### Monday, May 01, 2006

## 63% of what?

Some people can really make hash out of economic statistics. Take this editorial in the Kyiv Post in which an economist at a very fine school -- I gave a couple of lectures there about ten years ago -- says something really foolish.

You can't compare GDP from a market system with GDP strapped together from a socialist system, and only fools try.

To understand the point and comprehend how severe the fall was and how far Ukraine still has to go to reach its pre-transition level, consider Ukraine�s real GDP, real capital investments and real wages relative to the pre-collapse year of 1990.How do we measure GDP, dear students? "We add up prices times quantities, teacher!" Yes! And where do the Communists get the prices for their products, dear students? "Umm..."

Ukraine�s current GDP is only at about 63 percent of what it was 15 years ago! Simple calculations show that to reach the level of 1990 by 2010, Ukraine�s real GDP must grow at about 10 percent annually, which is fantastic growth, certainly amounting to an economic miracle. If growth is slower, say 5 percent annually, then the 1990 level can be reached only by 2015! Interestingly, these facts are often overlooked.

You can't compare GDP from a market system with GDP strapped together from a socialist system, and only fools try.