Yesterday I said I was not impressed with the fact that QE helped in sustaining GDP. Today I hope I can help you understand why. Here it goes: GDP is just a number. Somewhere back in the 1930’s somebody though it was a good idea to measure the wealth produced by a nation by measuring the aggregate production, expenditure or income. Nothing wrong with that of course, assuming every individual is working to satisfy their own needs (and before you mention, these needs can be altruistic). A slave working in a plantation is adding to the GDP but we can arguably say he is better off. But even voluntary work has its setbacks. Maybe the work is voluntary but somebody ended up paying the bill unwantedly.
We can gaze at the pyramids in wonder yes, but most of us are glad we did not have to build them. As far as we know the workers were paid, but somebody had to pay them and if that was achieved by taxation it means a multitude of individuals were hindered in their pursuit of their own happiness just so the pharaoh could have a safe journey to the after-life. In reality I cannot weight this august end against a multitude of others (although I have a strong opinion about it), but then again nobody can. To assume the fact GDP held off was good for the economy is assuming the “wealth” it measures is actually wealth.
Maybe, the Egyptians were proud of their pyramids and happy to finance the effort. The empire lasted for thousands of years (with a lot of turmoil in between) and even if the emblematic gigantic pyramids were the product of a short span of time (perhaps an indication things had gone too far?) a lot of smaller pyramids were built. So probably pyramid building was akin to a national pastime and not the best of examples. I don’t want to give the impression that, since I value the pyramid function as valueless, I believe the pyramids themselves were valueless for the ones who built them.
I’ll use one of my favorite examples instead: that of wise king Solomon. Never before nor again did the Kingdom of Israel reach such a territorial extent. Furthermore, it seems Solomon was a ladies man, and quite successful too. According to the Bible he had some 700 wives and 300 concubines making a fine consumption pushing those GDP figures rather extraordinarily. King Solomon is also universally known (and praised) for restoring the Temple yet, undoubtedly he feared what the idleness of excess capacity in the construction sector would do to his economy. He set to build a network of palaces to provide shelter for a) his enviable harem, b) the consequently numerous offspring and c) the necessarily large amount of eunuchs that reassured him of the legitimacy of the majority of that same offspring. It could be said that wise king Solomon built a cluster of activities that prevented aggregate demand from depressing the economy. He also engaged in multiple military operations to extend and defend his and his predecessors’ territorial gains. What else could the man do to fight depression and unemployment?
Some might call it a coincidence, but when old king Solomon died, the Northern Tribes refused to acknowledge his son Rehoboam as their ruler. This is a bit odd. His father was the wise King Solomon and his grandfather the heroic King David, why would they hold a grudge against him? They didn’t, they just feared he would continue to tax them heavily like his old man had been doing for so long. So they refused him and both Kingdoms, Israel and Judah, went separate ways.
I don’t mean to imply Solomon was not wise. He most likely was, as he managed to live in luxury for his entire life. But the country could not support such a lavish lifestyle even if GDP never looked better. Austerity necessarily followed and his poor son had so settle for just 18 wives and 60 concubines. I almost pity the poor old fellow.