Ev Ehrlich's Everyday Economics

Gross Domestic Product Agonistes

When I was Undersecretary of Commerce in Clinton I (1993-97, just a few years after Woodstock), my line job was to direct the statistical system’s major components — the Bureau of the Census, the world’s preeminent survey research agency, and the Bureau of Economic Analysis, which applies the century old art of piecing together the data that will let us know what gross domestic product (GDP) is. I didn’t say let us understand what it was, though, or what it means – just what the number is.

And those philosophic questions about the national income accounts suddenly became more interesting on the op-ed pages of the New York Times last week , when a professor Eric Zencey’s proposal to scrap the calculation of Gross Domestic Product (“G.D.P. R.I.P.” August 10), as in it’s worthless, it stinks, it tells us nothing. But Prof. Zencey’s argument is as misguided as it is sophistic.

What’s wrong with GDP? No one denies that GDP is an imprecise measure of social welfare – if we had the same fourteen trillion dollar GDP and no Bill of Rights, we’d be much worse off. But Zencey has a longer list. The trouble is, his proposals to correct the flaws he identifies would not improve the calculation of whether we’ll “well off” or not.

The first item on the list of flaws Zencey mentions is the absence of household work or voluntarism in the calculation. Spouses stay home and wash and clean and nurture, volunteers help their communities, but GDP is none the wiser. But should we think about that work when we’re adding up the size of the economy.

GDP measures transactions that occur in the market, not at home. The bottom line is: when someone two parties buy and sell, they stipulate the value of what they’re exchanging — there’s a validation of what the goods involved are “worth.” Or, as Delta X and I used to sing, in our hit song “Supply and Demand”:

Think about fate and how the dice tumble
Some of us skate and some of us stumble
Fans flock to root for a winner
Choruses sing in one voice
Sprat and his wife eat one dinner
But we’re linked together by choice...
Supply and demand...supply and demand

(In fact, you could go to my piece on this site, Jack Sprat Speaks (1994), to learn more about my obsession with Sprat and his wife — Michael Stewart and Roseanne Barr play them in the movie — and my view that the morbidly thin and chronically obese walk different, tragic paths and their social mingling won’t cut it. But that’s not the point.)

But what if we did what Zencey suggests and included house work and voluntarism in the GDP? Well, there are problems. For one, people chronically over report how busy they are — the only way to get a read on them is with beepers that go off every five minutes. The famed sociologist Juliet Schurz computed that people simply working their asses off in her important book, The Overworked American (1993), but the people she studied might have been kind of fibbin’, y’know, about how busy they were. (Although in the intervening 15 years, the Blackberry and such has made her case much stronger.)

And if we agree on the hours — and set up some say to assign prices to what was done — we have a new set of problems. Most importantly, adding house work and voluntarism makes it look like poverty is going away — after you’ve stripped a guy of his honor and manhood by send his his job to some guy in Bhutan, he still gets to go home, clean out the septic tank, and put up shelves in the garage. So should we regard this guy as being better off than we did when we said that had no value?

And if we counted the unpaid work of millions of people, would that be a better basis for measuring inequality or poverty?

For example, counting the value of unpaid domestic work would make the distribution of income in America look more even, because the poor and unemployed are more likely to wash their own clothes, cook their own meals, and raise their own children. Should we count all that activity as worthy of bring in the GDP number, just like outside work?

Moreover, the Zencey fix would change the way we see the business cycle. Let’s say the economy crashes and millions of people are thrown out of work. Many of them go home, do projects, keep the house, or even volunteer while they look for work. So GDP didn’t fall as far as we thought it did, for all that septic tank cleaning and car fixing, and so on. That’s all the more remarkable because Is Prof. Zencey suggests that using GDP to measure our rebound from the current recession is like “holding a match to a thermometer and then claiming the room has gotten warmer.”

There’s then the issue of the environment. Prof. Zencey is right when he says that we invent machines that reinvent nature and we give the invention credit but ignore what nature gave us for free. For example, drying clothes in the sunshine does not add to GDP but drying them in a machine does. I smack my forehead in disbelief — how stupid could I have been! — as I sit down here in the basement of my apartment building feeding the machine-mothers quarters when I could have moved to Kansas and hung the stuff out to dry before the twister blew in. Or, in other word, the machine works when and where I want it to, adding convenience that has real value.

But Prof. Zencey also notes that “ecosystem services” – like the natural flood control provided by wetlands — are not counted in GDP. Surprise! The Bureau of Economic Analysis, going back to the Clinton Administration, has been trying to incorporate these natural sources of capital into a “satellite account” for use by researchers interested in the very questions Prof. Zencey raises. (It’s called the Economic-Environmental Accounting Framework, and you can learn about it here. But even if we do dumb thing regarding the environment, the GDP is unbeatable at telling us with great precision how obtuse we are. Let’s say we screw up global warming and have to build dykes on the seaboards. Yes, GDP will go up. But it will also tell us the cost of our failure, and the failure was not GDP, but our political will to overcome the denial and dissembling that threaten us all.

Look, here’s where it’s at. The GDP statistics are remarkable good at what they do — they tell us the pace of economic growth, and, in the extreme moments, whether the pace is changing from boom to bust. And while GDP may be flawed for exactly the reasons Zencey notes — it’s limited to market transactions and ignores the wealth found in natural resources — its cyclical changes just happen to coincide with employment for our citizens and the resulting stability of our families, the prevalence of crime, our society’s tolerance for diversity, social mobility through educational opportunities, and a host of other measures that affect the quality of our lives. And today, when the economy is emerging from a terrible period, do we really want to scrap the basic measure of the economy’s strength and instead talk about how record levels of vacuuming and a wave of volunteerism in hospices led the recovery in the third quarter of the year?

Prof. Zencey’s criticisms are not new. In March of 1968, Presidential candidate Robert Kennedy, speaking at the University of Kansas, noted that GDP counted “air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them...” while measuring “neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.”

I was a freshman in college during that tumultuous Spring and thought that Kennedy giving a speech on the meaning of GDP was a validation of my choice of major. But even I knew that he wasn’t proposing a wholesale rewrite for the nation’s statistical agencies — he talking about enriching our nation’s life and expanding its purpose. Critics of the national income and product accounts would do better to follow his example, rather than shooting the statistical messenger.