358,400
3  Japan 5,960,180
4  Germany 3,425,956
5  France 2,611,221
6  United Kingdom 2,417,600
7  Brazil 2,254,109
8  Russia 2,029,812
9  Italy 2,013,392
10  India 1,875,213
11  Canada 1,821,445
12  Australia 1,564,419
13  Spain 1,322,126
14  Mexico 1,183,655
15  South Korea 1,129,598
16  Indonesia 878,043
17  Netherlands 800,535
18  Turkey 788,299
19  Saudi Arabia 711,050
20   Switzerland 631,183

Considering a country’s GDP per person, produces figures which differ greatly to looking simply at GDP.

Simply put, it’s the amount of money that is produced by a country. A value for what’s being done each day by everyone going to work.

It’s the sum of all the things that a country makes – whether it’s whisky, concrete, software or beef – which is added together with how much the service industry is worth, how much we pay our nurses and teachers, and how much our bankers are producing.

It is measured every three months and can go up or down depending on how busy the High Street is, how much is being exported, the strength of a currency, and global conditions.

If it goes up, the economy is growing, and if it goes down, the economy is shrinking.

One question arises from the above definition.

  • Nurses and teachers as public sector workers must be a financial liability, rather than an asset? This in no way undermines or undervalues their worth, but they are paid, as all public sector workers are through funding by debt, not as most people believe from taxation. In addition, the funding of public sector pension schemes (around £1.5tn unfunded liability) is a liability to the nation, not an asset.

 

Ranking Country 2012 GDP per head ($)
1 Luxembourg 89,417
2 Norway 66,135
3 Switzerland 53,641
4 United States 51,689
5 Australia 44,407
6 Austria 44,141
7 Ireland 43,803
8 Netherlands 43,348
9 Sweden 42,874
10 Denmark 42,787
11 Canada 42,114
12 Germany 41,923
13 Belgium 40,838
14 Scotland (Independent with oil) 39,642
15 Finland 39,160
16 Iceland 39,097
17 France 36,933
18 United Kingdom 35,671

 

How can we improve on GDP as a measure of a nation’s net worth?

It turns out that simply dividing a nation’s stated GDP by its stated national debt, actually yields some interesting results. A country’s national debt does not include such items as bailouts, personal debt (mortgages, loans, credit cards etc), business debts or unfunded liabilities.  Lets just simply call this figure the economic health quotient.

 

Country GDP        $bn National Debt $bn Economic Health
Quotient
Interest/yr $bn/Year Interest/s $/Second Population million Citizens Share Debt as % of GDP
Greece 250 470.0 0.53 38.3 1,216 11.1 42,363 188.00
Japan 5,950 10,000.0 0.60 129.2 4,097 127.7 78,272 168.07
Italy 211 289.0 0.73 135.7 4,303 60.8 47,476 136.97
Portugal 220 290.0 0.76 10.1 320 10.5 27,881 131.82
Singapore 275 316.0 0.87 6.7 211 5.4 59,166 114.91
Ireland 220 240.0 0.92 11.8 376 4.6 52,190 109.09
Belgium 520 550.0 0.95 16.1 512 11.2 48,832 105.77
USA 16,910 17,450.0 0.97 517.0 16,397 317.3 54,996 103.19
Spain 1,390 1,330.0 1.05 63.9 2,028 46.7 28,549 95.68
France 2,760 2,630.0 1.05 72.7 2,307 65.6 40,073 95.29
UK 2,340 2,040.0 1.15 61.3 1,945 54.2 31,799 87.18
Germany 3,690 2,940.0 1.26 69.8 2,212 81.8 35,934 79.67
Austria 420 330.0 1.27 8.2 259 8.4 39,199 78.57
Israel 240 180.0 1.33 8.2 259 7.7 23,855 75.00
Netherlands 820 610.0 1.34 15.1 478 16.8 36,363 74.39
Slovenia 48 31.0 1.55 1.5 47 2.1 14,878 64.58
Malaysia 250 160.0 1.56 5.9 186 29.7 5,443 64.00
China 8,250 5,020.0 1.64 174.7 5,539 1,355.0 3,708 60.85
Poland 530 310.0 1.71 15.2 482 38.5 8,060 58.49
Slovakia 98 57.0 1.72 2.7 85 5.4 10,586 58.16
Finland 260 150.0 1.73 3.6 114 5.4 26,867 57.69
Brazil 2,050 1,090.0 1.88 110.6 3,508 195.0 5,593 53.17
India 1,850 940.0 1.97 64.1 2,032 1,241.0 754 50.81
South Africa 320 160.0 2.00 11.0 350 50.5 3,223 50.00
Czech Republic 200 100.0 2.00 2.8 90 10.5 9,067 50.00
Denmark 340 160.0 2.13 3.8 119 5.6 28,287 47.06
Turkey 730 330.0 2.21 25.4 805 73.1 4,447 45.21
Lithuania 46 19 2.42 0.7 23 3.0 6,332 41.30
New Zealand 170 70.0 2.43 3.1 98 4.3 15,328 41.18
Thailand 320 130.0 2.46 5.0 150 69.4 1,852 40.63
Mexico 1,160 470.0 2.47 29.3 928 112.3 4,164 40.52
Sweden 570 230.0 2.48 5.8 183 9.6 24,438 40.35
Romania 189 75.0 2.52 4.4 139 20.0 3,748 39.68
Colombia 330 130.0 2.54 8.3 263 46.9 2,754 39.39
Canada 1,600 620.0 2.58 15.6 496 35.3 17,525 38.75
Latvia 31 12.00 2.62 2.0 5,754 38.22
South Korea 1,120 410.0 2.73 17.3 550 49.8 8,331 36.61
Pakistan 210 70.0 3.00 6.1 193 176.7 387 33.33
Norway 530 160.0 3.31 4.5 143 5.1 31,186 30.19
Luxembourg ($bn) 61 17.0 3.59 0.5 15 0.5 32,079 27.87
Indonesia 850 230.0 3.70 917 27.06
Australia 1,400 270.0 5.19 11.5 365 23.1 11,668 19.29
Bulgaria 55 10.0 5.50 0.4 13 7.3 1,330 18.18
Switzerland 670 120.0 5.58 1.7 54 8.0 14,540 17.91
Saudi Arabia 718 93.8 7.65 30.0 2,900 13.06
Estonia 25 3.0 8.33 0.7 2 1.3 1,898 12.00
Russia 2,015 203 9.93 13.4 424 143.3 1,415 10.07
Hong Kong 303 24.6 12.32 7.3 3,383 8.12

Clearly this is not all nations, but includes the major economic powers. A figure below 1 indicates a country who’s debt exceeds its GDP, anything above 1 indicates a country who’s debt is lower than its GDP. So Greece, Japan, Italy, Portugal, Singapore, Ireland, Belgium and the USA all have debts that exceed their GDP.

The really interesting country is Russia, in position 49 out of 50. Based on its figure of 9.93 its GDP is almost ten times its national debt. Also surprising (or maybe not) are the relatively low scores for China(1.64), Brazil(1.88). India(1.97) and Germany(1.26).

This may be a relatively crude measure, but then so is GDP alone.

If you add in the other debts, then obviously the picture becomes worse. Consider the UK.

GDP(£1.4tn)/national debt(£1.22tn) = 1.15

GDP(£1.4tn)/national debt + Bailouts(£2tn) = 0.7

GDP(£1.4tn)/national debt + Bailouts + Household Debt(£3.5tn) = 0.4

GDP(£1.4tn)/national debt + Bailouts + Household Debt + Business Debt(£7.5tn) = 0.18

GDP(£1.4tn)/national debt + Bailouts + Household Debt + Business Debt + Unfunded Liabilities*(£10.5tn) = 0.13

 

* Unfunded Liabilities include:

  • Pension Liabilities – £1.5tn
  • Public Sector pensions Liability – £1.5tn

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