Jonathan Tasini is president of the Economic Future Group and writes his "Working In America" columns for TomPaine.com on an occasional basis. His blog Working Life chronicles the labor movement and other issues affecting American workers.
Whenever I read the newest figures on the rise of the Gross Domestic Product, which in the past few quarters has been used by the administration to trumpet a “growing economy,” I’m reminded of the wise words of the 19th Century British Prime Minister Benjamin Disraeli who said that there are, “Lies, damn lies and statistics.” If we’re trying to figure out what’s happening to the average person, we’re looking at the wrong indicators.
The president and all sorts of economic pundits have been perplexed for sometime. The White House’s website exalts in the country’s economic vitality: “Recently released Commerce Department figures show that the U.S. economy grew at a solid 3.4 percent annual rate in the second quarter, the ninth straight quarter in which GDP increased at a rate above 3 percent.” By that measure, the administration figures, everyone should be happy and thrilled—not giving the president a thumbs down on his handling of the economy. Indeed, consumer confidence is hitting new lows.
While the effects of hurricane Katrina are being blamed for the decline in people’s desire to go out and shop, I believe there is something deeper at play here. The hurricane—and the related rise in gasoline prices—only fueled a much deeper unease among people who feel that something very bad is happening in their lives, even if they can’t pull together all the economic strands to form a coherent explanation. They are reacting to real, on-the-ground facts that aren’t reflected by the GDP because that measure only tells us that stuff is being made and sold. It doesn’t tell us who is benefiting from all that activity.
It doesn’t tell the underlying story of the distribution of wealth in society. As The New York Times’ David Cay Johnston reported this week, data from the Internal Revenue Service shows that, “the share of income going to the richest slice of Americans—the top tenth of 1 percent—grew significantly in 2003 while the share going to 99 percent of Americans fell…”
It doesn’t tell us that workers’ wages are not going up, which means they have to borrow more to pay for the health care they don’t have, which is why personal debt is at an all-time high. The average consumer spends 1.22 for every dollar he or she earns, has 13 credit cards and is shouldering $9,312 in credit card debt—twice as much as 10 years ago.
It doesn’t tell us how many workers are financing their lives right now by pulling money out of their homes that have gone up in value in a real estate bubble that is already starting to leak and will burst some time down the road. Americans have taken 1.6 trillion out of their homes in equity loans, with a lot of that money going to pay for school costs or catastrophic illnesses, long-term care for aging parents or retirement that is now increasingly insecure because of the obliteration of the private pension system—or just paying daily family bills. Using an extremely clever “family budget calculator” tool developed by the Economic Policy Institute, anyone can see the startling percentage of people who do not earn enough money to sustain a secure economic livelihood for their families.
And the rise in the GDP certainly does not tell anyone that the “growing economy” is being financed by the Chinese government. To grossly simplify the issue, China’s purchase of U.S. bonds has kept down interest rates, and because it supplies cheap goods that American consumers are happy to buy, China has also kept down inflation—even though there is a lot of money sloshing around the world. Take that together, and, presto, you’ve got people buying and selling homes because money is cheaper than it might be. The People’s Bank of China has also supported America's mortgage market by buying vast amounts of mortgage-backed securities. China’s willingness to finance home-buying and consumer spending in the U.S. contributes to the rise in the GDP—but it’s a worrisome long-term development.
The misuse of GDP is not a partisan issue: Democrats and Republicans have collaborated equally, at great peril to our country because the ballyhoo generated over a “growing economy” is masking serious macroeconomic flaws. We fail to see dramatic market failures that drain billions of dollars from the economy. Take the tens of billions of dollars in healthcare-related costs generated by the auto industry—either through payments for worker healthcare or because of the social and environmental costs inherent in churning our fleets of SUVs and Hummers. Those healthcare costs are rung up as increases in GDP, a testament to our “growing economy” but can anyone say we are better off because of the failure to have national health insurance and a sane energy policy?
If you’re looking for a change, don’t hold your breath—the manipulation of the GDP and other government economic statistics is an ingrained political reflex. We would be better served if our policy debates began explaining the difference between a growing economy that gets bigger versus a developing economy that gets better —both in terms of serving individuals and being environmentally sustainable for generations to come.
