GDP is widely regarded as the best measure of an economy’s output; GDP per capita being used when comparing between two nations. However, GDP does have flaws. Firstly GDP does not consider environmental implications of the output. No cost is put on the ecosystems destroyed or the toxic chemicals pumped into the atmosphere. These negative externalities should be accounted for as a negative implication on GDP.

 Secondly, in any economy there is a black economy; goods traded on this economy include illegal items and also items that have been bought without tax or duty being paid on them. The true value of the economy is not accounted for because government have no knowledge of the value of these goods.

Third and finally GDP does not measure the inequality of an economy, if GDP per capita is used as a measure we can often end up with skewed data because a small minority of super rich can mean data is misinterpreted. Therefore, existing measure like the Lorenz curve and GINI coefficient should be looked at so that an economy can be analysed and if there is disproportion of income it can be rectified.

A measure cannot be found to include all of these variables, therefore a solution would be to look at data in different areas and ultimately weigh up the good points and bad points of an economy. For example a country which has a high GDP but is suffering environmental impacts – Japan or China- could be assessed equally with a country which is showing huge levels of inequality. All economies will have a black economy and since this is common knowledge surely, we should be able to calculate at least an arbitrary value of these goods. So to conclude, although GDP is flawed no single measure can correct it. So ultimately the consequences of achieving high GDP must be looked at separately.

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Economics has and always will form the basis of a political debate. All political debates contain an element of economics whether it is fiscal policy or introducing quotas on export. Governments will consult economists for advice on potential policies however; the decision ultimately lies with the politicians in the houses of parliament.

Traditionally goods were priced in terms of another good and traded to equal value (barter) but over centuries people stopped trading chickens for goats and developed a monetary system where goods were assigned a set value in terms of a commodity, gold and silver commonly. But in some cultures like the Solomon Islands more available commodities were used – dolphin teeth- also Aztecs used chocolate. This means that when economics is at its simplest there is no escaping the political spectrum. When goods are traded internationally, politics cannot be ignored. Diplomatic relations between countries will determine whether trade can flow between countries so the two cannot be separate internationally. For example the price of oil which basically controls the price of all goods is fuelled higher by the small minority of countries with access to vast quantities, in the Middle East. Speculation and unpredictability of these nations causes oil prices to be extremely volatile.

Domestic economics is also impossible to separate from political spectrums. All decisions which effect domestic consumption are generally undertaken by politicians. Political movements can determine what is directly provided for the country. Otherwise the public will have to provide merit goods for themselves, however a rational consumer will not. Therefore as the government is an integral part of the economy as there spending provides stimulation of demand.

In addition to government spending, government revenue in the form of taxes are unavoidable, withdrawals from the economy in the form of taxes go to the government if it was to be separate government revenue would be null.

As for morality economics is all about give and take, some will be worse off with economic interference others will be better. For example the price if the price of pigs goes up consumers who wish to have pork will be worse off, however the farmers will be better off. An equitable society cannot exist therefore morality will always be separate from economics. Moral debates about the economy are frequent but ultimately, not everyone can be happy. So if the majority are satisfied the best result has been achieved. Although this may seem like a very utilitarian attitude, in reality it is the only moral code which economists can satisfy.Economists must believe ‘It is the greatest good to the greatest number of people which is the measure of right and wrong.’ – Jeremy Bentham.

Economics blog, for the macro half of Principles of Economics, at the University of Birmingham.

Let’s see where this takes us.