In his recent interview with Jon Stewart, President Obama seemed surprised when the audience laughed after he said his policies had made the economy better. The poor man. Surrounded by economists in his administration who view growth of the GDP (gross domestic product) as the only true measure of an economy’s health, he naturally thought his policies had made our economic lives better. There had, after all, been at least a tepid GDP uptick in recent months.
Mr. Obama shares a misapprehension common among policy makers in the markets as well as in Washington — that GDP growth is the true measure, the only measure worth noting, of economic improvement or decline. This is a view, unfortunately, that does much to explain why the economy has not really improved in recent months for most Americans, and is unlikely to do so anytime soon.
The only way things will get better for most of us is if these same policy makers start focusing far more on GDPA — gross domestic product allocation — the way new wealth in the form of income is distributed throughout the economy.
This isn’t rocket science. You don’t have to be a trained economist to understand the basic idea here. It’s nice if the rich get richer. It’s nice if some get a lot richer. But when things get too far out of whack, when the GDPA is too skewed, an economy ossifies and people get mighty ticked.
In recent years things have in fact gotten too far out of whack. The economy is ossifying. And people have gotten mighty ticked.
Abundant numbers that clearly demonstrate the wackiness and skewing are out there for all to see, though it’s important to focus on the right ones. By 2007, for example, the top 1 percent of American households owned almost 35 percent of the country’s private wealth, while the bottom 80 percent of households owned just 15 percent of the nation’s wealth.
This wealth spread, though interesting and worth thinking about, is not the reason we need a GDPA number today. First, because most wealth isn’t very liquid. You can’t spend it easily so you don’t feel its lack in your everyday life if you don’t have a lot of it. More fundamentally, because these wealth percentages have changed hardly at all in the last quarter century, they can’t easily be linked to our present economic malaise.
It’s the vast and growing disparities in incomes in recent years that bring forth the need for a GDPA. Incomes, or their lack, are where daily needs are felt most viscerally. And the spreads here, which have changed dramatically in the last quarter century, have become a threat to the standard of living of a great and growing number of Americans — and a threat to the overall economy that needs their spending power.
Many numbers tell part of the story here. Since 1979, the bottom 20 percent of wage earners in this country have seen their inflation adjusted incomes rise just 16 percent on average, while the top 1 percent of income earners in this same period have enjoyed (really enjoyed!) a 281 percent increase. In one year, 2009, just 74 earners in this country together made incomes equal to what the 19 million lowest paid workers earned that same year. The 2009 census also found that the percentage of Americans falling below the poverty line rose to 43.6 million from 39.8 million in 2008.
Forget fairness here. Forget notions of decency and caring for one’s fellows. Because the numbers here are not presented as a moral lesson or an expression of political preference. They simply describe a situation in which the widely dispersed ability to consume goods and services, to spend this nation out of our present deep economic hole, has evaporated to a frightening extent.
So why, it might be asked, if we have numbers like the ones just cited so readily available, hasn’t it caused a shift in both government and market policy making? The simple answer is that are too many such numbers!
They haven’t been boiled down and condensed into a single number that can be included in the lead sentences of stories about the state of the economy, the way a GDP number now appears in these leads and thereby shapes policy makers thinking.
Accountants would describe the problem here with a popular axiom used in their own profession: ‘What gets counted gets done.’ The income distribution element of a growing (or shrinking) GDP is not readily available, does not get counted in setting policy, and actions needed to rectify its destructive implications therefore do not get done.
So here’s the challenge. Economists have to devise a single, credible GDPA number. And media people have to start reporting it along with every mention of GDP.
Then maybe, just maybe, we might begin to see some real improvements in the way our economy is managed.
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