The Tribune

By NICOLE BURROWS

IN a May 12 Nassau Guardian article, several quotes about the economic impact of Junkanoo Carnival in The Bahamas are attributed to Paul Major. This overall economic impact is to be measured by what is being referred to as the Gross Domestic Product (GDP) impact of the festival on the Bahamian economy.

Major’s quotes were obtained in an interview he gave on a popular Guardian Radio talk show, into which he called to explain to the Bahamian public what GDP is and how measuring it differs from measuring revenue. This, all after his estimation that a new, revised impact of Junkanoo Carnival on the GDP of The Bahamas could be nearly double the initial estimate.

I’m not certain where Major obtained the multipliers he keeps referring to, or why he’s even using them, and it’s been a long time since I sat in Econ 101 class, but last I checked the principles of Macroeconomics, particularly those given in the expenditure method of calculating GDP, have not changed. The use of multipliers in a service economy seems to me to be another way to paint a rosier picture than actually exists.

In order to calculate GDP/measure the economy, which is the current best estimate of what a country produces, economists have to assume that everything/all economic activity is in equilibrium. The measure of GDP is really a fragile estimate on its own, and in a service-based economy, its usefulness is questionable. Perhaps we continue to believe we are so productive because we keep leaning on figures which don’t tell the whole story.

Nevertheless, in the expenditure equation of GDP, Y=C+I+G+(X-M), where Y = GDP/Gross Domestic Product; C = Consumer Spending; I = Investment/Spending by Businesses; G = Government Spending; X = Exports; and M = Imports.

It is assumed that what is produced is equal to what is spent in an economy. When an economy is open, such that it trades with other countries, it must consider its net exports arising out of trade. Otherwise, the GDP equation would simply read Y=C+I+G.

The Bahamas is a trading country; we export a few products and many more services and we import far more than we export, in any given year. So, it is fair to say that if we want to estimate our GDP, as a trading economy, we must account for net exports.

So as not to misquote Major, I played back the recording of the radio show where he himself stated that he called in only to clarify to the Bahamian public what GDP is. He said:

“GDP is a representation of the sum total of goods and services for a prescribed period … I just wanted to make sure the public understood that.”

Prior to giving this definition, Major opened the discussion with the following illustrations:

“As an example, if I come and I buy talent from you for $100 that goes to GDP because that’s the service you provided. You go and spend that same $100 to buy $50 in gas; that gets counted as the good(s) that was sold. The gas man goes and pays his light bill. That $30 gets counted also. So every dollar that’s spent, there’s a multiplier effect of somewhere between three and five.”

Mr Major is only right in part, with respect to his definition of GDP; his illustrations of what goes into GDP are not exactly accurate.

The truth, in short, is that if nothing new was produced locally, there is no impact on GDP. So, it stands to reason that there will be goods and services sold in the economy which have no impact on GDP, making Major’s “sum total” inaccurate. It’s hard to tell if Mr Major doesn’t know this, or if he’d like us to believe something else which isn’t true.

Major’s example of purchasing talent in The Bahamas for $100 makes sense. Talent is the new service sold in The Bahamas and it can get added to the GDP of The Bahamas.

If $50 out of that $100 is spent on gas, yes, the gas is technically counted as “goods that is sold” in The Bahamas. But the gas is not a part of Bahamian GDP, if The Bahamas did not make the gas, nor is the gas a new product. This sale of gasoline to the consumer has no effect on GDP. If the gas were produced in The Bahamas, then its sale would increase the GDP of The Bahamas, per the expenditure method of calculating GDP.

Continuing Major’s illustration, when the gas man goes to pay his $30 light bill (that’s funny), with his $50 from the gas buyer, the $30 may or may not get added to GDP, depending on how you choose to account for it.

The power generated by the Bahamas Electricity Corporation (BEC) is technically a new product of The Bahamas in the respective time period, but it is generated by BEC with imported Bunker-C fuel/oil from another country, so at most it will have only one impact on the GDP equation (most likely at the time the business in The Bahamas imports it, where the import negates the consumption), and will not be added to GDP every time it is sold/resold.

However, what’s more interesting still is that Bahamian consumers are actually paying BEC for the fuel/oil, by way of a fuel surcharge, when the fuel has already been paid for by the oil importer, which further muddies the transaction.

Are Bahamian consumers paying for power service provided by BEC, a Bahamian company, or are Bahamian consumers paying for oil from an importer, with the oil representing the bulk of their BEC bills and payments?

And, considering the latter, then the heftier portion of the BEC transaction with

the Bahamian consumer (individual or business) is the resale of imported fuel – not a newly-produced product, not a Bahamian-made product and therefore not a real contributor to Bahamian GDP.

Every dollar that is spent in The Bahamas only has an impact on the GDP of The Bahamas if it is spent on a final/finished good or service that is produced in The Bahamas.

And this is the point; not because it was sold in The Bahamas means it qualifies as a part of Bahamian GDP.

What is counted in a country’s GDP is the value of new, finished goods (and services) made in that country, over a specific time period, measured at the time they are sold.

GDP is a measure of productivity, not revenue, as Major has correctly clarified, but you don’t add every single thing that is sold, at every single time a sale is made, at every single stage of distribution, one atop the other, for a colossal add-on figure to call GDP.

Moreover, using a multiplier to estimate an overall impact on GDP is an attempt to take what happens in a service-based economy and make it meaningful, to make you feel better about the imports and to appear as though the country is productive when it isn’t, or is, more productive than it actually is.

You don’t get to include imports from other countries in the tally of your country’s GDP. And, if we do, or if we have done so, then it’s no wonder we think we are better off than we truly are.

When a Bahamian consumer (C), Bahamian investor/businessperson (I) or the Bahamian government (G) buys goods or services from the United States, or anywhere else in the world, those goods and services are imports to The Bahamas, they reduce net exports, and this “negative production” has a negative impact on the “positive consumption” of imports in the local economy, effectively rendering the impact upon GDP as nil.

The United States – or the other country from where the goods or services came – is the only country which can claim those goods or services imported by The Bahamas from that country as a part of that country’s GDP.

It will be interesting to see the numbers thrown around in the coming weeks as The Bahamas government continues its attempt to label Junkanoo Carnival a “success”.

For the benefit of those who have never taken an economics class, there is free, legitimate education online on economics (GDP and GDP accounting) and many other topics, which makes it easy to learn about things for yourself instead of relying on other people’s interpretations of them. Khan Academy on YouTube is a good place to start at the most basic level.

Self-education is better than no education, and certainly much better than the equivalent of having no education, which is to have the wool pulled so far over your eyes that you can’t see the problem(s).

And, I find it important to add here that the very definition of a service economy is “one which does not result in ownership”.

If Bahamians are to own their economy, they must make things they actually own versus things they lease to temporary owners – like non-lifelong investments in non-domestic-owned hotel rooms and non-domestic-owned bank accounts.

With all that said, my argument for a more productive Bahamas is still rooted in the question, “what do we produce?”

If you have no answer to that question, or if the answer to that question is “not much”, or if you don’t like the answer to that question, then go and create a list of things you believe we can produce and then find a sustainable way to make it happen.

Innovate, if you want to own your Bahamas.