Why You Can’t Use GDP To Determine If A Country Is Doing Well

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Whenever you see a discussion about which countries are doing well versus which countries are doing poorly, the discussion always descends into a conversation about GDP (gross domestic product). If a country has a high GDP, that’s good. If it has a high growth rate in GDP, that’s good too, and it must be doing the right things. If it has a low GDP growth rate as compared to other countries, that’s bad.

What if I told you that GDP is not a good metric to use to determine if a country is going well or poorly?

Because it isn’t.

I’m not saying it’s a useless figure; it can help us determine which country’s economies are growing or dying, but you should treat GDP as only one of many data points instead of the be-all, end-all it is always touted to be.

This is because of this one significant fact that everyone ignores: GDP includes government spending.

Take this example. You have a country whose GDP is X. Then that country elects a new leader who loves big government and government spending (like Donald Trump). This leader (or leaders) gets into power and immediately borrows trillions of dollars and spends that money on big-government bullshit (just like Trump did, as well as all US Presidents as well as most Western leaders over the past 30 years).

One year later, that country’s GDP is X + trillions in new government spending. So the new GDP is Y, which is much more than X, showing a 20% annual growth in GDP (or whatever)

Then everyone says, “Wow! That country over there is growing fast! They’re doing great! What a fantastic economy they must have!”

When, in fact, the economy didn’t grow at all. You simply saw a bunch of new economic activity because you had a bunch of big-government socialists, corporatists, or authoritarians in office who borrowed a bunch of money they didn’t have and spent it on a bunch of waste, fraud, and abuse. The actual private sector, i.e. the real economy, didn’t grow at all. There may have been a little growth there from private sector companies getting business because of the bullshit government growth, but that’s it.

Some people think that GDP is accurate because it only accounts for government spending from funds collected by taxpayers. This is incorrect. GDP covers all government spending, including spending from debt. This includes private spending too; GDP covers “real” spending as well as bullshit debt spending.

This makes GDP a horrible way to gauge if a country is truly doing well or not. GDP is a measurement of economic activity, not economic health or growth.

Some smartypants people out there will say that you should use GNP (gross national product) instead of GDP. Wrong, GNP also accounts for government spending. The same goes for GNI (gross national income). Google “GDP USA” then Google “GNP USA” and you’re going to get practically the same number even though the US government spends a mind-boggling $9 trillion a year (if you include all local, state, and federal government spending).

Why then do so many damn people love to use GDP as a measurement for economic growth or health? It’s because most humans think government growth is a good thing and is good for the economy. They’re wrong, but that’s what they think. If you said that you can’t use GDP because it accounts for government growth, most of these people would look at you like you’re crazy and say, “Well, yeah. Of course it does. So what?”

Both people on the left and the modern-day right think big government is just fine. As I’ve talked about before, when Donald Trump passed a $1.8 trillion government spending bill, did any of his supporters get upset? Nope.

John Maynard Keynes would be so pleased.

Another problem with looking at GDP is that sometimes you have unusual anomalies that account for a temporary spike in GDP growth.

Here’s what I mean. Here are the top ten fastest-growing countries in the world right now based purely on annual GDP growth:

  1. Macao – 27.7%
  2. Guyana – 26.6%
  3. Palau – 12.4%
  4. Niger – 11.1%
  5. Senegal – 8.8%
  6. Libya – 7.5%
  7. Rwanda – 7%
  8. Côte d’Ivoire – 6.6%
  9. Burkina Faso – 6.4%
  10. Benin – 6.3%

By looking at that, one might assume that Macao (which is a cool place I’ve been to many times) is the most awesome economy in the world and maybe you should go move there right now so you can strike it rich. Or at least go invest there.

Actually, no. The only reason for Macao’s huge GDP growth rate is that China has finally started to let people travel again, so all the money Macao lost due to the pandemic is flooding back in. They’re not experiencing any real net increase.

What about Guyana? It’s a little country in South America you’ve probably never heard of. Why are they kicking so much ass? Is it because they’ve become a well-run free-market society now? No. It’s only because they just found a mountain of oil there a few years ago so now a bunch of Western oil companies are coming in to take advantage of it. The core economy hasn’t changed at all.

In both cases, these are temporary anomalies, not actual growth countries. But you’d never know that based on the GDP figures.

The real growth is in most of those other countries listed above, all of which are in Africa except for Palau (a tiny, low-tax island nation in SE Asia). Those are the real growth countries. (I’ve talked about the slow rise of Africa many times.)

So the ideal way to determine if a country is a growth country or not is to only use GDP as one little data point among many while looking at these other, more important metrics:

  • Exports minus imports (High net exports, meaning a trade surplus, usually mean the private sector is probably doing well.)
  • Private Consumption Expenditure (How much money is the free marketing spending?)
  • What the government is doing (Are they moving in a more small-government, pro-market, pro-freedom direction? Or the opposite?)
  • Investment in physical capital (How much infrastructure, manufacturing, trade facilities, research facilities, etc is the country building?)
  • GDP per capita (This is a little better than just looking at GDP.)
  • Look for temporary growth anomalies (like Macao and Guyana)

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Question of The Week

Move Back To The USA After It Collapses?

T.P. Writes:

Your podcast last week on libertarianism was quite informative and enlightening—thank you for that. I also thoroughly enjoyed your series on developing a country from scratch. Should the USA ever disintegrate into multiple smaller nations, what criteria will guide your decision to relocate to one of these new countries? I gather that merely following El Salvador’s approach of incarcerating numerous criminals wouldn’t suffice for you, as mass incarceration doesn’t align well with libertarian principles.

You are technically correct in that cleaning up the streets of massive amounts of criminals isn’t exactly a libertarian thing to do, but I understand that in places as far gone as El Salvador was, sometimes massive correction is needed to “get back to zero” so to speak and get to something workable. In the case of the USA collapsing, which will occur in our lifetimes, there may or may not be mass violence that might require some little governments to crack down at least temporarily.

If this was the case, I wouldn’t even consider moving back to the post-USA until after all of that chaos and transition was over. When I said that I “could move back” if America balkanizes into several small nations, I didn’t mean that I would move back immediately. It would be 3-5 years before I would do something like that, at least, to ensure the painful transition period was over before I moved there. I don’t want to eat a cake before it’s baked.

After that, I would use the same metrics that I used to escape the Collapsing USA in 2021 when I moved to Dubai. These metrics differ from person to person, based on that person’s age, personality, and goals. A younger guy would, for example, look at things like how the women were and how awesome the beaches were, whereas someone who was 60 years old would instead consider things such as crime rates and quality of their medical facilities.

MY metrics would be (and still are) these, listed in order:

  1. Super low or zero taxes (personal, corporate, property, sales, etc)
  2. Easy residency
  3. Super low business regulations
  4. Low crime rates
  5. Generally happy people
  6. Easy international travel
  7. Nice, sunny weather that isn’t too hot for at least 6 months per year

These metrics reflect both my personal desires and the ideal metrics for a booming economy over the next 10-20 years. I like to live in countries that are really going places and get better every year, like my two homes of Dubai and Paraguay. Countries smart enough and brave enough (and there aren’t very many of these in the world) to keep taxes, regulations, and crime rates super low for a long time will absolutely boom economically. Always. It’s such an easy and reliable recipe for success yet nations never want to do this.

We need more countries like this in the world. Perhaps after the West collapses we’ll have more places like this.

Leave your comment below, but be sure to follow the Five Simple Rules.

  • Simon
    Posted at 04:25 pm, 27th March 2024

    Nice article Caleb around GDP, great work. Sorry if this comment is not super related to the article….

    Talking about residency flags, how’s the progress for obtaining the Uruguay one going? I watched several sources which claims you have spend many months there to get the permanent one. Please share if you have found a way to get around this, and it’s possible to get it, boots on the ground in far less time.


  • Caleb Jones
    Posted at 07:04 am, 28th March 2024

    I’m not trying to obtain residency in Uruguay for myself. I’m instead trying to develop a service where we can do it for others. It should be ready by August of this year. In terms of your question, permanent vs temporary residency is irrelevant. Watch this: https://www.youtube.com/watch?v=B4CwVPxpPwA

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