GDP Smackdown: The basics of the economy

3 minute read

This is the third of our blog posts connecting the basics of the economy to small business. We are taking the popular series of basic economic videas called ‘We the Economy’ and connecting them to the way your small business (or prospective small business idea) operate. Over the next twenty or so weeks we are going to take a regular look at the very basics of our complex global economy and once a week we will present one of the videos from the series and try to add a little context, especially for anyone who is thinking about taking a tiny step toward being a more direct and powerful cog in the enormous economic machinery by starting their own business.

GDP Smackdown

This week we are looking at the concept of GDP and a very real disagreement about what GDP does measure and what it should measure. The bottom line is that GDP (Gross Domestic Product) is a key economic indicator that is used by almost everyone in measuring the health of the economy. One side of the economic spectrum feels that GDP should follow conservative accounting practices and only count the money. If no cash was involved then it didn't happen or doesn't count according to this point of view. And that's a very valid point of view as any struggling small business owner knows. If you can't pull the cash together to pay the bills, all the 'goodwill' in the world won't stop you closing your doors. The other point of view is that the economy is made of much more than just money. It includes how people feel, the environment, the quality of work, the quality of life and the very pursuit of happiness enshrined in the Constitution. And this point of view has validity as well. Putting it in small business terms, what's the point of running your business if all it does is make you miserable? We don't work to work – we work to live. And if we are lucky they are the same thing. THAT's the dream for most small business owners and entrepreneurs.


How do you measure intangibles?

It is common rhetoric for politicians to praise small business to the skies as the engine room or the foundation of the American economy (and all economies globally for that matter). And there is a lot fo truth to that assertion. While any one small business is too small to affect anything and even the aggregate of small businesses is a highly volatile factor in the economy, it still has a great deal of power in that highly successful small businesses massively outperform economically speaking. For example, Apple was once a small business. So small business is very important to the economy. But the reality is that in the individual, for every entrepreneur or prospective business owner, their future hangs in the balance. And much of that future has to do with the very intangibles derided by those who insist cash is the only viable metric. Take Apple again: If they had folded when the cash part of their business was in trouble then we would never have had the ipod, the iphone and more. Instead they got a loan from Microsoft of all businesses and turned everything around. In fact Apple has turned itself around more than once. Was it cash that helped them turn things around? No – it was passion and commitment – and those turnarounds were engineered by one of the most passionate executives ever – Steve Jobs.

Is Steve Jobs measured in the GDP? Well he is now, but he wasn't back when Apple needed that passion.

You can't really measure these intangibles yet – they don't show up until they have delivered on their promise. But if entrepreneurs and small business people don't believe, have hope, have drive and trust they can find happiness in their work then the cash will not come.

Does your current work make you happy? Should your personal GDP factor in your happiness? If you want to take that step towards entrepreneurship for yourself, then take a look at our previous episodes, 'Cave-o-nomics' and  'Supply-and-Dance', and also check the links below for more information about getting started on your own business idea.

Is It Time To Start Up That Startup Business?

Happiness: The Most Obvious Sign You've Put Yours on The Shelf

How I Found Happiness

The Secret to Entrepreneurial Happiness