It’s time to stop celebrating the GDP
Written by Joseph Ingram via iPolitics on 8/24/2018
The self-delusion deepens amongst President Trump and his delirious supporters as the second quarter growth in GDP reaches 4.1 per cent – notwithstanding that this level of growth was reached on several occasions during Barack Obama’s presidency. The delusion also ignores the fact that the second quarter of the U.S. fiscal year virtually always sees accelerated growth, and that this quarter’s results were driven disproportionately by a burst in exports of U.S. soya beans – in anticipation of retaliatory tariffs to be imposed on them by both allies and “foes” – and by the short term effect of the President’s tax “reforms,” neither of which will be there to boost third and fourth quarter growth. Perhaps this explains why President Trump announced late last week that he wants his Government to stop publicly issuing quarterly GDP growth numbers?
Indeed, at the same time that quarterly growth in GDP was at 4.1 per cent, unemployment is at 3.9 per cent, reflecting the fact that during its first eighteen months in office, the Trump administration has created some 3.7 million jobs, a not insignificant development.
Conveniently forgotten, however (especially by outlets such as Fox News), is that during his last eighteen months in office, President Obama’s government created some 3.9 million jobs. Also ignored is the fact that under Trump, inequality as measured by the Gini Coefficient has widened substantially, leaving the U.S. with the third highest share of low-income adults – after Greece and Spain – amongst the OECD rich member states. Unfortunately, the latest OECD report on this subject (issued in late 2015) had Canada not far behind in fourth place. This, in part, reflects the fact that the quality of jobs being created in today’s advanced economies is menial and that real wages have generally remained stagnant, as has productivity, which in the U.S. has largely been driven by robotisation amongst the big tech and logistics companies.
What the growth number also fails to adequately capture are the catastrophic weather events, including the extreme number of wild fires, drought conditions, and soil erosion, that threaten the very essence of what sustains North America’s prosperity and natural habitat. Also not revealed is the fact that these existential threats to many in the public are largely created by the oil and gas companies whose activities are a major contributor to the GDP numbers of the U.S., the Russian, and the Canadian economies.
The time for putting a stop to this perverse obsession by government policy-makers with a single income-based metric for “progress” has arrived, especially if one considers the fact that over three quarters of the peer reviewed articles on climate change have concluded that the outlook for the planet is likely to be worse, and sooner, than recent public consensus has suggested. Edmonton’s “apocalyptic” air quality this summer from wild fires in British Columbia, as well as the unprecedented fires in California, Greece, Portugal, and yes the Arctic Circle, to floods in India, and drought in Australia and Germany are not likely to be the rare events of the past. Indeed, what were once considered infrequent environmental events are now seemingly becoming annual.
Moreover, the single-minded focus by governments on GDP fails to capture growing evidence of the fraying of social compacts and cohesion, as well as growing social unrest. Indeed, any metric of progress that doesn’t properly address inequality and declining social mobility, as we are seeing both in the U.S. and in parts of Canada, will ultimately force an erosion of trust in government and a crisis of legitimacy. With the election of Trump in the U.S. and of Doug Ford in Ontario, one could conclude that in North America we are in danger of suffering from both developments.
What all this suggests is that governments need to prioritize and measure what 4.1 percent growth in GDP really means for the vast majority of people, rather than just for the corporate elites who most benefit from it. In other words, governments need a paradigm shift in policy priorities that will measure and give as much importance to the quality of economic growth as to its quantity.
Since WW11 economic progress and national well-being have largely been formulated in terms of goals with the growth of GDP at the core. After all, economic growth and enlarging the cake are important. What is clear today, however, given the severity of the challenges we face, is that goals for sustained growth also need to be formulated in terms of limits and scientifically derived government regulations – not music to the ears of either Trump or Ford, nor to the political parties they represent. But we are at a point today where we have no other choice. As Professor Simon Kuznets – the father of the Kuznet’s Curve and of GDP as the proxy for economic progress – reminded us in a 1962 interview, “Goals for more growth should specify more growth of what and more growth for what.” After all, it is a broad-based sense of well-being and happiness that are the key pillars of social consensus and a healthy democracy.
Rather than celebrating the delusional benefits of U.S. second quarter growth by suggesting that even more deregulation is necessary (the Trump administration now wants to do so in order to produce a dramatic increase in coal-fired power plants in the U.S. – one of the worst emitters of CO2 and contributors to global warming – while Doug Ford has eliminated Ontario’s carbon tax), national governments need to prioritize broader benchmarks and measure progress in areas such as health care provision, the environment, fighting global warming, as well as the economy. For example, the state of Maryland has been seeking to do just this over the past several years by using the Genuine Progress Indicator (GPI) as it’s proxy for progress. As a composite, GPI mimes GDP but additionally accounts for the benefits provided by non-market activities and for the social and environmental costs that may result from high rates of GDP growth.
Along similar lines, the state of Minnesota measures, amongst other income-based indicators, units of energy consumption and waste, the percent of median income needed for household basic needs, income growth of the poor versus the wealthy, tuition costs as a percentage of annual income, and median annual rent compared to median income of renters. And like growth in GDP and the daily performance of our stock markets, these benchmarks need to be released and publicly discussed and debated with government and in the media. Were we to do so, we would not have the constant delusional refrain from Fox News and our business channels on how well the markets are doing and therefore by implication, how well all of society is doing. Only then will our governments and political parties adopt policies that reinforce, rather than fracture, social cohesion. And only then will we be able to address effectively the life-threatening challenges we increasingly face from the damage we are doing to our natural environment.
As former Governor of Maryland, Martin O’Malley commented in referring to the need for a broader measure of progress; “A strong economy, a clean environment, and a healthy citizenry go hand in hand: none can be a true measure of consensus without supporting the other two. The GPI will help us ensure that our economic growth will not come at the cost of our national resources and that they will support our progress toward a sustainable future and a better quality of life.”