Major Growing Pains


October 21, 1996
U.S. News and World Report


Browse in Economics

It’s a conundrum that has vexed politicians and pundits alike. Despite an economic “expansion” that ranks as one of the longest in the nation’s history, Americans remain unsettled about their economic future. Neither Republican challenger Bob Dole, who stresses the need for more growth, nor Bill Clinton, who is trying to take credit for the current expansion, has been able to assuage the public’s deep, brooding concerns.

The usual explanation for the nation’s economic unease includes the layoffs and two-worker families that lurk beneath the rosy growth figures and the way the fruits of prosperity have been falling mainly to those at the top. But there’s another possible explanation, one that has received much less attention: namely, that much of the rapid growth in recent years actually consists of things Americans want less, not more of.

Indeed, the fastest-growing parts of the U.S. economy today include gambling, prisons and medical treatment. Casino gambling doubled between 1990 and 1994; the private-prison industry has been growing at a 34 percent clip; medical treatment, 27 percent. Technically speaking, those slot machines and crushing hospital bills are part of the upbeat news about which the financial press is crowing. So too is telemarketing, which grew more than 400 percent from 1983 to 1993. Tired of phone solicitations at dinner time? Cheer up. It’s growth.

Even hip new industries like high tech can have a dark lining. Not so long ago, back-to-school ads featured spiral notebooks and maybe shoes. Last fall, they pitched Apple Computers for $ 2,100 plus. If parents feel they’re on a treadmill, that’s part of the reason. Credit card use is up 20 percent, another boom sector. Yet household debt and bankruptcies are at record levels–and perhaps not coincidentally, sales of Prozac have burgeoned, too.

When candidates boast of “robust growth,” or promise yet more of it (last week, Dole’s running mate, Jack Kemp, said his tax proposals would make the economy “roar like Niagara Falls”), they are really talking about things like this. Just possibly, this has something to do with the lukewarm feelings of Americans toward the economy these days–and is one reason the candidates haven’t found a language that connects with the public’s concerns. The debate used to be whether a rising tide lifts all boats. But what happens when the tide itself starts to go bad, so that even the boats that are lifted are rising in a sea of sludge?

To a very conventional economist, the specifics of growth don’t matter much. More growth is good; and one thing is about as good as another, as long as the line keeps going up. Or so the thinking goes. But to the people who actually make up the economy–that is, you and me–the particulars matter a great deal. Whether the growth is gambling or wheat, prisons or school dorms, has a great effect on whether we think things are going in the right direction. Campaign spending will set a record this year, topping a billion dollars for the first time. Congressional House candidates have raised almost 25 percent more than they did in the last election. That fuels growth. But it may not strike Americans as good.

The problem with the nation’s main index of progress, the gross domestic product, is that it essentially totals up the final purchases in every sector of the economy. The assumption is that the more Americans spend, the better their lives are getting. It makes no distinction between desirable and undesirable, only more and less.

It counts. The result is a madcap accounting system that portrays misery and destruction as growth and gain. Car crashes add at least $ 57 billion to the GDP, divorce an estimated $ 10 billion to $ 20 billion more. One university study reckoned that crime accounts for upwards of 7 percent of the U.S. economy all by itself. The GDP calls most of this growth–and the politicians call for more of it.

On top of that, the GDP ignores the nonmarket economy of family and community. When parenting becomes day care, or dinner at home becomes McDonald’s, the GDP goes up. But no new production or services are really taking place; rather, there’s a shift of functions from a realm where economists can’t see them to the monetized marketplace where they can. Day care has become a $ 4 billion industry; but many would consider that just the flip side of household decline.

In textbook economics, however, the market consists of “rational” consumers making individual choices in their own best interest, so the sum total of these must be the best interest of all. To talk about undesirable growth is to substitute “value judgments” for the objective truth that the market reveals.

That’s the theory; but life is more complex. In a mass-consumer economy, one person’s choice–a Jet Skier on a mountain lake, for example–can become the misery of many; and choice itself becomes a murky concept when so many things are bouncing up against so many others.

Consumer electronics has been a major growth sector, for example, skipping along at 23 percent. Even though most boomboxes, video games and the like are made abroad, they still contribute mightily to the retail market, which is a healthy growth sector, too.

Loud and clear. That means jobs, which is good. But it also means things that are not so good. The “leakage” from superpowered personal stereos has become a pervasive plague on trains, airplanes and in other public places. Of boomboxes and their nightmarish offspring, boombox cars, little need be said. New York City recently established a quality-of-life complaint line, and nearly half the calls have been about noise. Meanwhile, suburbanites must contend with power lawn mowers, leaf blowers and other tranquillity-busting manifestations of economic expansion.

The failure to distinguish among different kinds of growth is a value judgment in itself–namely, that nothing else matters as long as money changes hands. The fact is, an increasing portion of what economists call “consumption” isn’t really a choice. Rather, it’s a defense against social and environmental decline. To deter crime, Americans now spend nearly twice as much on private security devices, such as locks and alarms, as they spend on the police (by way of taxes). The increasing breakdown of local water systems has helped boost the bottled-water industry to growth of almost 200 percent for the 10 years preceding 1993.

On top of this, there’s all the spending that consumers themselves say they wish they didn’t do. Conventional economics assumes that all buying is “rational,” and that more of it therefore equals greater well-being. Yet millions of Americans are engaged in a grim daily battle with themselves to consume less. They are trying to eat less, drink less, smoke less, gamble less and spend less money period.

Close to half of all Americans consider themselves overweight, for example. The GDP includes both the billions they spend on food they wish they didn’t eat and the $ 32 billion more they spend on diet and weight-loss schemes to help take off the resulting pounds. Then it adds the $ 50 billion or so spent on obesity-related health problems. Economists call this “revealed preference.” But the Apostle Paul came closer to the conflicted human reality when he moaned, “The good that I would I do not, but the evil which I would not, that I do.”

The great economist John Maynard Keynes once observed that thrift was a private virtue that had become public vice. To pull the world out of the Depression, he said, people must spend more. Today, the tables have turned. What appears good for “the economy” in general increasingly spells misery or misfortune for the individuals who compose it.

It should come as no surprise that more and more Americans are seeking to disengage. A survey last year, sponsored by the Merck Family Fund, found that some 28 percent of respondents had voluntarily changed their lives in a way that meant less income. Most cited reasons such as a desire for a more balanced life or to spend more time with their children.

Such trends pose no small dilemma for a nation in deep embrace of the expansion ethos. Everything from jobs to a balanced budget seems to depend on an economy that keeps growing. But the old belief that the nation can simply grow its way out of problems just doesn’t work in a world in which we increasingly grow our way into them and in which GDP can be a euphemism for the problems themselves.

The original architect of the GDP saw this coming. Simon Kuznets, the Nobel winner who drew up the first national accounts in the Depression and World War II, was dismayed to see the nation fixate on a gross statistical summation. Economic change is not linear, he said. As an economy gets bigger, it becomes different in nature, not just size. Expansion itself creates problems that weren’t there before, and national accounting must reflect this. “Goals for more growth should specify more growth of what and for what,” he said.

So, next time a politician brags about growth or calls for more of it, someone should ask the obvious question: growth of what, exactly, and how will it affect us?