SEEDS PROSPERITY REPORT, OCTOBER 2017
Now that SEEDS – the Surplus Energy Economics Data System – is fully functional, it is possible to review prosperity in what may be the first of a series of regular reports.
The general conclusion, which is unlikely to surprise anyone, is that the emerging market economies (EMEs) are performing far better than the developed Western nations where prosperity is concerned. What might surprise you is quite how marked some of these differences are.
SEEDS defines prosperity as ‘real discretionary incomes’, a term which requires some explanation. The starting point is GDP per capita, but two critical adjustments are then made.
First, GDP data is adjusted to eliminate ‘borrowed consumption’. Anyone can have a lavish lifestyle if he or she is prepared to go ever deeper into debt, and has a bank sufficiently accommodative to let them do so. This is precisely what many countries have been doing. The accommodative suppliers of credit have been the authorities. They started by making debt easily accessible and comparatively cheap, and have (since 2008) been even more obliging, by making credit even cheaper.
Second, the resulting ‘ex-borrowing’ numbers are further adjusted for the trend cost of energy. This cost acts as an economic rent, which means that it diminishes the incomes over which we can exercise choice (‘discretion’). Where the individual or household is concerned, this shows up primarily in above-inflation increases in the cost of essential (‘non-discretionary’) expenditures.
The results are summarised in the table, in which the eagle-eyed will spot the first appearance of Russia in SEEDS data.
Prosperity data, October 2017
The table shows per capita prosperity, in local currency and at constant (2016) values, for the years 2006, 2016 and 2025. There are three columns of percentage comparisons, with results ranked by the third of these columns, which compare projections for 2025 with calculations for 2006.
Some of the results have obvious explanations. Prosperity in the United Kingdom is in relentless decline because the economy is in very deep trouble. Through-period comparisons for Australia, Norway and Canada are adverse because commodity prices, important to these economies, were close to extreme cyclical highs back in the start year of 2006.
Greece, obviously, has had a severe decline in prosperity over the past decade, but can now anticipate a very gradual recovery, albeit reversing only a very small proportion of the preceding decrease in prosperity.
At the other extreme, citizens of India continue to enjoy rapid improvement. The average Indian was 58% better off in 2016 than he or she had been in 2006, but we do need to note relative values here – in 2016, per capita prosperity (at PPP rates of conversion) was only $4,820 in India, compared with $43,700 in the United States.
China, too, continues to deliver impressive growth in prosperity, but there is a caveat here – per-capita debt is rising a lot more rapidly than prosperity. In 2016, the average Chinese citizen was 58% more prosperous than in 2006, but China also had four times as much per capita debt than a decade earlier.
The robust performance of Russia needs to be seen in context. In 2006, the Russian economy was still showing the ravages of the 1990s, and progress from here on is likely to be much more sedate.