The use of “growth” as a measure of how well our democracy is doing is inadequate on two counts: (1) What we call growth is a measure of money spent, not growth; (2) “Growth” does not tell us how well wealth reaches everyone.
Measurement of economic growth is defined as a comparison of Gross Domestic Product at two points in time, usually calendar or fiscal years. It is assumed that “growth” is improvement, but that may or may not be true, and it is true that growth cannot be infinite.
Gross Domestic Product
is an inadequate measure,
but it’s the only one used.
GDP is virtually the only measure that economists have used since the 1930s. GDP counts every dollar spent as a contribution to growth, whereas it is clear that a portion of what we spend reflects negative contributions to the welfare of the nation.
Every good produced and every paid activity contributes to the GDP. The question is, what part of the spent money actually made things better? The trouble is that so much of this activity contributes to the movement of money, but not to the improvement of the nation. The cost of a bank robber’s getaway car contributes to GDP, but neither that nor the cost of his capture, trial, and incarceration could be considered a positive contribution. Just incarcerated prisoner costs alone exceed median income. There are also the enormous costs of natural disasters, epidemics of disease, wars, accidental deaths, and so on. This is all money lost. It cannot be spent on something useful.
We don’t have a real democracy
as long as low income workers
are inadequately paid.
GDP has little to do with the welfare of individuals, or the equality of wealth in the nation. We cannot lay claim to a progressive and egalitarian democracy as long as low income workers don’t make enough money to pay for essentials, including health care. It should be mentioned that when low income workers are not adequately paid, they are forced by circumstances to avail themselves of every government welfare program they qualify for, which increases tax costs. Pay is so poor at fast food joints alone that half of workers are using welfare. Our tax money is sponsoring McDonald’s and others to the tune of $7-billion a year. GDP tells us very little about our democracy.
When lost money is deducted from the GDP, what we find is that our national wellbeing has not really improved for decades, despite the rosy picture provided by GPD. Everybody knows this; everybody feels this. It worsens further when you take measures of equality into account, because virtually all gain for decades has gone to the rich, the top 1%, who certainly don’t need more money.
If the only ones who have benefited from an increase in GDP are people who don’t really need more money, the country is not improved in spite of “growth”, because there is nothing they can do with this money. It often sits in their offshore accounts like stored antiques. Things are made better when uninsured people get access to health care insurance, when the unemployed find jobs, or when their work is adequately paid, but not when the richest of us can afford yet another house.
Our national wellbeing
has not really improved for decades,
despite the rosy picture provided by GPD.
Altogether, GDP is inadequate as a measure of how well our society is functioning, because it’s simply not realistic. A more convincing overall evaluation would include a measure that accounts for those negative contributions to GDP. The third part of that evaluation is a measure of equality, and other measures include environment, resource depletion, and peace.
While measures of equality and negative contributions do exist, they rarely find their way into discussions of economic health. The most well known measure of spent money that does attempt to account for negative contributions, called the Genuine Progress Indicator (GPI), shows that, while GDP has been rapidly increasing, the increase in GPI has been nearly imperceptible. Factor in a measure of equality such as the GINI Index, which has been worsening for decades, and we move into minus territory. This is especially distressing because we are the richest country in the entire history of the world.
The Genuine Progress Indicator (GPI)
plus the GINI index
gives us negative growth.
A shortcoming of the GPI is that it attempts to quantify losses in wellbeing from things like leisure lost and public lands degraded, which cannot provide a realistic dollar amount. Another difference between GPI and GDP is that GDP measures money spent during a specific period, whereas GPI recognizes that gains and losses occur over longer periods. Thus, gains from solar electricity last the duration of the hardware’s life, which could be several decades, while most costs are “up front”. Losses from hurricane flooding continue until all damage is corrected or infrastructure is moved from the danger zone, and residents’ lives are reestablished, so such losses extend over time.
While GPI has not gained a foothold among economists, planners, or politicians in general, it is being used by several states, notably Maryland, Vermont, and Colorado, and in these states has provided valuable insight into state budget allotments. Laws in these states have been proposed or adopted that require estimates of their economic effect, which GPI provides. For example, a proposal for subsidies for home insulation included not only an estimate of the immediate cost, but an estimate of the benefit to the state over the lifetime of the insulation.