There’s more to economic growth than GDP
Few questions divide Americans more than how we should measure success as a nation, and few answers reveal more about an individual’s politics and values.
The COVID-19 pandemic’s length and the accompanying recession’s briefness have brought wealth inequality and economic growth into stark contrast. While a million people have filed for unemployment benefits for 46 consecutive weeks — the Labor Department’s nonseasonally adjusted numbers — the stock market has grown by leaps and bounds.
The challenge facing the nation is where to focus recovery efforts and how to judge success.
Gross domestic product, a broad measure of economic activity, is an all-time favorite. The employment rate and stock market indexes are also commonly cited. But while these metrics are an excellent scorecard for the wealthy who own stock, they fail to reflect the average American’s quality of life.
GDP has been growing like gangbusters for the last six months, but that means nothing because we are making quarter-toquarter or year-over-year comparisons. GDP will likely grow quickly this year, but the nonpartisan
Congressional Budget Office does not expect total economic activity to return to pre-pandemic levels until July.
Growth in GDP fails to measure the economic impacts of natural disasters or environmental destruction. It also fails to reflect working conditions, worker productivity or wealth distribution.
I’ve reported from many countries in Africa where GDP growth is double most wealthy countries. But they are starting from a shallow level, people work six days a week under horrendous conditions for little pay, and a corrupt, political elite collects most of the profits.
The country’s GDP growth, though, looks great. Employment rates also mean little.
Holding a job, in and of itself, does not indicate a decent quality of life. Working conditions in the United States are the worst among industrialized countries. Our laws do not guarantee a living wage, health care, paid sick leave, paid vacation, unemployment benefits or retirement funds.
Lastly, stock prices do not reflect American’s economic health. Investors frequently drive up a company’s share price when it lays
off workers. When the unemployment rate goes down, stock prices drop because corporations have to pay higher wages to attract workers.
Stocks also reflect investors’ expectations for the future, not the present. Markets rallied during the worst of the pandemic because the Federal Reserve promised to support financial markets no matter what. They rallied further when vaccines proved effective and offered an opportunity for normalcy.
Yet, we are still months away from normalcy, and nearly 10 million people who lost their jobs due to COVID-19 have not returned to work. Since fewer than half of Americans own stocks, rising indexes mean little to them.
Policies that focus on GDP, employment rates and stock prices favor consumerism, and those policies serve corporations and the wealthy because they encourage resource depletion, worker exploitation and crony capitalism.
If you ask most people what constitutes success, most will say one wellpaying job with benefits, a safe home, good health and equitable opportunities for them and their families to prosper. GDP, employment rates and stock prices measure none of those things.
You cannot improve what you don’t measure. Economists have worked since 1972 to come up with more comprehensive ways to measure society’s welfare. One index that has caught some traction is the Genuine Progress Indicator.
GPI balances 26 economic, environmental and social factors, including economic growth, pollution costs, leisure time and crime. GPI recognizes the benefits of financial asset growth along with higher education levels but subtracts for climate change and underemployment.
Finland’s statistical agency compared annual GDP and GPI growth between 1945 and 2011 and found proof of what economists have said for years. From the end of World War II until the 1990s, standards of living rose alongside economic growth. But when governments cut social programs and concentrated on accelerating GDP, the average Finn’s quality of life stagnated.
When incomes and wealth are adjusted for inflation, the typical American has also seen living standards stagnate since 1980 while the wealthy have seen astronomical gains. Additionally, life expectancy is slipping, personal debt is increasing and upward mobility is disappearing.
But you’d never know by looking at GDP, unemployment or the stock market.
To solve the disparities and anger across racial, economic and political lines, governments at every level need to broaden their policy goals from measures that benefit the rich and instead encourage better living standards for all Americans.
While growing GDP is important, increasing the number of college graduates is more critical. In addition to lowering unemployment, raising wages is also necessary. And rather than just run up stock prices, how about providing universal health care?
There is more to life than just money.