Measuring Measurements: Rising GDP in the Great Recession

01/11/2010 06:14 pm ET Updated May 25, 2011

Conservatives like to describe their ideal Supreme Court justice as an disinterested 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.