Looking Backward: Economics and the Cult of Yesterday

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.

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The Gross Domestic Product

Testimony of Jonathan Rowe
Co-director of the West Marin Commons
Before the U.S. Senate Committee on Commerce, Science and Transportation
Subcommittee on Interstate Commerce, Trade and Tourism
March 12, 2008

Mr. Chairman and Members of the Committee:

Let’s suppose that the head of a federal agency came before this committee and reported with pride that agency employees had burned 10% more calories in the workplace than they did the year before. Not only that – they had spent 10% more money too.

I have a feeling you would want to know more. What were these employees doing when they burnt those calories? What did they spend that money on? Most important, what were the results? Expenditure is a means not an end; and to assess the health of an agency, or system, or whatever, you need to know what it has accomplished, not just how much motion it has generated and money it has spent. . The point seems obvious. Yet Congress does this very thing every day, and usually many times a day, when it talks about this thing called “the economy.” The administration and the media do it too. Every time you say that the “economy” is up, or that you want to “stimulate” it, or get it going again, or whatever words you use, this is what you actually are saying. You are urging more expenditure and motion without regard to what that expenditure is and what it might accomplish – and without regard to what it might crowd out or displace in the process.

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Is Happiness a Commons?

Gunnar Myrdal, the late Swedish economist, once noted the strange tendency of his profession to barricade itself against human reality. In true sciences, such as biochemistry and physics, hypotheses are tested and disproven all the time. In the pseudo-science of economics, by contrast, “all doctrines persist.”

None persists more stubbornly than the belief that an increase in monetary transactions — that is, “growth” — means a corresponding increase in human well-being. This belief is enshrined in the conventional measure of progress, the Gross Domestic Product, or GDP. The more money we spend the better we are doing, the cult of GDP proclaims, regardless what we spend that money on and the effects. People have been pointing out the absurdity of this belief for decades.

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Grossly Distorting Perception

Several months ago a professor at the University of North Carolina published research that turned beliefs about the economy upside down. Health improves, he said, as the economy shrinks. And as the economy declines, deaths, smoking, obesity, heavy drinking, heart disease and some kinds of back problems all decline as well.

‘Sounds unlikely’, said a New York Times correspondent. And indeed it is, at least by standard reckonings. We all know that an expanding economy makes us better off. Or do we? Another study, from the UK, found that shopping, which is the driving force of the entire economy and which is supposed to make people feel good, can actually make us depressed. ‘For significant numbers, dissatisfaction is now part of the shopping process,’ one of the authors wrote. (As though we needed a study to tell us that.)

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The Global Accounting Scam

Several months ago a professor at the University of North Carolina published findings that turned beliefs about the economy upside down. Health improves, he said, as the economy goes down. When the economy declines, to a point at least, deaths, smoking, obesity, heavy drinking, heart disease and some kinds of back problems all decline as well.

“Sounds unlikely,” said the New York Times. And indeed it is, by the standard reckonings at least. We all know that an expanding economy makes us better off — or do we? Another study, this one in England, found that shopping, which is the drive train of the entire economy, and which is supposed to make people feel good, actually can make them depressed. “For significant numbers, dissatisfaction is now part of the shopping process,” one of the authors said. (As though we needed a study to tell us that.)

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The GDP Myth

George Orwell really did see it coming. “As soon as certain topics are raised,” he wrote, “the concrete melts into the abstract.” Nowhere does it melt more quickly than in economics. Public discussion of the economy is a hothouse of evasive abstraction. Opinionators and politicians rarely name what they are talking about. Instead they waft into generalities they learned in Economics 101.

The President’s State of the Union Address was a case in point. The President boasted of the “longest peacetime expansion of our history.” That’s how pols always talk. It sounds like truly wonderful news. But what actually has been expanding? A lot of things can grow, and do. Waistlines grow. Medical bills grow. Traffic, debt, and stress all grow. We can’t know whether an “expansion” is good or not unless we know what it includes. Yet the President didn’t tell, and the media hordes didn’t ask, which was typical too.

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Replace the GDP

Adam Smith said that the final measure of an economy is the well-being of the people. Yet this is the one question that the policy establishment never asks. The government studies the supposed means to that end in exacting detail. It can tell us how many televisions we buy, how much money the drug or record industry invests, practically down to the last penny.

But nobody bothers to ask whether such means actually bring about the. desired end. Economists simply assume it, and this assumption is the implicit baseline of just about every policy debate in Washington. More consumption or investment will bring about more well-being, regardless of what that consumption and investment consist and the actual impact on people’s lives.

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If the GDP Is Up, Why Is America Down?

Throughout the tumult of the elections last year political commentators were perplexed by a stubborn fact. The economy was performing splendidly, at least according to the standard measurements. Productivity and employment were up; inflation was under control. The World Economic Forum, in Switzerland, declared that the United States had regained its position as the most competitive economy on earth, after years of Japanese dominance.

The Clinton Administration waited expectantly, but the applause never came. Voters didn’t feel better, even though economists said they should. The economy as economists define it was booming, but the individuals who compose it–or a great many of them, at least–were not. President Bill Clinton actually sent his economic advisers on the road to persuade Americans that their experience was wrong and the indicators were right.

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