The White House and the Treasury Department point to low unemployment to argue there is not yet a recession.
There’s a valid argument that GDP is a flawed way to view the economy since it only charts growth and does not include any of the costs of that growth.
There’s a more holistic approach, the genuine progress indicator, or GPI, which accounts for the costs as well as benefits of growth.
I was surprised at his argument that the US has actually been in a form of recession for decades.
Our conversation, conducted by phone and lightly edited for length and flow, is below.
Why is GDP a flawed metric?
WHAT MATTERS: You are among a lot of people who think that GDP is not something we should be paying as much attention to. Can you explain that whole idea to me?
ERICKSON: GDP historically has been a very good estimate of economic activity. The challenge is when the estimate of economic activity, the amount of stuff made in a one-year time period, is equated to human well-being.
That’s where the logic falls down. GDP has never been a very good estimate of the net contribution of the economy to human well-being.
Do the costs of growth outweigh the benefits?
WHAT MATTERS: You talked about the “net contribution” to our economy. What do you mean by that?
ERICKSON: Well, we should have ways of knowing whether the benefits of a growing economy outweigh the costs of a growing economy.
It’s basic economics that says when something expands and grows and grows and grows, eventually you hit a point where you get to what are called diminishing returns to growth. Each new unit of growth gives you less benefits than the last. And eventually you hit the point of increasing costs of growth, where each new unit of growth costs more than the last.
You won’t see that in any textbook on economic growth, where the benefits of the growing economy are surpassed by the cost of the growing economy. By that metric, if you really take an honest accounting of all the benefits of the economy and all the costs of the economy, we’ve been in what you might call a “progress recession” since the late 1970s.
Seriously? A progress recession since the ’70s?
WHAT MATTERS: The stock market has gone up more than 10 times since the ’70s. We’ve had technological advances that have changed the condition of everyone. Almost every American now has almost immediate access to the internet. We’ve changed access to child care. More women are in the workforce. There has generally been progress since the ’70s. So explain to me exactly how we should view it as being in a recession.
ERICKSON: Genuine progress should account for net progress. There are many, many signs that a growing economy has contributed benefits. … But there are also signs, most of which are not accounted for, that the growing economy also creates costs.
So an honest assessment. If you are a business, this is what you would do in your own books as you would count the benefits of a growing business and the costs of a growing business.
We don’t do that with GDP.
We count every single dollar spent, whether it’s on a regrettable expense, whether it’s on overemployed income, whether it’s on the cost of sending your children to child care as soon as they’re born, because we have no maternity or paternity leave policy in the United States.
We count every single expenditure in GDP as a benefit. When you do the math, and then you count benefits as benefits and the costs as costs, we see that we’ve been in a net decline, a progress recession since the late 1970s.
WHAT MATTERS: So essentially you’re arguing the US has been moving backward — for most Americans and the entire duration of most Americans’ lives?
ERICKSON: Yeah, I mean gross domestic product was invented in the 1930s and ’40s to really try to understand whether the economy was growing or shrinking. Back in the Great Depression, we didn’t have such metrics. We didn’t know if policy was affecting the trajectory of the economy. So we were in desperate need of economic bookkeeping.
But the folks who created the GDP always warned that:
- a) It would be highly political. That’s of course what you’re seeing now with the release of the new numbers, and
- b) That it’s not a measure of human well-being. It’s just a measure of economic activity.
As the economy has grown, especially since the post-1970s, it’s grown in a more inequitable way.
It’s grown in a way that favors the very, very top income groups, but not the middle to bottom income groups. It’s grown in a way that’s creating many more costs — environmental costs, social costs — than it is in private benefits. … GDP counts everything, every penny spent, every dollar spent as a benefit, and nothing as a cost.
The average American knows that there are regrettable expenditures. As a nation, the United States has the most military spending, the most incarcerated citizens, the most single-parent homes. But does that make us any happier, healthier?
We know that in order to continue on the current growth trajectory that we have to deplete our oil and our minerals. That we have to unsustainably harvest our forests and our fisheries. That we have to mine soil nutrients in order to support industrial agriculture.
But those full costs, those full depletion costs of our growth, aren’t counted in something like GDP. They all measure short-term income instead of long-term depreciation as well.
How can we objectively gauge these costs?
WHAT MATTERS: One of the things that makes GDP valuable is that it’s a universal metric. It’s a number, essentially. A lot of the things that are factored into the genuine progress indicator are a little more subjective and intangible. So how would we come to an agreement about what costs to add into the growth?
ERICKSON: We need to do exactly what we did in the ’30s and ’40s. We need a new set of indicators for our time, not the time of our great-great-grandparents.
We need to direct the Bureau of Economic Analysis to study the alternatives, and we have decades, at least five decades, of work on alternative measures of economic progress.
And to come up with those universal accounts for the depletion costs, the pollution costs, the social costs, the uncounted benefits of time use, of care work, of community volunteering, of the labor, leisure trade-offs.
All of these kinds of estimates of the costs and benefits of a growing economy have been around since at least the 1960s. Yet politically we haven’t had the will to start to revise our measures of progress and create a new standard set of accounts to do that by.
Some nations have moved in this direction. The United States has been lagging.
Some states have adopted GPI
WHAT MATTERS: Some states have also moved in this direction. Can you talk about the experience of states — Maryland, Vermont and some others — that have adopted GPI as a rubric? How have they done that, and how could that be applied nationally?
ERICKSON: My state of Vermont is the first state in the country to pass into law the use of the alternative economic indicator called the genuine progress indicator. By law we need to report this next to the gross state product.
The genuine progress indicator depends on this 40, 50 years of research on the true costs of a growing economy. … When we put all of these 26 different calculations together into what’s called the genuine progress indicator, we see quite big differences between the 50 US states in terms of how well human well-being has tracked with a growing economy.
We see big differences between the United States and other countries. We’ve done about 17 different national studies around the world. We see a very different story emerge that starts to question, or has questioned for some time, the value of a model that counts everything as a benefit and nothing as a cost.
A new definition for doing well
WHAT MATTERS: Some of the states that are economic success stories in terms of oil production — places like North Dakota that have extremely low unemployment rates and generate a lot of income — you put them a little bit lower on the progress indicator, simply because of the effect on the environment. Do you do you think that would resonate with a lot of people in those states — that you’re not doing as well as you’re being told you are?
ERICKSON: The question is how do we define “well.” If we are defining well as short-term quarterly growth, then those states are doing phenomenally well. They grow incomes by ignoring all the costs of that growth. If we define well as, “Are you on a sustainable economic path?” then that’s quite a different question.
State economies that really depend on depleting oil reserves or depleting natural resources, and calling depletion “income,” calling depreciation “income,” which no business in the United States of America would ever get away with. Calling the depreciation, which is a cost on the books of companies, calling that “revenue,” is a clear signal that you’re in an unsustainable economic path.
All 50 states are on unsustainable paths. In fact, a state like Vermont looks really good in GPI estimates because we have no fossil fuel industry. But that’s not even an honest assessment because we benefit from importing oil and gas into our state. And then we don’t have to pay the costs. The costs are largely borne, the environmental costs, by the states that export that to us.
Add in the cost of the climate crisis
WHAT MATTERS: As somebody who’s looked at the theoretical GPI of all states, how are you changing the metrics to account for the intensity of climate change?
ERICKSON: There’s decades of work on tallying what the social costs are, what the environmental impacts are of warming the globe, what the impacts are on human infrastructure, human communities.
By traditional measures, the economic benefits that you get from cleaning up after storm events, or rebuilding after the latest wildfire or continuing to fuel gas-guzzling vehicles — these are all good things for GDP.
But I think your average American senses those can’t be measures of progress. Rebuilding after hurricanes, rebuilding after wildfires, the cost of human suffering from these increasing climate-change-related events can’t be a good measure of our economic progress.
And so with something like the genuine progress indicator, we try to account for those as costs through what’s called the social cost of carbon.
Honestly assessing the trade-offs for growth
WHAT MATTERS: What are the things that would change the calculus to push the US and the rest of the world toward progress growth?
ERICKSON: We need new metrics that are then translated into policies.
If we have a better understanding of the trade-offs of growth, we might be able to come up with policies that put us on, for example, a renewable energy path, not a nonrenewable energy path, or a path that puts us toward a more climate-friendly economy rather than one that’s leading to climate catastrophe. Put us on a path actually where life satisfaction goes up or at least doesn’t decline.
This period that I’m describing, the progress recession, we’ve also seen social science surveys done throughout this period that show that life satisfaction in surveys also peaked in the early 1970s to late 1970s and have flatlined ever since.
Yeah, the economy has grown. The stock market has grown. But so too has consumer debt. So too has environmental costs. So too has less time with family, less time with community, less time with leisure.
So this growth has costs, and that cost is reflected in lower life satisfaction, lower quality of life, both within the US and compared to our peers that have had different kinds of growth paths that have maintained higher life satisfaction. … (Erickson listed statistics about the relatively low life expectancy in the US, the relatively high rate of poverty, and increasing suicide rates among young people.)
Something is going on where growth is not automatically contributing to well-being. In fact, it might be putting more and more stress on the societal systems that we need to stay healthy.
When did the US make progress?
WHAT MATTERS: What was the period in US history that saw the most progress? Is there a golden age for American progress from the GPI perspective?
ERICKSON: You have two big different growth stories in recent US history. We grew as a nation on a more equitable growth path with improving social metrics of well-being from after World War II, from the 1950s through the early 1970s.
We grew in a way where the lowest income groups were growing faster than the highest income groups. We grew in a way that maintained and created big social safety nets.
Since the late 1970s, we kind of flipped the switch, if you will, and continue to grow but on a very inequitable growth path. We grew since the late 1970s by deregulating and privatizing the economy, by cutting spending in public infrastructure and education, by weakening our social safety nets in our society, by destroying our unions, which gave labor power in the kind of growth that we saw pre-1970s.
Crises reveal the limits of the current system
WHAT MATTERS: What am I missing?
ERICKSON: I think this is a time period that has been very revealing of the current model.
We’ve kind of realized the vulnerability of a global supply chain that is built on cheap energy and exploited labor. We’ve exposed the lack of resilience in our most basic societal systems we saw coming out of the coronavirus with widespread failure of medical and food systems. We see this dependence on an undervalued and underpaid essential workforce in producing, stocking and delivering necessities.
And I think this time period that we’re living in is laying bare a legacy of structural racism that predetermines access to health care, job prospects and public safety based on the color of your skin.
The genuine progress indicator is by no means a perfect alternative to the GDP, but it starts us on a different conversation, on a different path — a new way of defining the new economy that provides for all.
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