Speaking this week to the Democratic Senate Policy Committee, President Obama said that the economy is expanding. “The economy that was shrinking by 6 percent a year ago is now growing at nearly 6 percent one year later.” He almost certainly meant that the Gross Domestic Product has grown at that rate (after rounding up). Is GDP “the economy”? For my money, if employment isn’t growing, then neither is ‘the economy.’
First off, there’s no such thing as ‘the economy.’ This is just an abstraction whose components are open to debate. GDP – the value of goods and services produced – is important, but referring to it as ‘the economy’ serves some interests and de-emphasizes others. GDP can be high and yet the distribution of its benefits horribly unequal. Equatorial Guinea provides a fine example. The government might celebrate its high GDP from oil revenues, but this income benefits only a few, while the mass of citizens remains poor. So there is no guarantee that growth in GDP will engender growth in employment.
Could our situation, although on a vastly different scale, have analogs to that of Equatorial Guinea? Who wins in the United States when we emphasize GDP as a summary of ‘the economy’? Whose interests does ‘the economy’ serve? The answer seems to be business owners and not their potential employees, since, for example, GDP might go up as the result of replacing employees with machines.
(Likewise, investors have been known to buy up stocks when companies ‘increase efficiency’ by laying off workers. So the fetishization of stock-market averages also serves the interest of only one part of the populace and not most workers.)
So we need an index of economic health – since growth is not unquestionably desirable – that includes employment. Oddly, given the way that statistics are generated, it’s unclear whether employment currently is growing. If it is, then that’s good. But then we need to ask what kind of compensation employees are receiving. The employment rate doesn’t indicate whether workers have replaced a job with a fine salary and full benefits with a position with a low salary and fewer benefits.
Taking all of this into account, I suggest that a true measure of economic health would include:
- the rate of employment of those who would work if a job were available
- the average (mean) earnings per person – including the nonemployed – from all sources, including benefits from employers and the government, such as food stamps
- some measure of the distribution of earnings. Taking the median is a crude example; more-sophisticated alternatives exist.
The GDP is a blunt but important measure for policymakers, but it is not ‘the economy.’ We need to emphasize tools that help us gauge the extent to which economic changes benefit or hurt all Americans.