Grossly Distorting Perception


The Ecologist


Browse in Economic Indicators

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.)

What is going on here? How could we feel better when the experts say we should feel worse, and worse we should feel better? Could it be that economists have got it all wrong?

This is the world’s hidden accounting scandal, the one that neither the government nor the media will touch. It concerns the accounting for the entire economy, the way the government purports to determine whether things are getting better or worse. This accounting is called the Gross Domestic Product or GDP. It is central to the big policy debate in Washington and is the template for the policies the USA projects upon the world. The media regard it with a reverence bordering on awe. The Wall Street Journal recently called the GDP ‘the world’s most reliable economic indicator’.

Yet, like the books of Enron and Tyco economic accounting at governmental level is a sham. It portrays regress as progress, and misery as economic advance. If leaders are really looking for chief executives who cook the books, they might well take a look at their own accounts. They truly are a mess.

Adding nauseam

Imagine an accountant who can add but can’t subtract and who is so short-sighted he can’t see past his nose. That is the mentality behind the GDP. The GDP simply adds up the the amount of money that people spend and calls the result growth, which equals good, regardless of where the money went and why.

So the more medical bills you incur, the more junk food your kids eat, the more you sit in traffic and the more your credit-card company rips you off with hidden charges, the better the economy is doing.

At the same time GDP accounting ignores the implications of expenditures that at face value might suggest advance. Perhaps your neighbour loves her new Renault Clio. Perhaps she regards it as a step up in her life. Still, when she drives the thing, she pollutes the air and adds to pressures to put oil rigs near coastal beaches. She takes up more space on the road, contributing to traffic and causing everyone to burn more gas. Honest accounting would show such costs. The GDP ignores them.

Worse, it actually shows such costs as economic gains. All the petrol, the fender-benders, the medical bills arising from exposure to bad air get added to the GDP as evidence of the nation’s growth. Americans spend over $5 billion on petrol they burn while stuck in traffic, going nowhere. That’s $5bn more for the GDP. Cook the planet, cook the books and call the result growth.

It’s this kind of ridiculous accounting that enables governments to claim that action to address global warming would be bad for the economy. If you define regress as progress, then steps to take us forward look as though they would set us back. What’s more, while counting bads as goods, the GDP totally ignores the genuine goods that don’t cost money: the air we breathe; the care that parents and grandparents give their children; the games children play with one another; the quiet of the night. These are invisible in the national accounts.

Only when the economy destroys them and forces us to buy substitutes do the governmental accountants spring to life. Day care counts but mum-and-dad care doesn’t. Driving a car counts but walking does not. The reason is not that government bean-counters are incompetent or ethically challenged. Actually they are top notch. The problem is the antiquated system they are forced to use. It is so out of touch with reality it would be comic – if the consequences weren’t so grim.

Thriving on absurdity

The absurdities of all this have not gone entirely unnoticed. Economists and the media reflect upon them from time to time in a feet-on-the-desk kind of way. But they continue to use the GDP anyway. Watch the news the next time the Treasury releases the quarterly GDP figures. Is there a single reporter or economist who says: ‘Wait a minute. Does this accounting really say what people think it says?’

Not likely. Moreover, they never acknowledge how deep the phoney accounting runs. They might remark occasionally upon the unfortunate side-effects of consumption, what economists call externalities – for example, the way off-road vehicles pollute the air. But the consumption itself is always positive, another step up the mountain of more. ‘A nation is by definition thriving if its major indices [such as GDP] say people are making more things and spending more money on them,’ a writer in the New York Times opined not long ago. ‘By definition’ means there’s no need to observe actual experience and see if it is true.

Blind faith

Yet reporters are supposed to be observers, not theologians, and these talents are desperately needed with regard to the hoary postulates of economic thought. The problem today goes far deeper than externalities. Increasingly the problem is ‘internalities’, the supposed cornucopia itself. Is the economy really thriving when kids nag their parents for junk food or when credit-card companies rip off their customers with billions in hidden charges? Is it thriving when teen magazines induce a pathological body-consciousness in young girls to the benefit of the cosmetic and plastic surgery industries?

According to a recent test, six out of seven brands of ‘off-road’ vehicles are designed to incur major damage – worth over $1400 – from a crash at just five mph. That’s GDP for you.

But let’s face it. The problem is not just the economy. It’s also ourselves.

In the belief system called economics, we all are shrewd little integers of acquisition, who go through life with an unfailing calculus of benefit and gain. Since economists believe us all to be ‘rational’, the sum total of our buying must be the nation’s prosperity and good. That’s the belief embedded in the national accounting – more buying equals more happiness.

Leave aside for the moment the buying the economy thrusts upon us. Leave aside, too, whether it is really so rational to be obsessed with shopping to begin with. If we simply observe the life around us, what we see is – surprise – a lot of bad choices. We see people who seem in constant lament over the bad choices they have made.

Our book shops are full of titles for such people. Support groups proliferate for those who can’t stop eating, drinking, smoking, falling for the wrong people, spending money they don’t have. The pharmaceutical industry is marketing drugs for people who can’t stop shopping. And there are myriad counsellors waiting to counsel them.

Yet somehow, when the accountants put all of these bad decisions together, the result is supposed to be prosperity and growth. And when people start to get control of their lives – when they toss the gin down the toilet, put the credit cards in the freezer and timers on their telephones – we hear dire warnings of a drop in ‘consumer confidence’ and a ‘sluggish’ GDP.

Rejecting the hype

For a McDonald’s, an Exxon or a General Motors, GDP is of great comfort. It turns obesity and pollution into economic advance, and the perpetrators of these into the heroes of the script. Politicians also like the accounting. It enables them to say that in helping their campaign contributors they are actually helping humankind. Oil drilling in wilderness areas is not a plum for the oil industry, they say. Rather, it’s a boost for the GDP.

For the media, meanwhile, the GDP provides a way to turn a complex story into a simple number, one that comes weighted with a combination of government authority and an economists’ expertise. It enables reporters to pontificate about the economies of entire countries without the need to leave their desks. And the fact that the GDP aligns economic reporting with the interests of advertisers doesn’t hurt either.

These mental grooves are deep, and they are set in concrete. They are not likely to change any time soon. But that does not mean we have to follow along. The first step to change is to withdraw our consent. The next time we hear the solemn voices on the BBC talk about the GDP and ‘growth’, we can just chuckle at how out of it they are. As the exposés of corporate corruption have shown to the great pain of many in the USA, phoney accounting can’t cover up reality forever.

Jonathan Rowe is director of the Tomales Bay Institute, California, and a contributing editor of The Washington Monthly. Enough! is a publication of the Center for a New American Dream.

BOX: Isn’t GDP Wonderful?

There are few human misfortunes that do not have a silver lining where the economic mind is concerned. The result is a strange take on the world that permeates the mainstream media yet goes almost entirely unnoted.

• Teenage girls prone to pathological body-consciousness, egged on by images of physical ‘perfection’ that barrage them in teen magazines, have helped create a teen cosmetic industry worth almost $25bn annually.

• Americans owe over $7 trillion in household debt, used to make purchases that boost the GDP. And in a curious twist, the debt interest payments add $100 billion more.

• For the purchases they don’t really need or use, there is the burgeoning self-storage industry and garage extensions on suburban homes to hold the stuff. The accoutrements alone – shelves etc – are expected to become a $650mn business, according to the Wall Street Journal.

• Growth development problems, otherwise known as erectile dysfunction or impotence, is on the increase, which is excellent news for manufacturers of Viagra – in itself a $1.5bn industry in the USA.

• Over 500,000 Americans contribute to the US GDP with purchases made on stolen credit cards. Add to this identity theft insurance which costs over $100 a year per person.

• Economists love web pornography since it adds some $2bn to America’s GDP.

• Gambling is another affliction that contributes impressively to the US GDP – by some $63.3bn a year.

• GDP also thrives on noise pollution – sound-proofing insulation for an apartment ceiling costs about $400. And the 5.2m American children who have damaged hearing from listening to their headphones too loud are an investment in the GDP as later in life many will require treatments and hearing aids.

• More than half of Americans are overweight. Yippeee! Direct medical costs from diabetes alone add some $44bn to the GDP. And over 50,000 Americans had their stomachs stapled last year at a cost of around $20,000 each.

• Manufacturers of soft drinks are targeting children with hyper-caffeinated sodas, with names like Jolt and Code Red. And to calm them down? Easy. Americans spend $758m on the drug Ritalin. GDP heaven – self-perpetuating supply and demand.

• Approximately one-fifth of America’s food goes to waste, and that’s not counting the vast amount that ends up as flab. This adds about $31bn to the GDP, a figure which could feed those who die of starvation each year twice over.

• American motorists sitting in traffic jams spend over $5bn a year on petrol. In Los Angeles alone the figure is close to $1bn. Note, coincidentally, that Los Angeles also leads the nation in the number of hospital admissions for respiratory problems – more medical costs, higher GDP.

• Depressed – excellent. Over seven million Americans take anti-depressants. Prozac alone has generated over $2.5bn a year. Even better, when the Grim Reaper finally arrives, the typical American funeral costs over $5,000, not counting the price of the cemetery and monument.