GDP is not outdated; our EU policies and management systems are!

Recently, there has been an increasing trend to criticise the methods used to measure economic wealth, with some asserting that GDP is outdated or unreliable. Several non-economists, and even some other professional experts who are not into the subject, discuss this topic with confidence, often without a comprehensive understanding of the topic. Certainly, that’s when trouble starts brewing, because people on social media start interpreting nonfactual narratives by blindly following what other are saying.

Indeed, GDP quantifies the total value of all goods and services produced within a country over a specified period, typically a quarter or a year. Organisations such as Moody’s, Fitch, S&P, and DBRS utilise GDP to evaluate a country’s financial health. The European Commission also relies on GDP to determine whether member states comply with regulations such as the six-pack, two-pack rules of the governance of the euro, and the Maastricht criteria. For instance, the debt-to-GDP ratio should not exceed 60%, and the deficit-to-GDP ratio should remain at or below 3%. These benchmarks are the primary standards for assessing a country’s economic and financial trajectory. Although supplementary reviews and recommendations exist, GDP remains the principal metric. Hence, it is essential to approach discussions on this topic with caution, particularly for those without an economics background. GDP constitutes the foundational calculation, while other metrics provide additional context. As long as credit rating agencies and the European Commission maintain GDP as the primary standard, it will remain indispensable. Joseph Stiglitz indeed argues that GDP fails to capture environmental sustainability, inequality, and social well‑being. However, we have known this for quite a long time now. And that’s why we introduced stricter criteria on ESG and income inequality metrics to capture these factors, both for sustainability and fair income redistribution.

As I explained, GDP does not measure environmental health, happiness, or overall well-being, nor is it intended to. It also does not account for resource depletion, land overuse, or carbon emissions. Alternative tools, such as metrics established by the European Commission, the Paris Climate Agreement, and PCAF Standards, address these aspects. Indices within the OECD framework assess health and happiness by examining quality of life rather than solely economic growth. This framework considers factors such as housing affordability, income, job security, environmental sustainability, air quality, and life expectancy. Many of these improvements are contingent upon economic growth, as measured by GDP. Without economic growth, governments are unable to provide essential services such as free childcare, improved healthcare, or expanded public parks. A decline in GDP also reduces employment opportunities. So, we need to understand the yielding benefits of economic growth before even considering the other metrics proposed by non-economists in their journey to exploit populist narratives.

The United Nations Human Development Index (HDI) also measures progress, emphasising human development rather than economic performance alone. The HDI evaluates life expectancy, years of schooling, and Gross National Income per capita. In contrast, the OECD framework includes some non-EU countries with comparatively weaker regulatory systems. Generally, EU member states have more robust legislation on environmental protection, food safety, and other areas covered by the OECD. The United Nations Sustainable Development Goals and related metrics were established to inform policies that promote both economic growth and equitable distribution. As previously noted, advancements in education, healthcare, and life expectancy are not possible without sustained economic growth.

Malta’s universal healthcare and free medication, especially for those with chronic illnesses or non-communicable diseases, alongside its cradle-to-university free education and student stipends, are rare achievements. That is why it is puzzling to hear claims that GDP is the wrong yardstick. Well, GDP should remain the primary measure, supported by other indices, such as those in Malta Vision 2050. We should be careful with public statements. Just as I would not try to interpret a cardiologist’s results or choose my own treatment without training, people on social media should perhaps stay away from commenting on GDP without a fundamental understanding. I also wonder why some in the PL find it hard to manage expectations on this topic. And they keep accepting TV interviews to discuss the economy, while being clueless about the theory, which in turn leads them to interpret economic matters differently.

It is particularly concerning when individuals, including lawyers, comment on economic matters in the media while they join a chorus of uninformed critics on the benefits of GDP growth. Surely, I would not attempt to discuss criminal law, as I lack the necessary training and expertise. And it is the same with economics. Genuinely, I encourage legal professionals to refrain from making economic arguments outside their area of specialisation, if they do not understand the very basics. They are just fuelling populism. Economists often find such discussions challenging to engage with. The prime minister is an exception, given his substantial background in commercial law, but few lawyers possess comparable expertise. And that’s why he became prime minster due to these distinctive traits.

Sincerely, I encourage individuals to approach economic discussions with humility and careful consideration, particularly if economics is not their area of expertise. The discipline requires extensive study of differential equations, equilibria, and stochastic calculus. While all are entitled to express opinions, these should be informed by a solid understanding of the subject. In an environment where information is often consumed superficially through social media, it is crucial to avoid perpetuating misconceptions about economics. For instance, research on resource depletion employing frameworks such as doughnut economics would provide valuable insights into societal limits. And this could perhaps help us in choosing our own paths. However, before asserting that GDP is outdated, it is essential to ensure a comprehensive understanding of the topic. And even if we scrap GDP as the standard metric, it will never resolve our planning and environmental management problems, which is, yet again, distinct from growth itself.

Besides, I acknowledge the shortage of affordable housing due to continuous price increase, and advocate for completing pending projects and double investment to provide additional units. Two weeks ago, I addressed this issue in greater detail in my opinion piece, Providing a model for affordable housing. I encourage readers to consult this work and to engage in public discourse with humility. No offence is intended.