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Looking Backward: Economics and the Cult of Yesterday

GDP and productivity don't measure what's really going on in the economy—or in people's lives. Jonathan Rowe on measuring what matters.
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Street art in London.

Photo by Antony Robbins for Overseas Development Institute

One reason that the nation has not made more progress toward an economic “recovery” is that the people in charge really don’t know what one would look like. The top economists in Washington don’t appear to have asked the obvious question, “Recovery of what—and for what?” Instead they have followed the old drill, tried to rekindle the old flame, and remained wedded to the old guideposts that leave them looking at yesterday and trying to see tomorrow.

Just recently, the president of France realized the stupidity. He has decided that his nation’s measures of economic health need to change to account for today’s challenges instead of yesterday’s. As Washington gears up to spend billions in more “stimulus,” it would help to ask exactly what it is trying to stimulate—and most importantly, exactly what would constitute success.

Economic indicators are our national psyche's main gauges, the mirror into which we look to see how things are going. In a market culture—which is to say, a money culture—the prospects for money become the prospects for ourselves. Such metrics as the Gross Domestic Product (GDP) have an oracular status; reporters watch them obsessively, policy experts steer by them, and politicians march to their command.

Yet for the most part the indicators are a crock and testimony to the grip of yesterday upon the expert economic mind. The prime example is the GDP, the anachronism of which is a secret, it seems, only within the media and policy establishments that invoke it constantly. Any measure that portrays an increase in car crashes, cancer, marital breakdown, kinky mortgages, oil use, and gambling as evidence of advance—as the GDP does—simply because they occasion the expenditure of money has a tenuous claim to being reality-based discourse.

Metrics are silent rulers, in both senses of the word. In defining the task, they also define the steps we must take to carry it out.

Yet whenever a policy expert or news analyst intones about the need for “growth,” more GDP is what they mean. The two are the same. Is it really surprising that most of these experts didn’t see the crash coming, when they were steering largely by a compass that portrays rising debt payments as additions to the GDP—and therefore as beneficial growth?

Another example is “productivity,” which, if anything, is even more totemic. An increase in output per hour worked—which is the reigning definition—is deemed the stairway to economic heaven, and the goal most devoutly to be sought, no further questions asked. Thus the excitement recently when the Commerce Department reported that productivity had increased at an annual rate of 9.5 percent during the third quarter of 2009.

But exactly why is this such good news? “Generally, when U.S. workers are more productive that’s a really good thing for the economy,” observed a writer on the Atlantic's website. “It means a higher GDP will result.” The statement is standard issue, and remarkable only in its circularity (and that the ratio of fallacy to sentence is one to one).

French cafeThe Economics of Happiness
In France, a commission of leading economists suggests that nations look beyond GDP.

Take first the part about the “higher GDP” that rising productivity betokens. To say it’s a good thing for “the economy” is redundant. The GDP is the economy, as economists define it. It is the part of life that operates through the transaction of money. The question is whether a rising GDP is necessarily a good thing for the people who comprise the economy, and for whom it is supposed to exist.

The Atlantic ought to know the answer. Back in the 90s, I co-authored an article for that magazine called “If the GDP Is Up, Why Is America Down?” which laid out the fallacies of that indicator in all their perverse splendor. We showed in detail why, increasingly, a rising GDP suggests that lives are getting worse, not better. If interest on your credit card debt doubles this year, it’s a boost for the GDP. Is it a boost for you? Likewise, sickness and the consequent medical treatment is good for the GDP. Health is not. (Another take is here.)

Yet now that same magazine was repeating the very fallacy that it itself had debunked. This is common. No matter how many articles appear on the imbecility of the GDP as a gauge of well-being—the New York Times alone has run at least a couple over the past year or so—those same publications are back to reciting the GDP mantra the very next day. (Sometimes it’s the same day.)

It is as though in economics, evidence doesn’t matter where underlying assumptions are concerned. Belief trumps actuality. As Gunnar Myrdal, the Swedish economist, once put it, in economics, “all doctrines persist.” In real sciences, theories change constantly to accommodate new information. In economics, the basic model hasn’t changed in more than 200 years. Which suggests that economics isn’t really science, but rather religion in mathematical disguise.

But back to productivity. The Atlantic post also asserts that rising productivity figures mean that “workers are being more productive.” This, too, is rote formulation: We Americans are working harder and smarter and therefore are turning out more stuff per hour. The thought appeals to our sense of virtue, but is it really what is going on?

Let’s leave aside technical issues, such as the way the data attributes parts made cheaply abroad to the productivity of American workers who assemble those parts into finished products here in the U.S. Leave aside too the obvious conundrum—doesn’t the quest to eliminate work eventually lead to less work to go around? (Economists say it bestirs more work, not less. We’ll see.)

Let’s leave aside as well the way the benefits of increased productivity have been going to executives and shareholders in recent years, rather than to workers in the form of higher wages or more time off.

The question here is more specific—namely, is productivity really what the term suggests? Or is it another case of language that sounds technical and scientific, but that is disconnected from reality? Consider the computer, which was hyped as the ultimate productivity machine. Alan Greenspan, the former Federal Reserve Board chairman, was practically rhapsodic on the subject. Yet the impact of computers in the workplace has been somewhat ambiguous. Increases in output have been canceled to varying degrees by the overhead the things entail: burgeoning IT departments, crashes and lost data, constant security measures, and a fortune in software updates and printer cartridges.

Sickness and the consequent medical treatment is good for the GDP. Health is not.

But in another way computers have been an unambiguous success, because they have enabled corporations to shift a substantial portion of their workload onto their customers. If you ever have made an airline reservation online, or tried to get your credit score, or filled out an application for insurance, you have spent many minutes and even hours doing data entry that company employees used to do. If you have sought help with a computer problem, you likely have been directed to an online forum in which you must rely on other customers, rather than company employees. (I rarely get a good answer; usually I can’t even find my question. Plus it can take hours—on my clock, not theirs.)

Seen through the euphemistic lens of the productivity metrics, this is a minor miracle. The corporation is spending less on labor than it was before, but is making more money. But that’s not because its employees are working harder or smarter. It is because they’ve been laid off and we customers are doing the work they once did. The cause of corporate production has been boosted by an unpaid labor force—namely ourselves. The same thing happens offline at self-service gas pumps and big box stores where few employees walk the floor so that we have to search the aisles on our own.

Yet the metrics portray the resulting hours of unpaid labor as an advance in productivity. And that’s just one disconnect between the word and the reality. Take the tricky question of services and the productivity of those that provide them. How exactly to determine the productivity of a mortgage banker—by the dollar value of the subprime mortgages he or she churns out? Or how about a teacher? A while back, a prominent economist at Harvard proposed that the productivity of education be determined by the incomes of those who receive it. (The money fixation of the economic mind can lead it to strange shifts.)

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