The royal wedding was important not only for Kate Middleton and her lover Prince Williams, but also for every Briton who was expecting a significant boost that would be experienced by the weak economy of Great Britain which is still going in tatters. The economic experts predicted that the buildup for the celebrations of the royal wedding, the wedding itself and a lot of hoopla behind the first sales of tickets for the forthcoming Olympics will encourage the flow of money and will improve the GDP.
All happened except the expected and today, the Office of National Statistics (ONS) of England at London released the statistical reports of trade and GDP for the second quarter of the year. The reports released by ONS shows that the royal wedding had no positive impact on the British economy, and it might have acted in a negative manner. According to the reports of ONS, the GDP for the second quarter grew by an insignificant margin of 0.2 per cent which is much lower than the growth of previous quarter which was 0.5 per cent.1
So why did it happened?
All those economist who predicted that the royal wedding is very timely and it will help Great Britain to get rid of the economic slump which it is facing were Keynesian economists who just like the Nobel Prize winner and economist Paul Krugman, believe that spending can generate prosperity. This can be true if the spending is wise, necessary and realistic, however, these so-called economists who also have got Nobel Prize in economics (Paul Krugman) also believe that even the unwise, unnecessary and irrational spending will generate spending and they also believe that the habit of saving among masses actually bring economic slowdown, poverty and loss of GDP.
It is certainly impossible to explain how saving money can make a person, a community or a state poorer and how unwise and irrational spending will make it rich. However, they claim that even the unwise or unwanted spending actually processes the money to transfer from one hand to other and hence it increases GDP. Their scale of richness is not the amount of wealth a person have, rather it is amount of money one is spending. Here, it is important to note that money is not wealth; it is just a means to exchange wealth.
It is obvious that the Keynesian idea is flawed and spending unwisely will certainly not make a country any rich, it may make it poor and that happened in this case. The ONS has mentioned that without these events, including the wedding of Kate Middleton and Prince Williams, the GDP of Britain might have experienced an increase of 0.5 points more.
Why Did The Royal Wedding Failed to Boost British Economy?
The failure of wedding of Kate Middleton and Prince Williams can be easily explained by the famous example of the Broken Window Fallacy demonstrated by great libertarian economist Claude Frederic Bastiat.
While the idea of Keynesian economists (Paul Krugman and Indian Prime Minister Manmohan Singh both are Keynesian economists)about the fact that a lot of money will be spent by common people in Britain and by the royal family and their close relatives and friends and the British government itself was true, they failed to realize that all this spending will actually be a waste of money and since wastage cannot bring prosperity, this expensive royal wedding will also fail to boost economy of Great Britain anyhow.
The money which was actually spent by Britons for the celebrations of the royal wedding might have been used rationally for some more apt and logical manner. It is simple, if a person decides to go to a multiplex to watch a new movie release, he is certainly spending money for his pleasure and it will increase the rate of transaction of money. But it will certainly fail to make that person any rich. On the other hand, if that person decides to avoid the temptation of watching the new movie in a multiplex and prefer to buy a new book, or say a new music record, then it will also increase the rate of transaction of money (the base on which GDP is calculated) but it will also increase the possessions of that person as he will be the owner of a new book or a music record or some other commodity.
So, the viewpoint of Keynesian economists that the royal wedding of Kate Middleton and Prince Williams will increase GDP was false as even in absence of this wedding, people would have chosen to spend their money but in some other worthy and necessary cause that might have increased their possessions. Some might have bought a new home theater, or a new car, while some other might have made some possession in real estate.
So, overall, the wedding was meant to make no difference in GDP. However, the statistics showed by Office of National Statistics of England in London mentions that the GDP actually suffered a slower rate of increase when compared with the previous quarter.
Why the wedding of Kate Middleton and Prince Williams reduced the growth rate of GDP?
Because of the fact that almost every Briton knew that while they were spending money for the celebrations, it is in fact waste, and worthless. So, while they spent their money and enjoyed doing so, they kept their hands a little stiff at spending money. While a person might have spent more Euros for buying a new home theater, he opted to spend a fraction of his saved money for the celebrations of royal wedding. This reduced his potential to buy a home theater and he actually ended with spending lesser money that he might have spent in absence of royal wedding or sale of tickets for Olympics.
While the fallacy of Keynesian notions of increase in GDP because of unwanted and irrational spending is very easy to understand, often people fail to aspect it and hence, the Keynesian economist like Paul Krugman makes such ridiculous comments that the Iraq and Afghanistan war will help America to tackle with economic downturn as it will increase spending, or that the royal wedding of prince Williams and Kate Middleton will help Britain to increase its GDP and boost its economy.