← Autodidact Archive · Original Dissent · FadeTheButcher
Thread ID: 10439 | Posts: 1 | Started: 2003-10-12
2003-10-12 08:16 | User Profile
An old, but nonetheless essential article. . .
[url]http://www.theatlantic.com/politics/ecbig/gdp.htm[/url]
Why we need new measures of progress, why we do not have them, and how they would change the social and political landscape
by Clifford Cobb, Ted Halstead, and Jonathan Rowe
Throughout the tumult of the elections last year political commentators were perplexed by a stubborn fact. The economy was performing splendidly, at least according to the standard measurements. Productivity and employment were up; inflation was under control. The World Economic Forum, in Switzerland, declared that the United States had regained its position as the most competitive economy on earth, after years of Japanese dominance. The Clinton Administration waited expectantly, but the applause never came. Voters didn't feel better, even though economists said they should. The economy as economists define it was booming, but the individuals who compose it--or a great many of them, at least--were not. President Bill Clinton actually sent his economic advisers on the road to persuade Americans that their experience was wrong and the indicators were right. . .
. . .
The GDP Today: How Down Becomes Up
If the chief of your local police department were to announce today that "activity" on the city streets had increased by 15 percent, people would not be impressed, reporters least of all. They would demand specifics. Exactly what increased?Tree planting or burglaries? Volunteerism or muggings? Car wrecks or neighborly acts of kindness?
The mere quantity of activity, taken alone, says virtually nothing about whether life on the streets is getting better or worse. The economy is the same way. "Less" or "more" means very little unless you know of what. Yet somehow the GDPmanages to induce a kind of collective stupor in which such basic questions rarely get asked.
By itself the GDP tells very little. Simply a measure of total output (the dollar value of finished goods and services), it assumes that everything produced is by definition "goods." It does not distinguish between costs and benefits, between productive and destructive activities, or between sustainable and unsustainable ones. The nation's central measure of well being works like a calculating machine that adds but cannot subtract. It treats everything that happens in the market as a gain for humanity, while ignoring everything that happens outside the realm of monetized exchange, regardless of the importance to well-being.
**By the curious standard of the GDP, the nation's economic hero is a terminal cancer patient who is going through a costly divorce. The happiest event is an earthquake or a hurricane. The most desirable habitat is a multibillion-dollar Superfund site. All these add to the GDP, because they cause money to change hands. It is as if a business kept a balance sheet by merely adding up all "transactions," without distinguishing between income and expenses, or between assets and liabilities. **
The perversity of the GDP affects virtually all parts of society. In 1993 William J. Bennett, who had been the Secretary of Education in the Reagan Administration, produced a study of social decline. He called it "The Index of Leading Cultural Indicators," a deliberate counterpoint to the Commerce Department's similarly named regular economic report. His objective was to detail the social erosion that has continued even as the nation's economic indicators have gone up.
The strange fact that jumps out from Bennett's grim inventory of crime, divorce, mass-media addiction, and the rest is that much of it actually adds to the GDP. Growth can be social decline by another name. Divorce, for example, adds a small fortune in lawyers' bills, the need for second households, transportation and counseling for kids, and so on. Divorce lawyers alone take in probably several billion dollars a year, and possibly a good deal more. Divorce also provides a major boost for the real-estate industry. "Unfortunately, divorce is a big part of our business. It means one [home] to sell and sometimes two to buy,"a realtor in suburban Chicago told the Chicago Tribune. Similarly, crime has given rise to a burgeoning crime-prevention and security industry with revenues of more than $65 billion a year. The car-locking device called The Club adds some $100 million a year to the GDP all by itself, without counting knock-offs. Even a gruesome event like the Oklahoma City bombing becomes an economic uptick by the strange reckonings of the GDP. "Analysts expect the share prices [of firms making anti-crime equipment] to gain during the next several months," The Wall Street Journal reported a short time after the bombing, "as safety concerns translate into more contracts."
Bennett cited the chilling statistics that teenagers spend on average some three hours a day watching television, and about five minutes a day alone with their fathers. Yet when kids are talking with their parents, they aren't adding to the GDP. In contrast, MTV helps turn them into ardent, GDP-enhancing consumers. Even those unwed teenage mothers are bringing new little consumers into the world (where they will quickly join the "kiddie market" and after that the "teen market," which together influence more than $200 billion in GDP). So while social conservatives like Bennett are rightly deploring the nation's social decline, their free-marketeer counterparts are looking at the same phenomena through the lens of the GDP and breaking out the champagne.
Something similar happens with the natural habitat. The more the nation depletes its natural resources, the more the GDP increases. This violates basic accounting principles, in that it portrays the depletion of capital as current income. No businessperson would make such a fundamental error. When a small oil company drains an oil well in Texas, it gets a generous depletion allowance on its taxes, in recognition of the loss. Yet that very same drainage shows up as a gain to the nation in the GDP. When the United States fishes its cod populations down to remnants, this appears on the national books as an economic boom--until the fisheries collapse. As the former World Bank economist Herman Daly puts it, the current national accounting system treats the earth as a business in liquidation.
Add pollution to the balance sheet and we appear to be doing even better. In fact, pollution shows up twice as a gain: once when the chemical factory, say, produces it as a by-product, and again when the nation spends billions of dollars to clean up the toxic Superfund site that results. Furthermore, the extra costs that come as a consequence of that environmental depletion and degradation--such as medical bills arising from dirty air--also show up as growth in the GDP.
This kind of accounting feeds the notion that conserving resources and protecting the natural habitat must come at the expense of the economy, because the result can be a lower GDP. That is a lot like saying that a reserve for capital depreciation must come at the expense of the business. On the contrary, a capital reserve is essential to ensure the future of the business. To ignore that is to confuse mere borrowing from the future with actual profit. Resource conservation works the same way, but the perverse accounting of the GDP hides this basic fact.
No less important is the way the GDP ignores the contribution of the social realm--that is, the economic role of households and communities. This is where much of the nation's most important work gets done, from caring for children and older people to volunteer work in its many forms. It is the nation's social glue. Yet because no money changes hands in this realm, it is invisible to conventional economics. The GDP doesn't count it at all--which means that the more our families and communities decline and a monetized service sector takes their place, the more the GDP goes up and the economic pundits cheer.
Parenting becomes child care, visits on the porch become psychiatry and VCRs, the watchful eyes of neighbors become alarm systems and police officers, the kitchen table becomes McDonald's--up and down the line, the things people used to do for and with one another turn into things they have to buy. Day care adds more than $4 billion to the GDP; VCRs and kindred entertainment gear add almost $60 billion. Politicians generally see this decay through a well-worn ideological lens: conservatives root for the market, liberals for the government. But in fact these two "sectors" are, in this respect at least, merely different sides of the same coin: both government and the private market grow by cannibalizing the family and community realms that ultimately nurture and sustain us.
These are just the more obvious problems. There are others, no less severe. The GDP totally ignores the distribution of income, for example, so that enormous gains at the top--as were made during the 1980s--appear as new bounty for all. It makes no distinction between the person in the secure high-tech job and the "downsized" white-collar worker who has to work two jobs at lower pay. The GDP treats leisure time and time with family the way it treats air and water: as having no value at all. When the need for a second job cuts the time available for family or community, the GDP records this loss as an economic gain.
Then there's the question of addictive consumption. Free-market fundamentalists are inclined to attack critics of the GDP as "elitists." People buy things because they want them, they say, and who knows better than the people themselves what adds to well-being? It makes a good one liner. But is the truth really so simple? Some 40 percent of the nation's drinking exceeds the level of "moderation," defined as two drinks a day. Credit-card abuse has become so pervasive that local chapters of Debtors Anonymous hold forty-five meetings a week in the San Francisco Bay area alone. Close to 50 percent of Americans consider themselves overweight. When one considers the $32 billion diet industry, the GDP becomes truly bizarre. It counts the food that people wish they didn't eat, and then the billions they spend to lose the added pounds that result. The coronary bypass patient becomes almost a metaphor for the nation's measure of progress: shovel in the fat, pay the consequences, add the two together, and the economy grows some more.
So, too, the O. J. Simpson trial. When The Wall Street Journal added up the Simpson legal team ($20,000 a day), network-news expenses, O. J. statuettes, and the rest, it got a total of about $200 million in new GDP, for which politicians will be taking credit in 1996. "GDP of O.J. Trial Outruns the Total of, Say, Grenada," the Journal's headline writer proclaimed. One begins to understand why politicians prefer to talk about growth rather than what it actually consists of, and why Prozac alone adds more than $1.2 billion to the GDP, as people try to feel a little better amid all this progress. . . .