11. GDP is Meaningless Economic Measuring Stick

by Project Censored
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Source: THE ATLANTIC MONTHLY Date: October 1995, Title: “If the GDP Is Up, Why Is America Down?,” Authors: Clifford Cobb, Ted Halstead, and Jonathan Rowe

SSU Censored Researchers: Jeffrey Fillmore, Amber Knight

If measured by growth in the Gross Domestic Product (GDP), the economy is booming. Productivity and employment are up, and inflation is under control. Yet 70 percent of Americans feel gloomy about the future. The root of this formidable disconnection, this Atlantic Monthly article suggests, may be found at the base of the aforementioned GDP Indeed, the authors theorize, the whole basis for assessing the status of the economy is absurd, outdated, and insufficient—and that ultimately, we need to re-think our definition of prosperity itself.

The GDP, formerly the Gross National Product (GNP), is a measure of market activity. This means nothing more than the exchange of money between businesses or persons, with no distinction between costs and gain. By the curious standard of the GDP, the happiest event is an earthquake or a hurricane. The most desirable habitat is a multi-billion dollar Superfund site. All of these are a plus according to the GDP, because money is changing hands. The GDP “does not distinguish between costs and benefits, between productive and destructive activities, or between sustainable and unsustainable ones.” The more companies deplete natural resources, the more the GDP increases. “This violates basic accounting principles, in that it portrays the depletion of capital as current income.”

In light of this seemingly illogical and outdated theory, an alternative system of economic measurement has arisen, called the “genuine progress indicator” (GPI), which rather than eliminating the GDP would transform it into a more accurate reflection of the nation’s total economic status.

Some of the new factors that would be included:

o Crime. Money spent on deterring crime or repairing damages from the effects of social decline, including hospital bills, are factored in.

o Other defensive expenditures. They figure in the cost of repairs from accidents, or what people will have to pay for water filters, or air purification systems, or any kind of cost due to an environmental hazard.

o Resource depletion and degradation of the habitat. As companies use up the nation’s minerals and resources, so will it be noted that a loss in capital is occurring. Damage to health, and environmental consequences will count as a negative since the money spent is not on growth, but restoration of what was damaged.

o Loss of leisure. If people have to work two jobs or longer hours just to stay even, then they aren’t really staying even. They are falling behind, losing time to spend with their families, to further their education, etc. The GDP assumes that such time is worth nothing.

In the final analysis, if the nation’s indicators of economic progress are obsolete, then they consign us to continually resorting to policies that cannot succeed because they aren’t addressing the right problems.

COMMENTS: Jonathan Rowe, Clifford Cobb, and Ted Halstead, co-authors of the article, work with the group Redefining Progress. Rowe, speaking on behalf of the group, says the subject of their piece did get some coverage, “but the result was typical of the mainstream media. We were raising basic questions about the way the media and policy establishments measure economic progress and wellbeing—specifically the Gross Domestic Product or GDP. We showed that in a multitude of ways, what the GDP counts as up, Americans experience as down, from family and com-munity breakdown to crime, disease, and environmental decay; and that this phony accounting has a corrosive effect on public policy. A few major outlets covered the story, mainly because we had devised an alternative to the GDP which provided a concrete number and therefore ‘news.’ But they quickly reverted to their old ways. The GDP continues to be a totem of economic reportage, cited with reverential awe. Politicians promise to boost the GDP, and nobody thinks to ask what exactly this boost is going to consist of and how it will affect us.

“There is a large and increasing gap between ‘the economy’ that the media reports on and the one people actually experience. We were trying to get reporters to ask the simple and obvious question that would begin to bridge that gap-a question reporters used to learn on the police beat. If the local police chief announced that ‘activity’ on the city streets was up 10 percent over the previous year, reporters would demand to know what exactly he or she was talking about: muggings or tree plantings, car thefts or acts of neighborliness and kindness, whatever. Unless you know what the 10 percent increase consists of, the gross statistic says nothing at all.

“The GDP is much the same. It is simply a gross statistical summation of monetary transactions in the economy. It says absolutely nothing about whether life is getting better or worse.

“That the media refuses to see this comes in part from changes in the sociology of the newsroom. Reporters used to work their way up from the police beat; they had a degree of skepticism regarding official statistics and academic experts. Today, by contrast, economic reporters increasingly come not with local reporting experience, but with academic credentials and degrees. Management seeks such people out. Yet they often are so immersed in the language and conceptual apparatus of conventional economic thinking-they so identify with the experts that they continually quote-that they become incapable of asking the simple and obvious questions that most need to be asked.

“If reporters asked these questions—i.e., exactly what is growing, who is benefiting and who isn’t, and what is the effect of that growth upon ourselves, our kids, and grandkids it would open up whole new arenas of economic debate that currently are stifled because of the implicit media blackout on any skeptical thinking regarding the GDP and the assumptions on which it is based.

“Beyond that, of course, major business and financial interests (the latter in particular) might be inconvenienced by greater skepticism regarding the GDP Such skepticism would lead to greater scrutiny of what actually is expanding in the economy; the awe that surrounds the GDP casts a halo upon everything that goes into it-gambling, cigarette sales, the depletion of natural resources, whatever. A few business leaders have come to realize that false national accounting will ultimately lead their companies and the entire economy into a big dead end, but such people are still a minority.”