Why or Why Not Turning Points of a Global Recession Can Be Identified Using a Particular Level of Growth in Global GDP or Global GDP per Capita
GDP can be calculated either through the expenditure approach (the sum total of what everyone in an economy spent over a particular period) or the income approach (the total of what everyone earned). Both should produce the same result. A third method, the value-added approach, is used to calculate GDP by industry. Expenditure-based GDP produces both real (inflation-adjusted) and nominal values, while the calculation of income-based GDP is only carried out in nominal values. The expenditure approach is the more common one and is obtained by summing up total consumption, government spending, investment, and net exports.
It is also important to understand what GDP cannot tell us. GDP is not a measure of the overall standard of living or well-being of a country. Although changes in the output of goods and services per person (GDP per capita) are often used as a measure of whether the average citizen in a country is better or worse off, it does not capture things that may be deemed important to general well-being. So, for example, increased output may come at the cost of environmental damage or other external costs such as noise. Or it might involve the reduction of leisure time or the depletion of nonrenewable natural resources. The quality of life may also depend on the distribution of GDP among the residents of a country, not just the overall level. To try to account for such factors, the United Nations computes a Human Development Index, which ranks countries not only based on GDP per capita, but on other factors, such as life expectancy, literacy, and school enrollment. Other attempts have been made to account for some of the shortcomings of GDP, such as the Genuine Progress Indicator and the Gross National Happiness Index, but these too have their critics.
It is straightforward to compare material prosperity over time relative to all those goods which remained relatively unchanged over the course of history – economic historians can track the affordability of products like bread, shirt, beer, nails, meat, books or candles over time (Nicola Gennaioli,, 2013). This however is not easily possible when entirely new products were introduced or when the quality of products and services changed very much. The fact that some of the most important goods and services very much changed in quality or did not exist at all in the past represents the biggest problem of any long-term comparisons of poverty and prosperity because it makes price adjustments difficult. Many of the most valuable goods today were not available at all: no king or queen had access to antibiotics, they had no vaccines, no comfortable transport in trains or planes, and no electronic devices – no computer and no light at night. Historians of course attempt to take this into account as much as possible but this caveat should be kept in mind: no matter how high someone’s income might have been, some of the goods you might value the most – or would value, when you get sick – were not available at all (Feenstra, Robert C., Robert Inklaar, and Marcel P. Timmer. 2015).
Briefly, this slowdown is occurring alongside growing discontent with the social and environmental quality of economic growth, amid pervasive inequalities and the deepening climate crisis. Even as global trade tensions ease along some fronts, the potential for relapse is high, as important issues underlying these disputes have yet to be tackled in depth. Based on the assumption that potential setbacks will not materialize, a modest uptick in global growth to 2.5 per cent is forecast for 2020, though policy uncertainties will continue to weigh on investment plans.
Feenstra, Robert C., Robert Inklaar, and Marcel P. Timmer. 2015. “The Next Generation of the Penn World Table.” American Economic Review, 105 (10): 3150-82.
Nicola Gennaioli, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (2013) – Human Capital and Regional Development. In The Quarterly Journal of Economics (2013) 128
Broadberry, Stephen, Bruce Campbell, Alexander Klein, Mark Overton and Bas van Leeuwen (2015) – British Economic Growth 1270-1870. Cambridge: Cambridge University Press. https://doi.org/10.1017/CBO9781107707603 And of course their work in turn relies on hundreds of other people’s work.