I‘ve written several articles on these pages about Environmental & Social Economics, explaining a number of measures of well-being that would be much better measures of a country’s economic health than GDP. But governments continue to compute, and announce with great fanfare, the monthly GDP numbers as if they were the ultimate measure of human accomplishment, and the media and stock-brokers meekly repeat the propaganda and the myth that it is meaningful, while providing no publicity for, or analysis of, alternative, better measures.

Maybe what’s needed is to completely discredit GDP, which its inventors never intended to be used for the purposes it is used today.

What exactly is GDP? There are a lot of articles written explaining its computation (most of them incomprehensible to those without an economics degree), and at least four dramatically different ways to compute it. But let’s make it simple:

GDP is the sum of all consumer, corporate and government purchases and investments, adjusted for net imports or exports and for price inflation.

The value of goods is assumed to be what people are prepared to pay for them. Since there is no reliable way of quantifying the value of services, GDP uses the total labour-hours is used as a surrogate. So, bottom line, GDP is the sum of the amount of Stuff Made + the amount of Time Worked. The utility of Stuff Made or of Time Worked doesn’t matter: If the government pays $150 to a defense contractor for an aircraft bolt, that’s what it’s “worth” for GDP purposes. If consumers pay $25 for a CD because the media oligopoly allows them to fix prices, that’s what it’s worth. Since volunteer work and housework are not paid for, for GDP purposes they’re worth zero. Barter transactions involve no exchange of money, so they’re worth zero. If loggers clear-cut a forest and turn the wood to pulp for newsprint, the value of the newsprint is added to GDP. The uncut forest is worth zero. The GDP reduction for the lost forest is zero, until and unless it is reforested, in which case the cost of the reforestation is also added to GDP. The environmental cost of the Exxon Valdez disaster is not subtracted from GDP, rather, the cost of cleanup, and the lawyers’ fees for both sides in the fifteen-year lawsuit, are all added to GDP. The replacement of decent wages with minimum-wage jobs due to offshoring has no impact on GDP, but if the laid-off workers turn to crime, the additional cost of police and incarceration are both added to GDP. If people are paid to dig ditches and then fill them in again, both activities are added to GDP. If poor service takes five times as long to render as good service, then poor service is ‘valued’ for GDP purposes, five times as much as good service.

In most years in the last century, and especially in the first years of this one, war has been the main business of America, and the largest single component of GDP.

GDP is all about quantity of stuff made and time worked; quality is not a factor. In fact, if making shoddy products forces people to replace them more often, that increases GDP. And the cost of shipping the additional garbage to the landfill and managing the landfill site also increases GDP.

Here, by contrast, is how the Genuine Progress Indicator is calculated (from Redefining Progress):

The Genuine Progress Indicator (GPI) starts with those the value of personal economic activity that is relevant to well-being. It then adjusts them for aspects of the economy that the GDP ignores. It assesses the well-being of households, rather than focusing exclusively on the number of dollars they spend. Personal consumption expenditures are then adjusted for disparity of income distribution using the Gini coefficient. The following non-monetary benefitsóignored by the GDPóare the added in: (a) the value of time spent on household work, parenting, and volunteer work; (b) the value of service work done on consumer durables (such as cars and refrigerators); and (c) improvements to public services such as highways and streets. The GPI then subtracts these costs, expenditures that do not improve well-being: (a) defensive expenditures, money spent to maintain the householdís level of comfort, security, or satisfaction, in the face of declines in quality of life due to such factors as crime, auto accidents, or pollution; (b) social costs, such as the cost of divorce, crime, and loss of leisure time; (c) the depreciation of environmental assets and natural resources; (d) the cost of money borrowed from abroad to finance consumption rather than investment.

Now, we have to ask ourselves Who really cares only about how much stuff is produced and how many hours are worked? They are the ones who benefit from perpetrating the myth that an increasing GDP is something to strive for. The people who prefer this index are those that are producing a poor quality product, or a product that the public places a low value on, and those who are providing poor quality service, or a service (like waging a war under false pretenses) that the public places a low value on. And those who are underpaying their workers or compelling them to work fierce hours and neglect their families to make ends meet. And those who can hawk overpriced investments only as long as people believe the economy is healthy. And those who want to reduce government services and redistribute taxpayers’ money to the rich. The continued use of the worthless GDP index benefits these people, and no one else.

So what do we do about it? How do we get the media to stop reporting GDP, and instead report GPI and other measures of true well-being and true economic health? And how do we get the media to tell the people that the US economy is essentially bankrupt, and that their stock market and other $US investments are wildly overpriced and headed for an inevitable and precipitous fall?

Well, we don’t. The media, after all, are themselves driven by the mandate to continuously increase the value of their shares. That means they need to perpetuate the myth that the economy is healthy, GDP is meaningful, and the stock market isn’t horribly overpriced. As I mentioned in my Eight Fronts post:

We need to give up on the mainstream US media, which are in a hopeless conflict of interest, beholden as they are to their corporate owners who are in turn beholden to the government in which they invest millions of dollars and depend for their oligopoly rights. The US needs media that are free to report objectively, and that means they cannot be corporate-controlled. We need to build a network of television and radio stations and newspapers that are nation-wide and funded by an independent public foundation. Investigative reporting, not a progressive viewpoint, is what will bring these stations their audience and the influx of funding from average Americans of all political stripes. Blogs and the IndyMedia are a great foundation and a great source of programming content and talent for these new alternative media, but we need to reach the 80% of Americans who do not get the bulk of their news online, and we even need to reach those who get their online news exclusively from one extreme of the political spectrum or the other. Blinkers, even progressive blinkers, are no answer. We need objective, factual information, unrestricted investigation and fair and balanced analysis, not more Faux News.

Part of that fair and balanced analysis would be objective and unbiased economic analysis, including a refusal to publicize GDP numbers and other corporatist propaganda. It would include revelations of the disastrous condition of the US economy, driven by extravagant war spending, reckless tax cuts, and the running of catastrophic budget and trade deficits. It would include development and publicizing of GPI and other, even better measures of true economic health and well-being. It would include arguments and a process to smash the corporatist economic hegemony and reinvest the money large oligopolies are currently stealing from the American people, into a robust entrepreneurial economy that would benefit all Americans. And it would include desperately-needed investment advice that would quickly allow Americans to extricate the money they have tied up in overpriced stocks and high-risk US dollar denominated securities, before they lose their pensions and their life savings.

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  1. marty says:

    “Part of that fair and balanced analysis would be objective and unbiased economic analysis, including a refusal to publicize GDP numbers and other corporatist propaganda.”Dave – do you really believe that reporting GDP numbers is a conspiracy to mislead? GDP is as old as economics itself. Yes, you are making strong points about better measures, but, I’m seeing a pattern – you can’t seem to let go of blaming and bashing others. Many blogs eventually lead to something someone did to screw up the situation and how unresponsible they are. You’re drawn to it like water to a drain. I don’t know if “how to save the world” is really your goal or not – maybe you do use this as an outlet to let others know how you feel about Bush, et al. but I will pass on something someone very wise once told me when trying to fix something – “don’t blame others, just fix the problem.” Blaming others is crowding out the creative juices required to actually come up with solutions that work. And if you believe that others ARE the problem, then I would submit to you that the problem isn’t adequately defined. yours respectfully,

  2. Dave Pollard says:

    Marty: Sorry you think I come across that way — I’ve always been almost obsessed with constructive criticism, and rarely rant on these pages without suggesting something that I think would work, and be better. GDP isn’t that old, it was never intended by its ‘inventors’ to be a bellwether for the health of the economy (it really was meant to be a measure of production volume, and nothing more), and it’s not a conspiracy, it’s lazy reporting, a bad habit that will only be broken when someone points it out for what it is.

  3. sean orr says:

    Thanks for posting this. Its time to put an end to autistic economics.

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