It's The Economy, Stupid

It's The Economy, Stupid

Photo by Markus Spiske on Unsplash

“The gross national product … measures everything… except that which makes life worthwhile”
Robert F. Kennedy (1925-68)

Ever since it became clear that the coronavirus was going to be a global issue, and particularly once countries started to effectively shut down their economies, reams and reams have been written about the economic impact the pandemic will have.

Countries measure their economies with reference to the term ‘Gross Domestic Product’ (GDP).  GDP is defined as “…the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.  As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.” (Investopedia).

GDP has become the standard means of measuring the economic success of a country, and yet, ninety years ago, the term did not exist.  Englishman William Petty (1623-1687) is seen as the first person to study the subject of calculating national income, but it was the US Congress in 1931, after the Great Depression, who identified the usefulness of being able to determine the state of the nation.  Simon Kuznets further developed the idea and GDP became the global standard.

At the end of the 20th century, the US Department of Commerce carried out a review of its achievements and decided that GDP was “its achievement of the century”.

Yet, as far back as 1934, Kusnets himself had warned against equating GDP growth with economic or social wellbeing.  GDP was designed to help policymakers in times of war and financial crises, not as a utility.

GDP ignores unpaid work e.g. the millions of hours of housework done each year or the hours spent by adult children looking after their elderly parents, all of which has economic value, but it’s a value that’s far harder to quantify than the goods and services that are bought and sold.

And yet GDP does include ‘imputed rent’ – an estimate of how much rent homeowners would pay if they didn’t own their homes.  In 2009 this made up around 10% of the US’s GDP.

It also ignores inequality, which we know has been an increasing problem for many years.

In 1968 Robert F. Kennedy declared:

 “Our Gross National Product…counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.  It counts special locks for our doors and the jails for the people who break them.  It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.  It counts napalm and counts nuclear warheads and armoured cars for the police to fight the riots in our cities…, and the television programs which glorify violence in order to sell toys to our children. 

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play.  It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.  It measures 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.  And it can tell us everything about America except why we are proud that we are Americans.” 

Or as Rutger Bregman put it in ‘Utopia for Realists’:

“If you were the GDP, your ideal citizen would be a compulsive gambler with cancer who’s going through a drawn-out divorce that he copes with by popping fistfuls of Prozac and going berserk on Black Friday.” 

As far as GDP is concerned, the more unhealthy, mentally unstable, obese, and polluted your country and its citizens are the better, especially if that’s coupled with a high crime rate.

The country with the highest GDP in the world?  The USA  – by a significant margin.

There’s no arguing that the UK economy has grown tremendously in the last 50 years:

But in terms of the ‘state of the nation’ as a whole, I’m not sure we’ve made massive progress on that score.  There are many who would argue that the country has never been more divided, more intolerant, or more inward-looking.  And the gap between the ‘haves’ and the ‘have nots’ seems only to get ever wider.

Economists have been looking at alternatives to GDP since the 1990s. One of the first of these was the United Nations’ Human Development Index (HDI) which included metrics such as health, education, and political freedom.  First published in 1990, it put the US in 10th place, in contrast to its top ranking in GDP, behind countries such as Japan and Australia as well as identifying nations like Vietnam and Sri Lanka who punched way above their economic weight.

Of course, the coronavirus epidemic will have a massive economic impact globally, perhaps huge enough to create a second Great Depression.  But looking around the world today – a world in which we are witnessing unrest in Hong Kong caused by the threat of the loss of political freedoms, protests and riots in the US following the tragic death of George Floyd and other black Americans, the UK’s Health Secretary being accused by the country’s Statistics Authority of providing misleading data to the UK public during a deadly pandemic, maybe we should be asking whether we really do want to continue to judge our nations’ successes by their world GDP rankings?

People are angry, and rightly so.  Surely, we can be better than this?