GDP – Sheila Kennedy

Beyond Cherry-Picking

A recent essay from The New Republic addressed a question that constantly bedevils me: why do people firmly believe things that are demonstrably false?

I’m not talking about questions that are simply unprovable, like “is there a God?” I’m talking about aspects of our common experience about which there is ample data from credible sources. The linked article, for example, looks into the widespread belief that America’s economy is struggling, when all of the data confirms the opposite.

In the article, Timothy Noah dubs the journalism tracking such unsupportable beliefs as the “Folklore Beat,” and provides examples:

Covid vaccines are unnecessary. Foreign aid constitutes two-thirds of the federal budget. Donald Trump won the election. Schoolteachers are trying to turn your children gay or trans. Little green men visited Area 51, and the military doesn’t want you to know.

Noah is impatient with the media’s tendency to report respectfully on the people espousing those beliefs.

I’ll grant that when misconceptions acquire a large following (though seldom a majority one), that’s news. But is it really necessary to hand a megaphone to every street-corner blowhard in America? News organizations don’t do this because they believe what the blowhards say. They do it because they’re sensitive—too sensitive, if you ask me—to any accusation that they’re out of touch with John Q. Public. And while it’s certainly necessary to document ways in which macroeconomic data fails to capture the complexities of everyday life, particularly with respect to economic inequality, how many times do I have to hear some uninformed fool expound on how President Joe Biden is mishandling the economy? He can’t prove it; he’s not trying to prove it; he just feels that way, and we mustn’t disrespect feelings.

When it comes to the economy, polling continues to show much of the public unhappy with Biden’s performance–although, as Noah notes, “the Wall Street titans on whom Biden wishes to raise taxes maintain a higher opinion of Biden’s economic stewardship than the public at large.”

Perhaps that’s because the rich watch economic matters more closely.

Speaking of the rich, Morgan Stanley recently quadrupled its prior estimate of GDP growth for the first six months of this year, and doubled its GDP growth prediction for October–December 2023, signaling that its economists no longer anticipate a recession. But only a paltry 20 percent of respondents to a CNBC survey released the same week agreed that the economy was excellent or good. Other polls have returned similar results.

The New Republic essay enumerated the truly excellent economic facts of life–employment and paychecks up, inflation down, manufacturing returning to the U.S., etc.–and then considered reasons for the public’s evident dismissal of excellent economic news.

As with so many aspects of American life today, the answer turns out to be partisanship.

In 2016, Gallup polled voters on the economy one week before the election and one week after. During the week preceding the election, with President Obama in the White House and Hillary Clinton widely expected to win, only 16 percent of Republicans thought the economy was improving, compared to 61 percent of Democrats. One week after the election, fully 49 percent of Republicans suddenly thought the economy was improving, compared to only 46 percent of Democrats. Note how much greater this post-election swing was for Republicans: 33 percentage points, compared to 15 for Democrats….

How does voter opinion differ according to party identification on Biden’s handling of jobs and unemployment? So much so as to render the 47–48 percent figure meaningless. Among Democrats, 84 percent approve, in rough approximation to objective reality. Among Republicans, only 15 percent do.

Inflation? Only 5 percent of Republicans approve of how Biden handled that, as against 71 percent of Democrats. If the judgments of both remain less favorable than on jobs and unemployment, that’s because inflation, though greatly diminished, remains above the Fed’s target level of 2 percent (though if you ask me, 3 percent inflation is pretty low).

The inescapable conclusion is that when you ask somebody whether the economy is doing well, you won’t get an answer about the economy. You may not even get an answer about that individual’s personal experience (which may or may not reflect broader economic trends as compared to one, two, or 10 years ago). Most of the time, you’d be better off just asking, “Are you a Democrat or a Republican?” Because these days, that determines how people—especially Republicans—feel about pretty much everything. If the man on the street sounds like a blowhard, hyper-partisanship explains why. The rest is just noise.

Partisan polarization has overwhelmed reason. Tribalism now dictates interpretations of reality. And of course, thanks to the Internet and social media, it’s easy to find “evidence” to support your preferred version of even the most unlikely “facts.”

Welcome to Never-Never Land.

Comments

Measuring Up

I’ve become increasingly fascinated by our human obsession with measurement, and the ways in which measuring something affects–and often distorts–our ability to understand it.

There’s polling, of course, for the political among us. Despite the admonitions of the pollsters themselves, we far too often see the “snapshots” they provide– not to mention the selected populations they quiz and the often-ambiguous questions they ask–as descriptive of the whole of America’s electorate and thus predictive of the future.

In education, legislators have embraced subject-matter testing without considering the way it distorts what happens in the classroom. Subjects that will be tested get extra time and attention; subjects that are of equal (or often superior) importance, like civics, get short shrift because they aren’t tested. (And don’t get me started on the mistaken belief that students’ test rresults measure teacher competence…)

Scientists know that the very act of testing something can change the results. Scholars also remind us that drawing unwarranted conclusions from what we have chosen to test can lead us astray. Which brings me to a Guardian column by Joseph Stiglitz, one of my favorite economists.

The world is facing three existential crises: a climate crisis, an inequality crisis and a crisis in democracy. Will we be able to prosper within our planetary boundaries? Can a modern economy deliver shared prosperity? And can democracies thrive if our economies fail to deliver shared prosperity? These are critical questions, yet the accepted ways by which we measure economic performance give absolutely no hint that we might be facing a problem. Each of these crises has reinforced the fact that we need better tools to assess economic performance and social progress.

Stiglitz proceeds to point out problems with relying on GDP–long the standard measure of economic performance–to measure a country’s economic performance. (GDP is the sum of the value of goods and services produced within a country over a given period.)

As Stiglitz notes, GDP metrics don’t fully reflect impacts of things like Europe’s austerity measures on long-term standards of living.

Nor do our standard GDP measures provide us with the guidance we need to address the inequality crisis. So what if GDP goes up, if most citizens are worse off? In the first three years of the so-called recovery from the financial crisis, about 91% of the gains went to the top 1%. No wonder that many people doubted the claims of politicians who were then saying the economy was well on the way to a robust recovery.

For a long time I have been concerned with this problem – the gap between what our metrics show and what they need to show. During the Clinton administration, when I served as a member and then chairman of the Council of Economic Advisers, I grew increasingly worried about how our main economic measures failed to take into account environmental degradation and resource depletion. If our economy seems to be growing but that growth is not sustainable because we are destroying the environment and using up scarce natural resources, our statistics should warn us. But because GDP didn’t include resource depletion and environmental degradation, we typically get an excessively rosy picture.

In other words, Stiglitz is telling us that there is something fundamentally wrong with how we measure economic performance and social progress.

Getting the measure right – or at least a lot better – is crucially important, especially in our metrics- and performance-oriented society. If we measure the wrong thing, we will do the wrong thing. If our measures tell us everything is fine when it really isn’t, we will be complacent.

A recent article in Time suggests that other nations are coming around to Stiglitz’ view.

New Zealand became the first nation to formally drop gross domestic product (GDP) as its main measure of economic success. The government of Prime Minister Jacinda Ardern said the budget would aim not at maximizing GDP but instead at maximizing well-being.

Apart from schools, hospitals and roads, whose budgets would be allocated in the normal way, resources would be distributed according to their impact on five government priorities: mental health, child well-being, the inequalities of indigenous people, building a nation adapted to the digital age and fashioning a low-emission economy.

Shades of Bhutan’s “Gross National Happiness” index!

Stiglitz says it is now possible to construct much more accurate measures of an economy’s health.. I think it is fair to say that we should adopt those measures–but only after we subject them to a rigorous analysis to assure ourselves that the elements being measured are the ones that should be measured, the ones that will give us a more accurate understanding of ecological and economic (and inevitably social and political) reality.

What we choose to measure will tell us what we really value.

Comments

Consider The Metric

One thing about living in tumultuous times….

Questions that are rarely asked when things are calm and going well– about the purpose of government, the proper operation of the economy, and the nature of citizens’ obligations to each other– get revisited.

Take the economy. Ever since Milton Friedman preached that the bottom line consists only of the bottom line–that success is measured by profit and shareholder return–businesses have adopted the measure as dogma. But as David Brooks has reminded readers, keeping shareholders happy at the expense of other stakeholders is a relatively recent phenomenon (not to mention shortsighted).

In a healthy society, people try to balance a whole bunch of different priorities: economic, social, moral, familial. Somehow over the past 40 years economic priorities took the top spot and obliterated everything else. As a matter of policy, we privileged economics and then eventually no longer could even see that there could be other priorities.

For example, there’s been a striking shift in how corporations see themselves. In normal times, corporations serve a lot of stakeholders — customers, employees, the towns in which they are located. But these days corporations see themselves as serving one purpose and one stakeholder — maximizing shareholder value. Activist investors demand that every company ruthlessly cut the cost of its employees and ruthlessly screw its hometown if it will raise the short-term stock price.

We turned off the moral lens.

I know that reaction to Brooks is mixed, but in this column, he makes some good points. The most important is his closing:

The crucial question is not: How can we have a good economy? It’s: How can we have a good society? How can we have a society in which it’s easier to be a good person?

America seems to have lost sight of the fact that economic systems should be judged on whether they enable what Aristotle called human flourishing. Citizens don’t exist for the economy; the economy exists to support a healthy society. The single-minded pursuit of shareholder profit elevates the wrong goals and creates perverse incentives.

And that brings me to another article.

Scientists and social scientists can confirm that what and how you measure something matters. We all know that school teachers spend more time on subjects that are tested, and that employers who reward employees on the basis of speed rather than quality will get more speed and less quality. When the metric for evaluating economic performance is GDP, which measures the dollar value of goods produced, the result tells us little or nothing about the well-being of citizens or the health of the society.

As the Sarasota Institute points out in the referenced article,

GDP growth says nothing about how the benefits of higher growth are distributed. We can imagine high GDP growth with the poor becoming poorer and the rich becoming richer. Only if GDP growth produces income growth for everyone could we say that the general welfare has been increased.

GDP growth does not say anything about the composition or quality of the output. GDP will grow with higher cigarette and alcohol consumption and more guns sold but this says little about well-being growth. In addition, GDP would grow even if the average quality of goods declined.

GDP growth ignores the costs that have been incurred in achieving that growth. Consider that more GDP probably increases air and water pollution and more traffic congestion. Consider that GDP growth could be the result of more people working longer hours and having less leisure time.

The article references Bhutan’s approach: the Gross Happiness Index.

My husband and I were intrigued by that metric when we visited that small country several years ago. (Evidently others were equally intrigued; several countries are experimenting with a similar approach.) The four pillars of GNH were: sustainable development; preservation and promotion of cultural values; conservation of the natural environment; and establishment of good governance.

The index rests on the assumption that a person is likely to be happier if the economy grows, if cultural values are satisfying, if the natural environment is pleasurable, and if the government operates in the interests of the citizens.

There are other proposed indexes as well: the Human Development Indicator would shift the focus from national income to people centered policy. (This index started to gain momentum when– between 2002 and 2006–personal income in United States fell but GDP continued to increase); a Social Progress Index focused on social and environmental needs; and recently, a Happy Planet Index, measuring whether people are happier, if they live longer lives, if the income distribution is only moderately skewed, and if people have a low carbon footprint.

All of these proposed indexes recognize that you get what you measure.

Metrics matter.

Comments