Anyone ever given any thought to the GDP? It is perhaps the most influencial number in our lives. When GDP is up, we prosper.
GDP was invented during the years of the Great Depression before WWII. The thinking was that if we are going to help the economy we first need to be able to measure it. Before that there was no consistent measure of economic growth. GDP was little help until WWII started and we the increased production as a result of war.
At the same time John Maynard Keynes rose to prominence in Britain as a wartime economic planner. His great idea was that the role of government as a social planner and industry regulator should be diminished. The new role of goverment would be as a gigantic financial carburetor.
To me this seems like a ridiculous idea, but Britain won the war and Keynes got famous. So, Keynsian economics got together with our newly minted measure of economic prosperity, the GDP. And so our government became the priests of the church of economics and dropped most social and regulatory agendas since they add little to GDP.
What is the GDP? Simply put, it is a measure of national consumption. If government’s first priority is economic growth then if follows that my duty as a good American is to consume as much as possible, in that way adding to the GDP and general prosperity. Is that really my primary value as a citizen?
Ok. So GDP is a measure of national consumption and used as a surrogate to national well-being. The reasoning goes that as we get richer, the nation is better off and so are its citizens. No one argues that it is a perfect measure. However, the basic premise behind GDP remains unquestioned: As the nation gets richer, overall we are better off.
I disagree and here is why. GDP measures consumption. Consumption of what? Anything. It simply measures transactions, with no regard to whether they are beneficial or not.
Here are some startling examples of the shortcomings of GDP as a measure of well-being:
Husband loses his job, gets rehired at a lower wage, and wife goes to work to help support the family. The wife quits her volunteer position at local community church as youth coordinator. The children go into daycare because the mother is now at work. The relationship get strained. The parents divorce and the kids enter counseling.
Sad story right? Depends on who you ask. Lets look at it from the perspective of GDP, our surrogate measure of well-being.
-Wife goes to work: GDP goes up. There is more money overall entering the household, thus more money to spend.
-Wife quits volunteer position at church and church is forced to hire someone else for a wage: GDP goes up even though church doesn’t benefit.
-Children go to daycare: GDP goes up. A mother at home taking care of her children adds nothing to GDP. The national economy would sky rocket if all mothers went to work and sent their kids to paid day care.
-Parents get a divorce: GDP goes up. Lawyer fees are outrageous, but they do qualify as consumption.
-Kids go to counseling: GDP goes up. Psychologists don’t counsel for free. Misery costs money. Happiness is cheap.
So that is GDP. In this scenario a family broke down, stress went up, leisure time plummeted, a community suffered and children were permanently harmed, but GDP rose in every circumstance. Welcome to the wonders of modern economic theory and the unbelievable assumption that increased GDP is good for national well being.
Here is another one: Big company makes nuclear wrist bands. They mine ore to get the raw materials to run their reactor. They pollute the nearby river and the land they occupy. The city residents become ill through exposure to the pollution.
-Company sells wrist bands: GDP goes up. No matter that nuclear wrist bands are just consumer junk.
-They mine ore: GDP goes up although there is no corresponding measure to account for depleting natural resources.
-They pollute: GDP goes up. They will eventually have to clean up the pollution and clean up adds to GDP. The Exxon Valdez oil spill was a goldmine for GDP.
-Residents become sick: GDP goes up. Illness is a huge boost for GDP. It costs alot of money to get well. And that doesn’t even start to account for the court fees that will cover the litagation against the company.
One of the huge issues with GDP is that there is no way to subtract from it and it makes no distinction between types of consumption. Everything my imaginary company did was either harmful or useless and yet every action added to GDP.
Let me paint this extremely painful scenario: Use up every natural resource in our country: trees, coal, oil, minerals, gold, everything and turn the USA into a desert wasteland. GDP would shoot through the roof. But we are consuming ourselves and mortgaging the future for an extra Gucci bag today. Want it to go even higher? Achieve complete fluidity in the labor market and watch the complete breakdown of family and community. People and companies move around the country in an endless circle searching for increased market efficiencies. Crime, alienation, stress and divorce rise. Trust, leisure time, and job security decline.
And it isn’t just the USA that does this. The World Bank defines developing countries by GDP. I remember in school when we looked at GDP per person for a country like Cambodia or Senegal. It is like 25 dollars a year per head or some other insanely low figure.
But consider this: The GDP of all American Indian nations combined was zero when we marched across the country and took their land. A zero GDP or 25 bucks per capita income doesn’t mean life is unbearable (although it can in some circumstances), it just means a nation or people isn’t participating in the formal economy. Killing buffalo and trading that for clean water while the women take care of children and the elderly in exchange for security and a home….that all adds up to zero. One can live a sustainable and happy lifestyle without contributing anything to the formal economy as measured by GDP.
By encouraging these nations to “develop” we are destroying their way of life. Additionally, if a multinational establishes itself in a poor country the revenue generated is included in that country’s GDP, even though it is likely that all profits will be repatriated to a western nation. It is true that increased wealth can increase well being, but not at all costs. The GDP fails to take these other factors into account. The Centre for Economic Performance found that happiness increases with income up to $15,000 per year. After that it makes no difference at all.
Economists and politicians have offerred resistance to new measures of well being mainly in philosophical terms. A measure of national progress must be scientific and value-free, they say. Any attempt to assess how the economy actually affects people would involve too many assumptions, too many value judgments regarding what to include. Better to stay on the supposed terra firma of the GDP, which for all its faults has acquired an aura of hardheaded empirical science.
Aura notwithstanding, the current GDP is far from value-free. To leave social and environmental costs out of the economic reckoning does not avoid value judgments. On the contrary, it makes the enormous value judgment that such things as family breakdown and crime, the destruction of farmland and entire species, underemployment and the loss of free time, count for nothing in the economic balance. The fact is, the GDP already does put an arbitrary value on such factors–a big zero.
I could go on forever. Everyone knows I have a near obsession with work life balance, wage slavery, the false grail of consume at all costs and any other number of similar topics. I have spent much of my life dealing with it in one form or another. It isn’t mystic, weakminded rhetoric for those without the backbone to buck up and take it like a man. It is an ongoing practical examination of the age old question: Why are we here?
And finally, the image of the snake eating its own tail is my pictoral representation of the world economy. The fuel that drives the economy is us. We are consuming ourselves and mortgaging our planet in the process. It would take 1.2 Earths to replenish the natural environment at the rate we are using it. It would take 4.5 Earths to raise the standard of living of the entire planet to that of the USA. I realize these figures are only as good as the assumptions that went into calculating them, but it does make one think.
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