Wednesday, June 18, 2008

THE THINGS THE GDP DOESN'T COUNT

JONATHAN ROWE

From congressional testimony

That term "the economy". . . what it means, in practice, is the gross domestic product or GDP. It's just a big statistical pot that includes all the money spent in a given period of time. If the pot is bigger than it was the previous quarter, or year, then you cheer. If it isn't bigger, or bigger enough, then you get Bernanke up here and ask him what the heck is going on.

The what of the economy makes no difference in these councils. It never seems to come up. The money in the big pot could be going to cancer treatments or casinos, violent video games or usurious credit card rates. It could go towards the $9 billion or so that Americans spend on gas they burn while they sit in traffic and go nowhere; or the billion plus that goes to drugs such as Ritalin and Prozac that schools are stuffing into kids to keep them quiet in class.

The money could be the $20 billion or so that Americans spend on divorce lawyers each year; or the $5 billion on identity theft; or the billions more spent to repair property damage caused by environmental pollution. The money in the pot could betoken social and environmental breakdown - misery and distress of all kinds. It makes no difference. You don't ask. All you want to know is the total amount, which is the GDP. So long as it is growing then everything is fine. . .

It isn't just you. The President does it, the media, the reporters sitting at that table over there. They do it too. How many of them or of you asked during the recent debate over the "stimulus" package, exactly what it was that would be stimulated. How many of them say, when Bernanke comes up here to report on the nation's growth, "Hey wait a minute. What exactly are we talking about here?" Doesn't it matter whether it is textbooks or porn magazines, childbirths or treatments for childhood asthma born of bad air? Doesn't it matter whether the expenditure comes from living within our means or from going into financial and ecological debt? Don't we need to know such things before we can say whether the increase in transactions in the pot - what we call "growth" -- has been good or not? This is not an argument against growth by the way. To be reflexively against growth is as numb-minded as to be reflexively for it. Those are theological positions. I am arguing for an empirical one. Let's find out what is growing, and the effects. Tell us what this growth is, in concrete terms. Then we can begin to say whether it has been good or not.

The failure to do this is insane, literally. It is an insanity that is embedded in the political debate, and in media reportage. . . We hear for example that efforts to address climate change will hurt "the economy." Do they mean that if we clean up the air we will spend less money treating asthma in young kids? That Americans will spend fewer billions of dollars on gasoline to sit in traffic jams? That they will spend less on coastal insurance if the sea level stops rising? There is a basic fallacy here. The atmosphere is part of the economy too - the real economy that is, though not the artificial construct portrayed in the GDP. It does real work, as we would discover quickly if it were to collapse. Yet the GDP does not include this work. If we burn more gas, the expenditure gets added to the GDP. But there is no corresponding subtraction for the toll this burning takes on the thermostatic and buffering functions that the atmosphere provides. (Nor is there a subtraction for the oil we take out of the ground.) Yet if we burn less gas, and thus maintain the crucial functions of the atmosphere, we say "the economy" has suffered, even though the real economy has been enhanced. With families it's the same thing. By the standard of the GDP, the worst families in America are those that actually function as families - that cook their own meals, take walks after dinner and talk together instead of just farming the kids out to the commercial culture.

Cooking at home, talking with kids, talking instead of driving, involve less expenditure of money than do their commercial counterparts. Solid marriages involve less expenditure for counseling and divorce. Thus they are threats to the economy as portrayed in the GDP. By that standard, the best kids are the ones that eat the most junk food and exercise the least, because they will run up the biggest medical bills for obesity and diabetes.

This kind of thinking has been guiding the economic policy minds of this country for the last sixty years at least. Is it surprising that the family structure is shaky, real community is in decline, and kids have become Petri dishes of market-related dysfunction and disease? The nation has been driving by a instrument panel that portrays such things as growth and therefore good. It is not accidental that the two major protest movements of recent decades - environmental and pro-family -- both deal with parts of the real economy that the GDP leaves out and that the commercial culture that embodies it tends to erode or destroy. . .

There are so many examples of expenditure that goes into the GDP that has a questionable claim to the stature of growth and good, even from the standpoint of those who make it. For example, much consumption is compulsory, in that buyers have little choice. There is fraud, such as the way seniors are cheated in reverse mortgage scams. There's also products that are designed to lock buyers into an endless stream of high-priced replacements, such as inkjet printer cartridges that are designed to resist refilling.

Or what about car bumpers that are designed not to bump, so that a mild fender bender turns into a $5,000 repair bill? . . .

The toughest case for the economic mind is addiction. The GDP assumes, as most economists do, that people are inherently "rational." What they buy is exactly what they want, and so their purchases must make them happy in exact proportion to the prices paid. Yet addiction has become pervasive. It has metastasized far beyond the usual suspects - gambling. Tobacco, drink and drugs - and come to roost on such things as eating, credit cards, and shopping itself.

How can anyone assume that buying makes people feel better when those very people are engaged in a mighty struggle to do less of it. . .

The GDP makes no distinction between a $500 dinner in Manhattan and the hundreds of more humble meals that could be provided for that same amount. An Upper East Side socialite who buys a pair of $800 pumps from Manolo Blahnik, appears to contribute forty times more to the national well being than does the mother who buys a pair of $20 sneakers at Payless for her son. . . . As included in the national accounts, an accretion of luxury buying at the top covers up a lack of necessary buying at the bottom. As the income scale becomes more skewed, as it has in the U.S., the cover up becomes even greater. In this respect the GDP serves as a statistical laundry operation that hides the suffering at the bottom - when used as a measure of national wellbeing.

Another problem has to do with work, and the toll it takes on those who do it. . . If the GDP subtracts depreciation on buildings and equipment, should there not be a corresponding subtraction for the wearing out of people? What about the loss in the value of their skills as one technology displaces another? In the current accounting, this toll often gets added to the GDP rather than subtracted, in the form of medications, expenditures for retraining, and day care for children as parents work longer hours. Most workers would regard such outlays as costs not gains. . .

I doubt that it is possible to include all the needed information into one single indicator. There are too many apples and oranges. To value a parent's work in the home at the going market price, for example, is both insulting to parents, and an exercise in self-parody for an economics profession that cannot see beyond the realm of market price But at the very least there needs to be an array of indicators that connects such hidden forms of economic function to a larger economic whole. Here are some principles you might find useful. . .

Time is perhaps the most basic form of wealth. Yet Americans, for all their wealth, are the most time-impoverished people on earth. The time they spend both working and consuming - that is, the time absorbed into the market - comes out of the time available for their families and communities; and both are going wanting as a result. Time is a finite resource, just as coal and oil and dump space in the sky are finite resources. To take more of it for work or consumption is to take it from someplace else. You need to look not just at the money and stuff that people have, but also at the time they have. . .

Most of the crucial life-supporting functions take place outside the realm of monetized exchange. They are not part of the market or the government - both of which function through money - but rather occur through natural or social process. The help and care of parents and neighbors; the cooling and cleansing functions of trees; woods in which to hike and hunt; clean water in which to fish and swim; these all are off the books. They do not register in the GDP until something destroys them and people have to buy substitutes in the market. This is insane. A tally of economic wellbeing needs to reflect reality, not just the portion of it that is convenient for economists to measure.

Not everything that is called "consumption" represents advance up the mountain of more. Here are a few examples:

--Compulsory expenditures that are built into products, such as cars designed to cost a fortune to repair, and inkjet printer cartridges designed to resist refilling.

-- Fraud and abuse, such as exorbitant fees built into credit cards that issuers increase whenever they want.

-- Medical bills incurred because of other activities that increase the GDP but degrade the environment. An example is medical bills to treat asthma in children brought on by bad air.

-- Addictive consumption, which is shopping that the shoppers themselves which they could drop. It is hard to see how this could add to wellbeing, when the people are doing it thinks it adds to their own misery instead.

--Defensive consumption, such as the double-pane windows that city dwellers buy to keep out noise from boom box cars and the like on the street.

It is not possible to parse out every single expenditure for its plusses and minuses. But neither is it tenable to assume that every expenditure represents a plus for the individual and society, just because somebody has made it. Yet the GDP starts with just that assumption; or more precisely, the people who interpret the GDP that way do. It is time to begin to make distinctions.

The purpose of an economy is to meet human needs in such a way that life becomes in some respect richer and better in the process. It is not simply to produce a lot of stuff. Stuff is a means, not an end. Yet current modes of economic measurement focus almost entirely on means.

For example, an automobile is productive if it produces transportation. Yet today we look only at the cars produced per hour worked. More cars can mean more traffic and therefore a transportation system that is less productive. The medical system is the same way. The aim should be healthy people, not the sale of more medical services and drugs. Yet today, we assess the economic contribution of the medical system on the basis of treatment rather than results.

Economists see nothing wrong with this. They see no problem that the medical system is expected to produce 30-40% of new jobs over the next 30 years. "We have to spend our money on something," shrugged a Stanford economist to the New York Times. This is more insanity. Next we will be hearing about "disease-led recovery." To stimulate the economy we will have to encourage people to be sick so that the economy can be well.

Jonathan Rowe is a contributing editor of the Washington Monthly and a founder of the Tomales Bay Institute

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