SOVIET Union dictator Joseph Stalin reportedly said, “The people who cast the votes decide nothing. The people who count the votes decide everything.” The same is true for economic data.
We believe that the economic numbers that are provided to us by the government are simple and straightforward. The government says the economy grew by 5.8 percent in 2015 from 2014, and we assume that means the total value of economic production was 5.8 percent higher this year than last.
Unfortunately, that is not the way it works. The real world is much more complicated.
Suppose you are holding a $20 note and a P100 bill. How much monetary value do you have to exchange for goods and services? Try explaining to the manager at the Jollibee restaurant that you have enough “money” to buy a bucket of Chicken Joy.
The Philippine government says the economic growth for 2015 was 5.8 percent, but it depends on how the economic “votes” are counted. The GDP can be calculated several ways; total value of production, total value of expenditures, and total income of employees and companies. Not as simple as counting the number of beers San Miguel Corp. produces each year, is it?
For example, if production goes higher, GDP goes up. But also if prices go higher, GDP also rises. There must also be a constant benchmark of measurement to compare countries.
The World Bank measures GDP in US dollars “converted from domestic currencies using single year official exchange rates.” For growth, the “annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on constant 2005 US dollars.”
Based on dollar value of the Philippine GDP, the growth rate between 2014 and 2015 was 5.8 percent. 2014 GDP was $284,777,093,019 and 2015 came in at $301,294,164,414—a 5.8-percent increase.
But the Philippine government said 2014 growth was 6.1 percent. However, the dollar-denominated growth was less at 4.7 percent—$284 billion against $271 billion. It works the other way, too. In 2012 the government said 6.7-percent growth; the value growth was 11.6 percent. For 2011, the difference was even greater—3.7 percent from the government; 12.3 percent in actual value.
Presidential spokesman Edwin Lacierda said the six-year moving average of real GDP growth of 6.2 percent is the highest in 38 years. That all depends on how you count it. From 2004 through 2009, the GDP value went 84 percent higher—$91 billion to $168 billion. The GDP value from 2010 through 2015 increased by 79 percent—$168 billion to $301 billion.
All this number crunching is not important, except, perhaps, as political propaganda. The economy is much more than just the bottles of beer produced, and how much we spend for it. It is also about the peso exchange rate, inflation, and how much everyone gets from the economic pie.
The per person GDP is up 56 percent in the last six years versus 80 percent in the previous six years. That is a much more important number.
Image credits: Jimbo Albano