GDP Alternatives to Quantify Inpriceable Prosperity

GDP Alternatives to Quantify Inpriceable Prosperity


What’s the best way to measure a country’s economic growth
and the prosperity of its citizens? Some think the U.S. government
is using the wrong yardstick, particularly amid concerns about income inequality
and other quality-of-life issues. Our economics correspondent,
Paul Solman, takes a look at alternatives to the quarterly report
known as GDP. But, first, he had to penetrate
a batch of confusing initials. It’s part of his ongoing reporting
Making Sense of financial news. (Paul Solman)
In 1968 then presidential candidate Robert Kennedy blasted our country’s
main measure of economic progress, called GNP in those days. [Robert Kennedy recording]
It counts napalm and it counts nuclear warheads, yet the gross national product
does not allow for the health of our children, the quality of their education,
or the joy of their play. It measures everything in short,
except that which makes life worthwhile. (Solman)
These days we rely on GDP, gross domestic product,
GNP’s near proxy, which measures the total dollar value of goods and services sold
in the U.S. in a year, plus exports, minus imports. The measure still leaves out
the things Kennedy emphasized, but that’s because
they’re just too tough to measure. They’re very large and they’re quite uncertain
in their magnitude. (Solman)
Steve Landefeld runs the Bureau of Economic Analysis, the BEA,
which tallies the GDP. The BEA sticks to measures
of market transactions. And the data has become fundamental. (Landefeld)
It is used by the Federal Reserve Board for economic policy. Our consumer spending inflation rate
comes from us. The entire federal budget is based
on the baseline that comes out of BEA’s data. The GDP has become
the king of all statistics. (Solman)
And the king for almost all countries, adds economics writer
Zachary Karabell. Governors rise and fall
on their ability to say, I enhanced GDP, or the populace’s ability to say,
no, you didn’t, and, you know, GDP went down
under your watch. (Solman)
But how does GDP’s still-lofty status square with Robert Kennedy’s
1968 critique, or with more recent
evidence of its limits, which Nobel economist
Joseph Stiglitz has pointed out. (Stiglitz)
Thirty years ago, we weren’t talking
about climate change. Environmental degradation
was not as important as it is today. (Solman)
In 2009, Stiglitz chaired an international panel tasked with finding better measures
of progress that included the environment
and economic inequality. (Stiglitz)
GDP has been going up per capita, but most Americans are
actually worse off, so median household income
is actually falling. (Solman)
Like them or not, better prosperity gauges
are hardly a novel innovation. Since the 1970s, for example,
in the Himalayas, the Buddhist kingdom of Bhutan, with GDP per person less
than that of the Congo, has used gross national
happiness instead. It’s GNH score turns out
to be as elevated as its location. And back down here
at sea level, there’s the GPI. It simply takes into account
not only our economy, but the health of our environment,
the health of our society. (Solman)
Dave Goshorn works for Maryland, the first U.S. state to adopt a metric
called the Genuine Progress Indicator, made up of 26 different factors,
nine of them environmental. He walked us
around Annapolis to explain. When we cut down an acre of trees
to put a strip mall in, that strip mall puts people to work, it contributes to our economy,
our tax base. All those are very good things. (Solman)
And it’s GDP is going up as a result. (Goshorn)
Exactly. At the same time, it is costing us to clean up
the water that is degraded as a result of taking away
those trees. We as a society recognize that, but we don’t account
for that in the GDP. And the GPI is a way of doing that. (Solman)
The GPI does it by subtracting an estimated value of water pollution
from total economic output, also subtracted,
the presumed costs of climate change. In Maryland, we have sea level,
as a result in part of climate change, is increasing considerably,
a foot over the past century. (Solman)
So, one foot right here, this is a foot higher
than it was a century ago? (Goshorn)
Yes, and the best projections are that that rate will increase
over the next century, even faster than a foot. That has major impacts
to a lot of our low-lying lands— islands, shorelines
where people live, farm fields that are now
inundated with saltwater where they can’t produce crops. (Solman)
And how do you put a number on cropless fields
or polluted water? (Goshorn)
Economists have gone out and surveyed the general public
and asked them questions such as: What would you be willing to pay to bring your local river up to a state
where you could swim in it? (Solman)
In a national comparison of the two measures, GPI and GDP grew together
until about 1980, when GPI flatlined. In Maryland, GPI has
risen modestly since then, but it still trails GDP growth. I hear on the news all the time,
when people comment about, well, the economic indicators
are looking up, we’re coming out of the recession,
you frequently hear people comment, but I don’t feel any better. And I think this is
a reflection of that. (Solman)
And that in turn may hinge on another component of the GPI:
social well-being. Annapolis being the landing place for the hero of Alex Haley’s
“Roots,” Kunta Kinte, we took a seat next to the author
to probe the value of leisure. How do calculate the value of, say,
Alex Haley reading to these kids? (Goshorn)
Well, if it counts as education, the value of an education
is included in the GPI. If you count it as leisure time, not having that time is counted
as a loss in the GPI. And we also have
the value of housework, which includes things like
cleaning the house and dusting, but also interacting
with your children. That’s a value
that’s in the GPI. (Solman)
What about air pollution from cars, or the amount of time it takes you
to commute to work? (Goshorn)
Cost of commuting is considered in the GPI. And that is one that’s hurting Maryland,
because here in Maryland, we spend more time in our cars
commuting to and from work than most states in the nation. (Solman)
But people will tell you that a great radio show comes on
and they go, wait a second, I’m listening to NPR
and loving my commute! (Goshorn)
Exactly. And, to some degree, what we’re doing with the GPI
is putting a price on the unpriceable. But at least we’re being consistent
and seeing whether they go up or down. (Solman)
Maryland’s GPI is boosted by a highly educated population,
but, remember, even here, GPI hasn’t gone up as much as GDP,
for years now. So, why? Goshorn says a big reason is what
Joe Stiglitz highlighted in 2009: rising economic inequality. The same amount of money
spent by a few very wealthy people would be attributed differently to the GPI
than an equal amount of money spent a little bit by a lot of people. (Solman)
So imagine that, in the extreme, one Marylander earned
most of the state’s money, and amassed a fleet
of fully loaded Mercedes she never drove, while the rest were reduced
to commuting by bus. In that case, GDP might rise, since car sales boost
the value of total output, but overall welfare wouldn’t. It’s a subtle point,
a debatable one. But even the BEA’s
Steve Landefeld agrees. (Landefeld)
Distribution of income may be the answer to me to this problem of the disconnect
between GDP and GDP per capita going up and most Americans feeling down. (Solman)
But Landefeld has serious reservations about alternatives like the GPI. The subjectivity is
the Achilles’ heel of it. How much do I subtract
for the commuting time? You know, if I enjoy my commute,
maybe it’s one thing, maybe not. They end up being systems of indicators
that are troubling for an economist who is trying to put together
objective accounts, or at least not make
normative judgments about what should be. (Solman)
Then again, all economic indicators involve some subjectivity,
says Zachary Karabell. One synthetic number that purports to describe
lived reality with an average has to make choices
about what you include, what do you add,
what do you exclude, because you can’t include everything. (Solman)
And so long as you don’t, you can’t really quantify
human well-being, especially if there’s
any truth to the maxim that the best things in life are free. The GDP report
for the first quarter of 2014 is due Wednesday. Read Paul’s extended conversation
with author Zachary Karabell about how relying on
an outdated short-term measurement could reduce prosperity
over the long term. That’s on Making Sense.

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