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Spread this message with Digg, Del.icio.us, Reddit, or Stumbleupon, and subscribe to the RSS Feed to track articles Why GDP Figures Are Fooling And Misleading UsE-mail - editor@economyincisis.org |
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GDP (Gross Domestic Product - goods and services produced in the United State in one year) an accepted indicator of our economic health is distorting the true picture of our economy – it makes no distinction between mere exchange of money in a gambling casino or production in a car factory. The gross domestic product (GDP) is a brushstroke, a thin layer of paint that is just one part of a complex economic picture. It is an abstract figure used to judge our economic progress and regarded by many as the tell-all indicator of a country's economic health and overall well-being. But the GDP isn't all it's cracked up to be, and fails as an economic indicator in several different areas: First, it doesn't measure the quality and sustainability of economic development; it makes no distinction between unproductive money transfers as opposed to wealth creating endeavors. A dollar spent at a blackjack table where money disappears like candy in an elementary school counts the same towards a nation’s GDP as a dollar spent to maintain an oil refinery, school district or car manufacturing plant. Money invested in the educational system or industry of a nation is much more beneficial to its economy than cash spent gambling, however the GDP does not measure this; instead all money transactions, regardless of economic usefulness is added to GDP. Consequently, GDP statistics have failed to register the US shift from a sophisticated world-leader in high-technology production to a third-world exporter of raw resources and importer of a majority many of our finished manufactured goods. Second, the GDP can unreasonably register positive gains from harm a country endures, showing increases when overall a country or area suffered, like cleaning up from effects of a hurricane. This was also summed up by Mike Nickerson of Ontario, Canada's Sustainability Project: "If a truckload of toxic chemicals spills somewhere, the money spent cleaning it up is added to the GDP. If nearby residents can no longer use their wells for water, their expenditures on bottled water is added to GDP. If they become sick from exposure to the substance, their medical costs are also added to the official measure of well-being." Even the creator of the GDP Simon Kuznets in a 1934 report to the US Congress acknowledged the GDP's flaws as an economic indicator, "The welfare of a nation can scarcely be inferred from a measure of national income. If the GDP is up, why is America down? Distinctions must be kept in mind between quantity and quality of growth. Goals for more growth should specify more growth of what and for what." The next time the media hails GDP growth as the ultimate economic and wellness indicator remember the inherent flaws in the calculation of the GDP statistic. It is a statistic that does not necessarily measure wealth creation or the quality of growth. It is a statistic that disasters, gambling, and useless endeavors can inflate. High-paying manufacturing, which leverages huge dollar sums of capital investment, and high-knowledge jobs like finance, consulting, engineering, etc. are out of the reach of most Americans. Despite relatively constant GDP growth, it is now universally recognized that American economic opportunity for most is exclusively limited to employment in low-wage low-value add service sectors like retail, hospitality, healthcare, education, and public service. In the end GDP is a flawed and misleading economic indicator, one that is not the true measure of a country's economic health and yet most continue to use it as a barometer of our economic growth and progress. It should be discarded as it distorts the true condition of our economy. Click here to contact your Representative in Congress. Spread this message with Digg, Del.icio.us, Reddit, or Stumbleupon, and subscribe to the RSS Feed to track articles
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Article Comments From Readers
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guest says " Comptroller General Predicts Fiscal Crisis Unless Government Reforms" on 11/09/07
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guest says "You guys are idiots" on 04/15/07
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First, GDP doesn't take into account transfer payments. The components of GDP are: investment, government spending, consumer spending, and net exports. This is basic economics, you should know this if you didn't drop out of high school (which judging by the intellect of the average post, most of the people here probably don't have educations past ninth grade).
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guest says "Trading Goods for Value" on 04/15/07
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As Adam in the Garden of Eden went out all by himself and naturally kept all that he had done. All that Adam done. He kpet. So that all that one manufacture. The one sells all that the one proudcted and once sold, he who has the gold just made the money but spend all the more money from what was never earned. Why don't you trade tin for gold and that is not much of a bargain deal. Getting somethan for nothing is free loading and that kind of money is no good around here.
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guest says "Real cause of American industrial decline" on 04/14/07
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America is declining indusstrially due to abysmally low levels of investment in public infrastructure and new plant and equipment.
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guest says "Great Points Made" on 04/13/07
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Yes. This article has many fine points and Americans should not be wowed into a "Fool's Paradise" by short-sighted Globalists who have no genuine patriotism or interest in the welfare of the USA.
What do we see in the USA today? Corporate rapists like Lee Raymond being payed $397 Million for gouging the public on gas. We see the Agribusiness making huge profits by importing and exploiting illegal laborers who first steal American's jobs refuse to learn English, and then overburden our schools, hospitals, and other welfare agencies with their problems. We see Corporate tycoons sending American jobs to third world countries for the freedom to pollute, cheat, and dodge taxes. Who are these companies? WalMart, ExxonMobil, many more. A Strong Dollar = A Strong Economy. The US dollar is now 35% weaker against the Euro since its inception. http://www.xe.com/ucc The Government needs to immediately cancel NAFTA, CAFTA, and the WTO to retore fairness. Ralph Nader was correct all along and still is today. |
The government must change how it does business now or the United States will face a serious fiscal crisis in the future, said David Walker, Comptroller General of the U.S. Government Accountability Office (GAO), at the Conference on Public Service & the Law dinner March 17. He challenged law students to take on the issues faced by the government by getting involved in public service at some point in their careers.
“The United States government faces some serious challenges in the 21st century,” Walker warned. “Deficits, changing security threats, demographics, quality-of-life concerns, rapidly evolving technology, I can go on and on and on.”
Plagued by waste, fraud, abuse, and mismanagement, the government must reconsider longstanding policies to sustain its superpower status and leave the country better positioned for the future. “Washington is out of control,” Walker asserted, not blaming anyone in particular. “I mean this on a nonpartisan basis.
“We could eliminate every dime of waste…and this nation would still have large and growing structural deficits,” Walker said. There are “too many layers, too many players, too many turf battles, and too many hardened silos.”
In order to make the necessary changes, the government needs more leaders with courage, integrity, creativity, and stewardship and who are willing to reform entitlement policies, namely Social Security, Medicare, and Medicaid. The government also needs to re-engineer the base of spending and re-evaluate tax policies.
The GAO, which provides the fiscal oversight, insight, and foresight for government initiatives, is at the forefront of making critical changes to government operations, starting with their own agency. “We try very much as an institution and I try very much as an individual, to practice what we preach and to keep in mind that leading by example is a powerful, powerful, but simple concept.”
Walker was able to turn the GAO from an at-risk agency to a model agency by being a good leader and adhering to three core values; accountability, integrity, and reliability. The GAO, for example, is the only government entity that has changed to a flat, market-based, skills-, knowledge-, and performance-oriented classification and compensation system.
The government is operating under policies that were meant for conditions that existed in the 1940s, 50s, 60s, and 70s, Walker charged, which hurts government productivity. Once a program or policy has been approved, it becomes part of the base set of programs in the annual budget.
“The base is unaffordable, unsustainable. The base is going to have to be dramatically reengineered and GAO is going to be in the forefront of efforts to analyze what’s working, what’s not working, and what is a possible way forward.”
In Walker’s estimation, the government has specific problem areas that must be addressed now. “Number one, a budget deficit. Number two, a balance of payments deficit, of which the trade deficit is a subset… [and] both of those [were] record levels last year. Number three, a savings deficit. Americans are great at spending, we’re poor at saving…and then we have, probably the most serious deficit of all and that is a leadership deficit. And that is a bipartisan statement,” Walker said.
“Where’s the accountability for spending increases and tax cuts that are unaffordable and unsustainable over time? Where’s the accountability for government programs and tax preferences that aren’t getting real results? ... Where’s the accountability for congressional projects, better know as earmarks or pork barrel spending, at a time of record budget deficits? Where is the outrage about these issues?”
The apathy of citizens will result in record deficits and will affect generations to come. “When our new grandson was born this afternoon, he not only got a birth certificate, he received a birth burden of $156,000. Now I know why he was crying,” Walker joked. More and more of our debt must be financed by foreign nations.
The United States has gone from the largest creditor nation to the largest debtor nation—and not due to the war on terrorism, Walker noted. “Of that $760 billion deficit last year, only $100 billion had anything to do with Iraq, Afghanistan or incremental Homeland Security costs,” Walker said.
The first baby boomers will reach age 62 in two years, making them eligible for Social Security. In five years, they will be eligible for Medicare, escalating the debt dramatically. The baby boom generation will not leave the country “better positioned for the future,” fiscally speaking, Walker said. “We need to get serious soon because the longer we wait, the more dramatic the changes are going to have to be, the more disruptive that they’ll be, and the less time that we’ll have to be able to transition to a more positive and sustainable future.”
After Hurricane Andrew, the GAO issued a series of recommendations, many of which were not adopted but could have been useful for responders to prepare, respond, and recover before, during, and after Hurricane Katrina. After Katrina, the GAO again identified areas of improvement. The national response plan needs clarity, consistency, and more common sense, Walker said. More training is needed to mobilize responders in the public, private, and nonprofit sectors. The government needs to take a risk- management approach and re-evaluate whether FEMA even needs to be in the Department of Homeland Security. Now that rebuilding has begun, tough decisions have to be made, with the state and local governments taking the lead, Walker said.
The GAO itself has made some tough and unpopular decisions under Walker’s watch, one of which was suing Vice President Dick Cheney. “I don’t like the idea of suing, unless you have to, and I don’t particularly like suing the vice president of the United States. On the other hand, if we are committed to truth and transparency, if we believe that anybody who is a public servant is subject to the law and that nobody is above the law and the public has a right to know who met with whom, when, about what, and what did it cost when it deals with issues as significant as our national energy policy, and if we were concerned that if we did not act that we were going to face broad-based records access problems throughout the entire government, then under those circumstances, we did what we had to do. We sued.” A district court ultimately dismissed the case, ruling that the GAO lacked standing to sue.
The GAO chose not to appeal for several reasons; however, the message got across. The GAO has not had to take any similar action since.
The GAO also acted on the Bush administration’s release of government news stories produced to influence the public on a variety of issues. Walker said the GAO brought the practice to light because they wanted citizens to know the government was trying influence them with “covert propaganda” financed with their tax money. Congress ultimately enacted legislation to stop it.
“I’m a strong believer if you don’t learn from history, you’re doomed to repeat it. Unfortunately, I wish we had more Americans that understood that because in many ways, we’re not learning from history,” Walker said. “We have a great country, but we face serious challenges.” We need to address those challenges starting today, he said, and take steps now to create a better tomorrow.