A view of Greece from the Outside - Commentaries and Opinions
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Wednesday, January 15, 2014
What Is the Real Gross Domestic Product?
I have been wondering what it really means when one
states, as is often done, that Greece’s GDP collapsed by about 30% since the
crisis erupted. For sure, it means that today’s GDP is about 30% less than it
was back in 2009. But was 2009 a true reflection of the gross domestic product
of the Greek economy?
Think of a village. Not a poor village but neither a
particularly well-to-do village. One of the villagers hits the jackpot and gets
10 MEUR tax-free. Now he has to decide what to do with the money. Since he is
50 years old, he decides to spend all of it on consumption and enjoy the rest
of his life. In fact, he spends about 1 MEUR annually and that, of course,
allows him to lead a fantastic life. Life in the rest of the village improves a
lot, too, because much of that money is spent in the village. Put differently,
the village’s GDP explodes. Ten years later, the jackpot winner is 60 years old
and he has run out of money. Unless he finds another source of income, he has
to return to the living standard of 10 years earlier. And the rest of the
village? That depends on what they did with the money recycled by the jackpot
winner. If they spent it, too, they, too, will have to return to the living
standard of 10 years earlier.