GDP is a lousy way to measure nation’s economic progress
Most Americans measure our nation’s economic success by how fast the gross domestic product grows.
By that statistic, the United States is quite successful. In fact, the entire global economy has grown dramatically. Yet middle-class people around the world are angry and demanding change.
The paradox is understandable; GDP is a stupid way to measure the well-being of a country’s citizens. As every economist tries to explain, GDP only measures what we’ve made, bought and sold.
Hurricanes can spur GDP due to money spent on reconstruction, even though the storm destroyed saved wealth. Robots can grow GDP while causing unemployment. The rich getting richer can raise GDP even while the middle class shrinks.
Most of the wealth created by rising GDP in the U.S. has gone to those who score in the top 1 percent for wealth and income. The proportion of new wealth going to the bottom 50 percent of the population has shrunk over the last 40 years.
U.S. middle-class earnings since 1979 have remained mostly flat when adjusted for inflation. The top 10 percent of Americans have seen income skyrocket. Most working-class people instinctively recognize that they work harder for less money than their parents.
Many Americans believe, to paraphrase President Donald Trump, the system is rigged to benefit the elites whose wealth grows almost effortlessly thanks to financial markets and tax breaks. The average American wants a government dedicated to improving his or her standard of living, not one that caters to corporations and their owners.
A generation ago, U.S. politicians worried less about GDP and stock prices and more about life expectancy and median household income, both of which have deteriorated in recent years. In other words,
they worried less about the wealthy and more about the average American.
Trump promised in 2016 to use nationalism to resurrect lost jobs and restore a middleclass lifestyle last seen in the 1960s and 1970s. Sen. Bernie Sanders of Vermont pledged to accomplish similar goals using socialist policies like those employed in Europe.
Polling shows Americans are split between these approaches, but their shared suffering is real, and their anger is justified. People just want more economic prosperity to reach their families.
If GDP is a faulty gauge, then we need other ways to measure economic progress.
Smart elites understand the pitchforks are coming out unless something changes. Experts at the World Economic Forum’s 2018 Meeting in Davos proposed a new measure for success, the Inclusive Development Index.
The IDI measures 12 indicators that fall into three broad categories: growth and development, inclusion and intergenerational equity, and sustainability. The speed of growth is essential, but so are poverty, median incomes, public debt and environmental protection.
When looking at GDP alone, the economies of 26 out of 29 wealthy countries grew over the last five years. But when judged by IDI, only 10 made progress in improving the wellbeing of their people. Norway ranked first; the U.S. came in 23rd.
The U.S. performs well on GDP, employment and productivity, but we have the highest poverty rate and the greatest income inequality among developed countries.
“The U.S. ranks 10th out of the 29 advanced economies on growth and development, but 26th on intergenerational equity and sustainability and 28th on inclusion,” the IDI report observed. “Low scores on the latter pillars suggest an economy may be storing up problems for the future.”
A majority of Americans between the ages of 18 and 29, mired in student debt and hamstrung by the Great Recession, support socialism over capitalism, according to Gallup polling, an increase of 12 percent since 2010.
Greater disparities are generating greater anger and alienation. More anger creates more political instability and economic volatility.
This is not a pitch for socialism, but a reminder that capitalism’s social contract promises that in return for profits, businesses must generate a rising economic tide that lifts the entire community. An economic system that allows a few to capture most of the benefits from the majority’s work is not capitalism; it’s feudalism.
Neither is this a pitch for one political party over another. Our nation faces complex problems, both social and economic. Liberals and conservatives can contribute to solving them through debate and cooperation.
This is a call, however, to broaden how we judge success and to acknowledge that Americans have legitimate complaints about the economy. And a reminder that ours is a government by the people and for the people, not only for a privileged elite.