What The Economy Ain’t: GDP Economics 101 – Still Lying

In the June issue of Harper’s Magazine Jonathan Rowe, co-director of a community organizing group in California, dissects the use of GDP to measure the economic well-being of the United States.

The essay is from testimony he gave on March 12,2008 to the Interstate Commerce subcommittee of the Senate Committee on Commerce, Science, and Transportation.

Insane is one word he uses to describe the misuse of the GDP measure. image

He provides a brief history, going back to Ireland in 1650 under Cromwell, and covers the American codification of GDP by a fellow named Simon Kuznets in the early 1930s. Kuznets lived to see his system misused and abused in precisely the ways he warned against.

A fundamental flaw Rowe points out lies in the assumption that everything “transacted for money counts on the plus side of the ledger”.

Rowe points out that Americans spend nine billion dollars on gasoline that’s wasted sitting in traffic, which is counted as an expenditure, and thus a positive, in the GDP. He says, “But there is no corresponding subtraction for the toll this burning takes on the thermostatic and buffering functions that the atmosphere provides. (Nor is there a subtraction for the oil we take out of the ground.)”

Simpler Lion version: If a habitual drunk spends ten bucks on a bottle of booze, that’s a plus in the GDP. But the consequences of his actions, the treatment he requires for cirrhosis and other degenerative diseases, is not subtracted, but is further added as a plus to GDP since it comprises an expenditure of money.

It’s an interesting article, available online at Harper’s for subscribers, and at newsstands and libraries for the peons (short for those being trickled down upon by the Bush economy of the wealthy, or the haves and the have-mores, as he likes to put it).

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One Response

  1. Also oil is undersold, the price of a barrel today bears no reflecting of it’s true value as a limited natural energy source. Steph analogy: the Bugatti Veyron retails for €1.1 million but costs around €4 million to make. Every litre of oil sold in America is a net loss.

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