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.

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.

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