And yet, amid the anxiety, GDP, the aggregate value of the economy’s goods and services, is posting solid growth rates, the job-creation engine is humming, and the unemployment rate is low and likely headed lower.
At the same time, a recent Gallup/Sharecare survey of American’s well-being found, according to Heather Long of The Washington Post, that “ … Americans are more glum now than they were during the Great Recession. … While most Americans do feel the economy is improving, the data shows, they don’t think their overall well-being is going up.”
I tapped this notion — that GDP and well-being are far from synonymous — a few weeks ago on this page in an interview with David Pilling, author of “The Growth Delusion.” Pilling’s take adds an important nuance: As low-income countries begin to raise their GDP per capita, well-being does tend to increase commensurately. But after a point, the relationship begins to break down.
Many of our economic statistics, analyses and reporting ignore this disconnect. Build a new shopping mall over a vital wetland, and our accounts register only the pluses. It’s actually worse: If climate change leads to greater vulnerability to destructive weather in a way that forces us to more frequently rebuild after “natural” disasters, that’s a further plus to GDP (that’s because it’s “gross” domestic product, not net, so such losses don’t get netted out).
Increased crime leading to increased security? Yet another plus-up for GDP.
We also encounter this measurement problem in policy analysis. One impact of the Affordable Care Act was the unlocking of job lock: People stuck in a job they didn’t want but needed to get health care could quit and get coverage through the exchanges. When the Congressional Budget Office analyzed this impact, it was scored as reducing labor supply with commensurate negative effects on national income. This became an oft-heard arguing point against the legislation, even though it was unquestionably the case that some of these workers were clearly better off in terms of their personal well-being (CBO, to be clear, accurately made this distinction).
Growth bench marks’ stranglehold on policy are most evident today in the environmental space. Regulations on pollution are increasingly evaluated, at least at the federal level (as opposed to in California, for example), solely in regard to their impact on jobs and growth. In fact, growth cheerleaders typically argue their case in terms of trade-offs: more coal ash in our water against more jobs in energy extraction. But as Pilling says, “You can’t call it a tradeoff if you only measure one side of the equation.”
So, should we stop measuring GDP and start measuring happiness? In fact, the World Happiness Report is a serious bit of work that I find convincing, even though (or perhaps because) those Scandinavians crush the rest of us every year. (Among the OECD countries, the United States was third in 2007; in 2016, we came in 19th because of “declining social support and increased corruption” … and that was pre-Trump!) Such metrics can help identify the mental cost of societal breakdowns like those noted at the beginning of this post.
Still, once you get past basic freedoms, needs, protections and political functionality, happiness can get squishy. As I write this, my family is away on vacation and I’m home. Bummer, right? Nope. I love a staycation. I’m writing on my porch on a perfect spring day with two kitties snoozing nearby, a.k.a., heaven on earth. People’s disparate preferences make it tough to get a granular read on happiness.
So, here’s what I think we should do. As Pilling stresses, it takes a village of different metrics to capture society’s well-being. I’d keep GDP in the mix — it’s a useful, albeit limited, measure of gross, aggregate incomes. And for all my disparagement of it, I’ll be the first to ring alarm bells when it’s going down (i.e., recessions).
But here’s some of what we should be looking at as well:
Medians, not averages (accounting for inequality). In our era of rising inequality, averages (like per-person GDP) are increasingly unrepresentative of most people’s experiences. According to real wage data from the Economic Policy Institute, since 1973, average wage growth outpaced the median by a factor of four.
Wealth, not income. GDP, as well as our national fiscal accounts, ignores wealth. This is a portentous mistake for many reasons. First, wealth enables productive investment (e.g., in education or housing), a key determinant of future well-being. Second, the wealth distribution is far more unequal than that of income, especially by race. Third, as budget analyst Richard Kogan points out, the notion of a U.S. debt crisis is overblown, because it doesn’t account for our national assets which are much larger and are growing faster than our debts “and have been for almost all our history.”
Net, not gross. This is the most important, but it’s also the most demanding. Our economic measures should net out not just used-up equipment (that would be net domestic product, which we do measure), but environmental degradation. And netting out isn’t all negative (though it would mostly be so). Net accounts should reflect additions to wealth, like what our education system adds to our stock of human capital, or the environmental benefits of shifting away from coal.
Clearly, this is just a beginning. But the first step is to wean ourselves off GDP, remove it from its pedestal, and put it in its proper place. It’s but one measurement tool, and, for advanced economies like ours, not even one of the most important.