If the GDP Is Up, Why Is America Down?

[Lodestar]

This is an article from 1995, but unfortunately it still applies. Politicians will site the robust GDP as proof positive that the economy is improving. I know that any article on economics threatens to put me to sleep but this article is very readable AND very important. Please read:

Why we need new measures of progress, why we do not have them, and how they would change the social and political landscape

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 i—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.

This strange gap between what economists choose to measure and what Americans experience became the official conundrum of the campaign season. “PARADOX OF '94: GLOOMY VOTERS IN GOOD TIMES,” The New York Times proclaimed on its front page. “BOOM FOR WHOM?” read the cover of Time magazine. Yet reporters never quite got to the basic question—namely, whether the official indicators are simply wrong, and are leading the nation in the wrong direction.

The problem goes much deeper than the “two-tiered” economy—prosperity at the top, decline in the middle and at the bottom—that received so much attention. It concerns the very definition of prosperity itself. In the apt language of the nineteenth-century writer John Ruskin, an economy produces “illth” as well as wealth; yet the conventional measures of well being lump the two together. Could it be that even the upper tier was—and still is—rising on the deck of a ship that is sinking slowly into a sea of illth, and that the nation's indicators of economic progress provide barely a clue to that fact?

Ample attention was paid to the symptoms: People were working longer hours for less pay. The middle class was slipping while the rich were forging ahead. Commutes were more harried. Crime, congestion, and media violence were increasing. More families were falling apart. A Business Week/Harris poll in March imparted the not surprising news that more than 70 percent of the public was gloomy about the future.

Sounding much like the guidance department of a progressive New York grammar school, the Clinton Administration said that Americans were simply suffering the anxieties of adjustment to a wondrous new economy. Speaking in similar terms, Alan Greenspan, the chairman of the Federal Reserve Board, told a business gathering in San Francisco this past February that “there seemingly inexplicably remains an extraordinarily deep-rooted foreboding about the economic outlook” among the populace.

Those silly people. But could it be that the nation's economic experts live in a statistical Potemkin village that hides the economy Americans are actually experiencing?

Cont'd
http://www.theatlantic.com/magazine/archive/1995/10/if-the-gdp-is-up-why-is-america-down/415605/

[Warpy]

1. Because rich men don't share until they are forced to

Letting the minimum wage fall below poverty level was criminal. Time for a clawback.

[doc03]

2. Two reasons the loss of manfacturing jobs and union representation. n/t

[Lodestar]

3. True..but the way the GDP measures EVERYTHING as 'up' is the issue or point here.

This is an anology from the article I posted about how the GDP is measured:

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.

//

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.