Thursday, July 10, 2008

The measurement of innocent fraud

Our phony economy by Jonathan Rowe

A corollary to the principle that wealth is not fungible - a golf course cannot easily be turned into a health clinic, a $100,000 car into $100,000 worth of farming equipment - is that our primary measure of wealth production, GDP, is of very dubious utility.

The primary ideological justification for neoliberal economic policies is that by withdrawing government interference in the global market, more wealth will be produced. It is furthermore believed that although this wealth may be distributed highly unevenly, that even those at the very bottom of the wealth pyramid will be made better off. One would hope; but wouldn't necessarily have much reason to. Besides the strong evidence that relative income inequality in itself lowers well-being, and besides the fact that greater wealth production is pointless for all but a handful of people if the surplus wealth is not redistributed (and besides the concomitant fact that if this surplus wealth were redistributed, neoliberal economists believe that this would reduce the amount of surplus wealth produced by a neoliberal global economy), and besides the fact that GDP around the world was greater during the protectionist 50s-70s than during the neoliberal 80s-present; besides all of t the primary measure of economic success or failure, GDP, is damn near irrelevant. It was never designed to be an indicator of the health of an economy, and it is not.

"[The inventor of the Gross Domestic Product measurement] Simon Kuznets watched [the increasing misuse of GDP as the measurement of a healthy economy] happen with increasing dismay. (Galbraith came to have second thoughts as well.) Kuznets was a quiet academic who was loath to mount a soapbox. But he asserted over and over that those who had seized upon his handiwork had missed the point. In 1962 he wrote in The New Republic that in evaluating growth 'distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long run…. Goals for ‘more’ growth should specify more growth of what and for what.' If you are going to 'stimulate' the economy, in other words, could we at least have a little debate over what exactly you are going to stimulate?


The GDP assumes, as most economists do, that people are inherently 'rational.' What they buy is exactly what they want, and so their purchases must make them happy in exact proportion to the prices paid. Yet addiction has become pervasive. It has metastasized far beyond the usual suspects–gambling, tobacco, alcohol, and drugs–and spread to such things as eating, credit cards, and shopping itself. Also neglected is what economists call 'distribution.' The GDP makes no distinction between a $500 dinner in Manhattan and the hundreds of more humble meals that could be provided for the same amount. A socialite who buys a pair of $800 pumps from Manolo Blahnik appears to contribute forty times more to the national well-being than does the mother who buys a pair of $20 sneakers for her son at Payless. 'Economic welfare,' Kuznets wrote, 'cannot be adequately measured unless the personal distribution of income is known.' As included in the national accounts, an accretion of luxury buying at the top covers up a lack of necessary buying at the bottom. As the income scale becomes more skewed, the cover-up becomes even greater. In this respect the GDP serves as a statistical laundry operation that hides the suffering at the bottom. Another problem has to do with work and the toll it takes on those who do it. Kuznets called this the 'reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income.' That earning comes at a cost of wear and tear upon the body and psyche. If the GDP subtracts depreciation on buildings and equipment, should there not be a corresponding subtraction for the wearing out of people?

What about the loss in the value of their skills as one technology displaces another? In the current accounting, this toll often gets added to the GDP rather than subtracted, in the form of medications, expenditures for retraining, and day care for children as parents work longer hours. Most workers would regard such outlays as costs, not gains. Had Kuznets been writing today, moreover, he probably would have added another kind of depletion–that of natural resources. It sounds incredible, but when this nation drills its oil and mines its coal, the national accounts treat this as an addition to the national wealth rather than a subtraction from it. The result is like a car with a gas gauge that goes up as the fuel tank empties. The national accounts portray a nation getting richer when it is in fact draining itself dry. Kuznets concluded his report [introducing the GDP measurement] with words that ought to be inscribed on the wall of every office on Capitol Hill and over every computer screen within a twenty-mile radius: 'The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.'”

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