Measuring Measurements: Rising GDP in the Great Recession
Conservatives like to describe their ideal Supreme Court justice as an uninterested umpire who simply calls the law's balls and strikes, a metaphor Chief Justice Roberts employed during his confirmation hearing. These conservatives also like to describe the free market as the same sort of impartial arbiter, rewarding the productive with profits and the unproductive with, well, not much.
For those of us living in the real world, these are just descriptions of ideal types, impractical for their affront to moral ambiguity and, anyway, demonstrably false. Ayn Rand might have advocated a self-made existence in a market without fetters, but her own life showed the falseness of her ideology.
The same claims, if not spoken, are often assumed about statistics: with little thought about what we are actually measuring, we assume that if GDP increases, we must be better off. It is with only a little irony then that Ben Bernanke yesterday could assert in one breath that the recession is "very likely over" and in the next regret that "many people [will] still find their job security and their employment status is not what they wish it was." To which I am certain that many people responded, "Who cares if the recession is over?"
Government measurements of GDP are far from objective gauges of economic health. Like any model, the measurements involve choices about which variables to include and which to exclude. In a provocative article for Harper's last year, Kevin Phillips argued that the federal government specializes in manipulating official statistics:
[S]ince the 1960s, Washington has been forced to gull its citizens and creditors by debasing official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. The effect, over the past twenty-five years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed. If Washington's harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.
Several commentators have argued recently that GDP measurements need to be revised to better account for household wealth, inequality, environmental degradation, and sustainability, which the current method does not capture well.
More importantly, a final report released this week by the Commission on the Measurement of Economic Performance and Social Progress, convened by French President Nicholas Sarkozy to reevaluate measurements of progress, reminds us -- and uses as its guiding principle -- that "What we measure affects what we do; and if our measurements are flawed, decisions may be distorted."
Indeed, it is so easy in our current political environment to forget that GDP, the unemployment rate, the income tax burden -- a whole slew of measurements -- are freighted with judgments (even if, as is at least sometimes the case, they are necessary ones). We forget or, in the pursuit of simplicity simply ignore, the complexity of the economic and social problems that surround us. We persist with a poverty measure that is grossly outdated, with Pell Grants for low-income students that are not pegged to inflation, with an unemployment rate that last month was either 9.6% or 16.5%, depending on "how unemployed" the unemployed actually are.
"GDP" is no less imperfect than the "free market" and "disinterested judges." The relentless pursuit of "economic growth" to raise all boats was always fraught with problems. But doing so without considering how this growth is measured is irresponsible.
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The problem is in verification of the dubious statistics. Where do these numbers come from anyway? It's like Big Pharma's ability to cook up test results on new drugs and spin things the way they want them to appear when presented to the FDA for approval. Like the FDA we believe what were being told without asking questions.
After 30+ years of conservative ideology running the country, it's hardly any surprise America is stagnating.
Every time conservatives get in charge, they deficit spend like there's no tomorrow, and they balloon military spending so much that it's choking civilian industry.
The problem, as always, isn't the government
Been saying for months that the GDP is a completely worthless bootstrapped figure. Nice to see others finally agreeing with me. If 1 man in america made 100 trillion dollars and everyone else made zero our economists would applaud our 100 trillion dollar GDP. If every penny of american wealth is spent on healthcare, and nothing is manufactured or made for sale, still the GDP would be great because of all the weath movement. If banks spent all day just loaning each other money electronically and never released anything for development, the GDP would look the same.
I grew up in the construction industry and Reagan started allowing carpenters all over the country to be paid with 1099 as contractors. When the economy goes down and the industry is trashed, carpenters aren't counted. The largest employer in the country, and it's employees are, to a great extent, not counted. Sure made Reagan(and every president since) look better!
We all know what Mark Twain said about statistics. I think that somebody's manipulating the numbers on inflation, too. No, I don't have facts, figures and an economics degree to back my statement up. I just seem to have a lighter wallet a lot sooner. So, going along with the author's theme here, I trust my wallet.
The "Financial Sector" is a major component of today's GDP; such that Goldman Sachs record second quarter profits alone were sufficient to cause the GDP numbers to resume "growth".
Don't you mean "disinterested". I don't mind a disinterested umpire, but how can I trust one who is uninterested?
A "disinterested" umpire would be better, but in this case, "uninterested" is probably a more realistic descriptor.
There is plenty wrong with government statistics, but the biggest problem is not with the government it is with the American population whose ignorance is incredible. So many people cite the GDP, including so called experts, without having a clue what it actually contains. The GDP is not a measure of productivity, it is a measure of spending (the components are: household spending, business spending, government spending, and the import/export balance). The economists posit that by measuring how much we are spending we must also be measuring how much we are producing. This was okay in the days when credit was rationally based on real risk. It is not today. What we spend no longer has any relationship to what we produce - it has a lot to do with what we produce plus what we borrow from China, Japan, Europe, Saudi Arabia, etc. Therein lies the problem, we have no idea if we have actually been increasing or decreasing in real productivity over the last 20 years. Given the structural loss of jobs (the ones that aren't coming back) plus the loss of real income it is likely that our productivity has been declining for at least the last 8 years, not increasing. Obviously we didn't produce the money we were spending for the last eight years - that is why we are so deep in debt. .
The incredible ignorance of the American people is a direct result of a several generations long assault on free public education by the same special interests who today control banking and business.
Actually, the "import/export" balance is supposed to adjust for the difference between production and spending. (That is, if we produce 20 bricks and consume them, GDP is 20. If if we produce 20 and import 10 more such that we consume 30 bricks, GDP is still 20 (30 consumed - 10 imported)=20. And if we produce 20 bricks and export 10 of them, GDP is still 20 (10 consumed + 10 exported)=20.
Economic progress writ large is the opium of the masses. If the citizenry were to hear the unemployment rate is over 16% rather than 9%, there is no telling what kind of "sky-is-falling" mentality the masses would succumb to.
So, we as citizens go on our merry way thinking that we live in the most prosperous country in the world, as borne out by statistics, where everyone would have his share if unbridled commitment were practiced.
If we have statisticians looking at our country unbiased by economic agendas, we would probably find that our economy is not better than our health care system. We live in a fool's paradise.
Yep. Fraud, deceit, theft and murder are all irresponsible. So let's all tithe an extra 10% in taxes this year and hurry the inevitable end of it.
GDP measures money changing hands. That's not the same as productive activity. This is easiest to see by example:
In 1970, my mom used to take a pound of hamburger and cook it for my dad and me. Economists did not measure this as productive activity. Nowadays, when I buy my Thickburger, economists measure it. And please note: mom is a much better cook than what you'll find in most fast food restaurants. (Economists are fond of pointing out that gdp growth does not increased quality into account, but the flip side holds as well.)
I wonder how much of the measured growth in economic activity that has taken place in the past 40 years has been from the monetezation of what used to be called "women's work?" Mom goes to work, collects a paycheck, and then gives part of it to Merry Maids to clean her condo.
I strongly recommend the website, shadowstat
It's a real eye opener to see how easy it is to just change the yardstick and everybody just goes merrily along.
A case can be made that the GDP measures all the wrong things. For instance, if we spend a trillion dollars building munitions and blowing things up, that is counted as an addition to the GDP. Keynes himself said something to the effect that if we hired half the population to dig holes, and the other half to fill the holes, this would boost the GDP. Does it make any moral sense to encourage destructive and/or wasteful activity because it makes the GDP look good?
We should focus on asking "what kind of legal and economic conditions would enable all to prosper?"
The proper answer is unlikely to be "let us take a lot of money from people, whether by borrowing, taxing, or inflating, and give it to Wall Street and other people with political power."
Whatever government spends is taken from some other part of our economy. Politicians need to stop this insane and immoral single-column accounting, which looks only at the spending side of the ledger, and counts it all as an unalloyed good. There are costs to these political activities - dollars taken from people; opportunities foregone; and in the case of war, people killed and maimed - which are neither measured nor even acknowledged by politicians.
During 6 of the 12 years of the Great Depression, the GDP grew over 7%.
Recessions are defined by two consecutive quarters of negative GDP. If we have a positive quarter, by definition, the recession is over. What you make of that is your own affair, but as defined, it is not longer a recession.
Unemployment does not affect a recession. Unemployment typical rises during a recession and falls once it is over, but that is just an effect of the recession, not the recession itself.
Unemployment is a lagging indicator of economic prosperity. Just as it took several months after the recession began for unemployment to spike, so it will take a few months for it to fall.
Just because you don't understand something doesn't make it stupid or wrong, unless you write for Jay Leno.
It is a given that most of us do not understand 'recession'. The people in power use it to justify their actions so they can get our votes. As a layman, battered by the 'recession' when they say "the recession is over" I damn well want it to mean that when I look for a job, I will find one. Otherwise, the term I would use is not stupid, I would use deceit as in when you are a writer for Fox News.
To which I can only repeat, "Who cares if the recession is over?"
And just because you DO understand something doesn't make it NOT stupid.
I like the way you think. I second that opinion, wholeheartedly.
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