Thursday, May 28, 2009

The People Vs GDP

by Mort Malkin

The People Versus GDP

The economy of a country is supposed to measure the well being of the people. Well being is the sum of many factors: health, standard of living, happiness, work satisfaction, a clean environment, leisure time activities, a community with caring people, strength of civil liberties in society, peace… Love, too, if you’re lucky.

Why isn’t money included? Because nowadays money is an artificial construct. The federal reserve notes we call money don’t promise so many grams of gold or ounces of silver anymore. Not even pounds of small red potatoes. Yet worse is when Wall Street’s investment “banks” create innovative new “products”: collateralized debt obligations, bundles of consumer and commercial paper, credit defaults swaps, and other such Ponzi schemes. You almost certainly need a magnifying glass to read the fine print. What the words mean is another matter. When the best & brightest leading the Treasury Department tell us and our Congressional representatives “You may not understand it – but just trust us,” you know it’s time to ask how many off-shore subsidiaries (P.O. boxes) the bank maintains.

Yet, money is counted as the basis of our economy. The dollars exchanged for goods and services total out to gross domestic product (GDP). The practitioners of the dismal science (economics) tell us that a healthy economy grows at 3% or better each year (in terms of GDP). Today’s economic murkiness is told by Tim Geithner and Lawrence Summers who perpetuate the GDP myth as if it’s a law of the universe. Still, there are a number of things in society that have great value but don’t involve the transfer of money. Here’s a short list: parental child care, planting a garden (not a lawn, which is only a step up from Astroturf), doing a favor for a neighbor, volunteering at the library, membership in the PTA, gathering wild edibles for your dinner table, making yogurt, tree sitting an old growth tree so it won’t be cut but continue to absorb CO2 from the air, home meal preparation, mending clothes, barn raising in a rural community… All have value and contribute toward the wealth of a nation, but are not measured by GDP. Nor does GDP inform you of the distribution of (excuse the expression) money. If a nation is divided into two classes – the few very rich and the many very poor – GDP doesn’t measure the wealth of the people as a whole. Many republics of Central and South America, under instructions from the US and the IMF, used to maintain a two-level economy of wealthy land owners and landless peasants. Military leaders trained at the School of the Americas insured law & order. These nations were fine examples of peace and prosperity (for the corporations that dealt in native resources such as tin, copper, and bananas).

GDP not only leaves out valuable productive activity, it places a premium on economic activity stimulated by “regrettables” such as the Exxon oil spill, the Sichuan earthquake, the prostate cancer epidemic in the US, and the Iraq and Afghanistan wars. Money is spent as a result of each, but society is not richer except for Blackwater (Xe) and Halliburton (KBR).

No accountant would accept a company’s statement of accounts and financial health based in the way a nation boasts about its expanding GDP. GDP just measures cash flow but not how rich a nation is. Let’s compare nations. Nation A has high mountains, great rivers, yearly salmon runs, old tree forests, deep water ports, three feet deep top soil, and a cottage industry making dark chocolate. Nation B boasts tall buildings (concrete canyons) with men and women dressed in suits carrying briefcases who: exchange stock certificates for newly formed companies, bundle IOUs to sell to investors, buy and sell pork bellies in futures markets, and store Treasury Notes that rely on the full faith and credit of the United States. They are addicted to investing on margin just as consumers are addicted to shopping on credit. If the first country does not churn dollars in big box quantities, it will be considered Third World. The second country, that does, would be a member of the G20.

Is a nation rich because it values the size of its army and how many times over it can destroy an enemy by pressing “engage” buttons? Or is it rich in poets, artists, philosophers, astro physicists, and theoretical mathematicians? Does it spend as much time and money on public health and disease prevention as it does on diagnosing and treating illness? In ancient Greek and Roman times, leisure and tranquility were especially valued. Today, we have no time for leisure. We work hard, and we play hard. Tranquility is an endangered quality of being, if not altogether extinct. Can you imagine a Secretary of the Treasury counting tranquility in GDP?

Why is an economy defined as healthy when we buy more stuff (quantity of life) and spend more money on war, crime, disease, and disasters than we did the previous year by 3% or more? You would think that happiness would vary directly with more money and more stuff. But the research surveys say that once you’ve reached a level of income that supplies basic necessities and a moderate degree of comfort, happiness depends on other factors. Even Cindy McCain could be comfortable with fewer than ten houses and outfits that cost less than five figures each.

We need a new economic order – one that values clean air, pure water, wetlands, uncut forests, paid and unpaid work that contributes to the quality of life. Part of the new order in undeveloped countries would include social forestry where mixed tropical forests could provide firewood, fodder, food, rubber, and wood for crafts – all harvested sustainably.

The UN has taken a step with its System of National accounts. But UNSNA does not include housework and gardening, for example. The UN’s Human Development Index adds life expectancy and adult literacy. The best assessment of all has been delineated by the think tank, Redefining Progress. Its Genuine Progress Indicator (GPI) is a ledger of productivity (especially for such goods as bicycles, kayaks, and walking shoes) versus costs such as resource depletion, crime and punishment, air and water pollution, and the loss of wetlands (such as those that once protected New Orleans). We only need to add on the assets side: gathering wild vegetables (wildcrafting) breast feeding, and reading bedtime stories to grandchildren. A few priceless things to add to the bottom line.

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