Posts Tagged ‘GDP’

The phrase, which was used in the early nineteenth century to describe the the spoils system of appointing government workers, accurately describes the American economy today.* And it’s pretty clear who the victor is, and it’s not the working-class.

Instead, a small group at the top have come out as the victor—and that’s been true for decades now.

How do we know?

Well, all we have to do is look at the growing gap between the amount produced by American workers and what they received in their wages. Gross Domestic Product (the green line in the chart above) grew by a factor of almost 16 from 1973 onward while workers’ wages increased by a bit more than 5 before the COVID Depression.

So, American workers only received back in the form of wages a small percentage of the increased amount they produced. The rest went to their employers.

The result has been an enormous rise in U.S. corporate profits (before tax, without inventory valuation and capital consumption adjustments)—particularly evident in the trendline fitted to the data in the chart above.

The employers, in turn, transferred a portion of those profits to the Chief Executive Officers of their corporations.

According to the latest report from the Economic Policy Institute, in 2019, a CEO at one of the top 350 firms in the United States was paid $21.3 million on average (using a “realized” measure of CEO pay that counts stock awards when vested and stock options when cashed in rather than when granted). The ratio of CEO-to-typical-worker compensation was therefore 320-to-1 (222.8-to-1 using a different, “granted” measure of CEO pay). That is up from 293-to-1 in 2018 and a gigantic increase from 61.4-to-1 in 1989 and, even more, 21.1-to-1 in 1965.

Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay—and because so much of their pay (about three-fourths) is stock-related, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or were taxed more).

An even large—and growing—distribution of the surplus that is the basis of corporate profits has taken the form of dividends, paid to owners of corporate equities. In 1965, dividends were about 26 (25.8) percent of corporate profits; by the beginning of this year they were almost 70 (69.2) percent.

And according to my calculations, the top 1 percent in the United States owns (as of 2014, the last year for which data are available) 62 percent of corporate equities, which has been climbing since the late 1970s. Meanwhile, the share of the entire bottom 90 percent has been falling, and is now only 11 percent.

So, it’s really only the small group at the top that is in a position to “share in the booty” by receiving a cut of corporate profits in the form of CEO pay and stock dividends. They’ve occupied the position of victor for decades now, and to them belong the economic spoils.**

Everyone else is forced to have the freedom to try to get by on their slowly rising wages—and to watch with both fascination and horror the ongoing spectacles in corporate boardrooms and the stock market.


*”To the victor belong the spoils” is attributed to Senator William Learned Marcy of New York who, in 1832, defended Andrew Jackson, whose campaign against President John Quincy Adams was seen partly as a vendetta against Adams, and whose conduct and remarks when taking office seemed to justify the association of Jackson with the spoils system.

**Just yesterday, in the midst of the pandemic and the worst economic downturn since the Great Depression of the 1930s, the U.S. stock market reached a new high (according to the Standard & Poor’s 500 index).

We’re back at it again: “the economy” has broken down and we’re all being enlisted into the effort to get it back up and working again. As soon as possible.

The Congressional Budget Office has announced that it expects the U.S. economy will contract sharply during the second quarter of 2020:

    • Gross domestic product is expected to decline by more than 7 percent during the second quarter. If that happened, the decline in the annualized growth rate reported by the Bureau of Economic Analysis would be about four times larger and would exceed 28 percent. Those declines could be much larger, however.
    • The unemployment rate is expected to exceed 10 percent during the second quarter, in part reflecting the 3.3 million new unemployment insurance claims reported on March 26 and the 6.6 million new claims reported this morning. (The number of new claims was about 10 times larger this morning than it had been in any single week during the recession from 2007 to 2009.)

Just as in the aftermath of the spectacular crash of 2007-08, the supposedly shared goal is to do whatever is necessary to engineer a recovery so that the economy can start operating normally again.

That presumes, of course, that we were satisfied with the normal workings of the economy before, and that such a state of normality is what we all desire moving forward.

But before I attempt to address that issue, it’s important that we stop and think a bit more about what we mean when we refer to this thing called “the economy.” In a fascinating recent interview, Anat Shenker-Osorio [ht: ja], argues that the economy is often portrayed as an all-powerful, personified entity.*

Previously, we would hear politicians admonish that we can’t pass X policy because it will “hurt the economy” — as if it were a being to which we owe our efforts and loyalties. And now, all the more brazenly, Republicans tell us we must sacrifice ourselves or perhaps our elders to the economy.

Another oft-used metaphor for the economy is the human body.

Conservatives, aided and abetted by progressives who also unwittingly employ the metaphor, tend to talk about the economy as a body. You can hear this expressed in language like “it’s suffering” or “the economy is thriving.” We have a “recovery bill” to get the economy “off life support” and “restore it to health.” What this metaphor suggests is that in grave cases, we must “resuscitate the patient” (perhaps with a stimulus bill.)

It seems to me, there’s a third common metaphor for the economy: a machine. Often, especially in conservative political discourse and neoclassical economic theory, the economy-as-machine is said to be functioning on its own, in a technical manner, with all its parts combining to produce the best possible outcome.** Unless, of course, there’s some kind of monkey wrench thrown into the works, such as a government intervention or natural disaster. However, according to liberal politics and Keynesian economics, the economic machine by itself tends to break down and needs to be regulated and guided, through some kind of government policy or program, so that it gets back to working properly.

As Shenker-Osorio correctly observes, the metaphor of “the economy” that is shared by both sides of mainstream political and economic discourse puts progressives at a distinct disadvantage:

we see progressives attempt to make arguments about how social welfare programs will “grow the economy” in the hopes of sounding like the reasonable adults in the room. This tacitly reaffirms the toxic idea that our purpose ought to be to serve the economy — that the correct evaluation of policy is how it affects the GDP

Much the same argument is made in favor of other liberal or progressive programs: raising minimum wages, extending health insurance, anti-poverty programs, education and job training, and so on. All are justified as contributing to making the economic machine work better, more productively, by including everyone.

So, what’s the alternative? One possibility, which Shenker-Osorio offers, is to reject the existing metaphors and refuse to continue to debate “who loves the economy best” and, instead, force “the far more relevant discussion: What is best for people.”

I don’t disagree with Shenker-Osorio’s goal but I wonder if there might not be another way of proceeding, by teasing out the implications of thinking about the economy as a machine.

If we continue with the machine metaphor then, first, we can demonstrate that the existing machine, in the midst of the novel coronavirus pandemic, is simply not working. It is an unproductive machine. For example, the U.S. economy-as-machine hasn’t been able to protect people’s health, for example, by providing adequate personal protective equipment for nurses and doctors, ventilators for patients, and masks for everyone else. Even more, it has put many people’s health at additional risk, by forcing many workers to continue to labor in unsafe workplaces and to commute to those jobs using perilous public transportation. Finally, it has expelled tens of millions of American workers, through furloughs and layoffs, and thus deprived them of wages and health insurance precisely when they need them most.

Second, we can read the decisions of the Trump administration—both its months-long delay in responding to the pandemic and then its refusal to enact a nationwide shutdown when it finally did admit a health emergency—as precisely enacting the general logic of the economic machine: that nothing should get in the way of production, circulation, and finance. It fell then to individual states to decide whether and when to shutdown parts of the economic machine and to distinguish between “essential” and “nonessential” sectors.

Finally, we can interpret the repeated calls to reopen the economy—not only by Trump and his advisors, but also by a wide variety of others, from Lloyd Blankfein, the billionaire former CEO of Goldman Sachs, to Republican Sen. Ron Johnson of Wisconsin—as a rational but unconvincing gesture, based on no other reason than that the machine needs to keep operating. It expresses the rational irrationality of the existing economy-machine.

All of which leaves us where? It seems to me, their continued reference to the economy as a machine creates the possibility of our demanding, in the first place, that the machine should remain closed down—for health reasons. People’s health should not be put under any further stress as long as the pandemic continues to ravage individual lives and entire communities.

And in second place, it becomes possible to imagine and invent other assemblages of the existing economy-machine, and even other machines, instead of obeying the logic of the current way of organizing economic and social life in the United States. In fact, while many of the changes to people’s lives have been designed to keep the existing machine functioning (for example, by working at home), it is also possible that people are taking advantage of the opportunity to experiment with how they work and live and creating new spaces and activities in their lives.***

If the common refrain these days is that “nothing will be the same” after the pandemic, perhaps one of the outcomes is that the economy-machine will finally be seen as an empty signifier, unmoored from the reality of people’s lives and incapable of organizing their desires.****

Then, maybe, the existing economy-machine will stop functioning. Before it kills any more of us.


*As in the episode of South Park, “Margaritaville” (the third episode in the thirteenth season, broadcast in March 2009), which Shenker-Osorio discusses in her 2012 book, Don’t Buy It: The Trouble with Talking Nonsense about the Economy.

**There is also, of course, an ethics of the economy-as-machine. As I explained back in 2018,

According to neoclassical economists, the capitalist distribution of income is fundamentally fair. If every factor of production (e.g., capital and labor) is remunerated according to its marginal contribution to production, and each individual sells to firms the amount of each factor they desire (because of utility-maximization), the resulting distribution represents “just deserts.” It’s fair on an individual level and it represents justice for society as a whole. Let free markets operate, without any external intervention (e.g., by the state), and the result will be both fair and just.

For Keynesian economists, the machine can be made to operate fairly, and therefore in an ethical manner, when the state can step in (e.g., via fiscal and monetary policy) to create full employment.

***I understand, some of those changes may be experienced as losses—of laboring alongside fellow workers, of certain leisure activities, and so on. But people are inventing all kinds of new ways, even at a physical distance, of provisioning, socializing, and much else.

****And, yes, for those who are interested, as I prepared to write this post, I did go back and reread some of the works of Gilles Deleuze and Félix Guattari, including AntiOedipusCapitalism and Schizophrenia.


The idea that GDP numbers don’t tell us a great deal about what is really going on in the world is becoming increasingly widespread.


David Leonhardt, in reflecting the emerging view, has argued that GDP doesn’t “track the well-being of most Americans.”

Now, we’d expect that someone like socialist Democratic candidate Bernie Sanders would question the extent to which the low unemployment numbers, associated with economic growth, hardly tells the whole story about the condition of the American working-class.

Unemployment is low but wages are terribly low in this country. And many people are struggling to get the health care they need to take care of their basic needs.

But even centrist candidates Joe Biden and Pete Buttigieg are making the case that the headline numbers, such as Gross Domestic Product and stock indices, hide the fact “that a very different reality exists for many Americans who have not seen much improvement in their own bottom lines.”

And one of the last people you’d expect to question the shared gains from economic growth, Robert Samuelson, thinks that “something momentous is clearly occurring.”

economic inequality continues to rise at a steady pace; the further you go up the income scale, the larger the income gains, both relatively and absolutely. . .

The great danger here is social and political. It is the creation, or the expansion, of a multi-tiered society where the largest income gains are enjoyed by relatively small groups of people near the top of the economic distribution.

So, let’s step back a bit and see what these numbers reveal—and what they mostly hide.


First, as is clear from the chart immediately above, the growth in the value of U.S. stock markets (as measured by the S&P 500 Index, the red line) doesn’t tell us much about actual economic growth (as indicated by the value of Gross Domestic Product, the blue line). For example, between 2010 and 2019, the stock market increased by 163 percent, while GDP grew by only 46 percent.

Second, neither number alone indicates what is happening to the vast majority of Americans. For example, as I argued back in 2017, ownership of stocks in the United States is grotesquely unequal: while about half of U.S. households hold stocks in publicly traded companies (directly or indirectly), the bottom 90 percent of U.S. households own only 18.6 percent of all corporate stock. The rest (81.4 percent) is in the hands of the top 10 percent.

Well, then, what about GDP?

fredgraph (1)

It’s obvious from this chart that the increases in all the indicators of average income in the United States—real median personal income (the red line), real mean personal income (green), and real median household income (purple)—are much lower than the increase in real (inflation-adjusted) GDP. Those discrepancies reveal the fact that the average person or household is benefiting much less than they otherwise would from economic growth. And, of course, the gap increases over time, as in every year people fall further and further behind.

So, all that the GDP numbers indicate is that the monetary value of final goods and services produced and sold in the United States—the “immense accumulation of commodities” that represents the wealth of a capitalist society—is growing. But it doesn’t tell us anything about who gets what, that is, how the incomes generated during the course of producing those commodities are distributed. In other words, GDP numbers are a poor indicator of people’s well-being.

So, what would tell us something about how Americans are faring in the midst of the so-called recovery from the Second Great Depression?

Leonhardt’s view is that “distributional accounts”—that is, estimates of income shares for every decile of the income distribution, as well as for the top 1 percent—will change the national discussion whenever GDP numbers are released.

I don’t know if they’ll change the terms of debate but they will certainly challenge the presumption that GDP (and other headline numbers, such as stock market indices) accurately the economic and social health of the nation.


Thus, for example, as Emmanuel Saez (pdf) has shown, by 2017, real incomes of the bottom 99 percent had still not recovered from the losses experienced during the initial years of the Second Great Depression (from 2007 to 2009), while families in the top 1 percent families captured almost half (49 percent) of total real income growth per family from 2009 to 2017. And, as a result of growing inequality, the 50.6 percent top 10 percent income share in 2017 (with capital gains) is virtually as high as the absolute peak of 50.6 percent reached in 2012.


Moreover, according to the Congressional Budget Office (pdf), income before transfers and taxes is projected to be more unequally distributed in 2021 than it was in 2016. And while means-tested transfers and federal taxes serve to reduce income inequality, the reduction in inequality stemming from transfers and taxes is actually projected to be smaller in 2021 than it was in 2016.

All of these distributional effects of the current mode of production in the United States are hidden from view by the usual headline economic numbers.

But there’s one more step that can and should be taken. The distributional accounts that have been used to change the discussion focus on the size distribution of income, that is, the distribution of income to groups of individuals (and individual households) that make up the population. What is missing, then, is the factor or class distribution of income.


In the chart above, I have illustrated the changing ratio of corporate profits to workers’ wages in the United States from 1968 to 2018.* Two things are remarkable about the trajectory of this ratio. First, beginning in 2001, the ratio more than doubled, from a low of 0.31 to a high of 0.70 (in 2006). And, second, even though the ratio has fallen in recent years, it still remains as of 2018 much higher (at 0.52) than during the pre-2001 period.**

However inequality is measured—in terms of the size or class distribution of income—it is obvious that most Americans are not sharing in the growth of national income (or, for that matter, the stock-market gains) in recent years.

The focus on GDP (and stock indices, unemployment rates, and the like) serves merely to hide from view what the American workers clearly understand: they’re being left behind.


*This is the ratio of, in the numerator, corporate profits before tax (without IVA and CCAdj) and, in the denominator, the total wages paid to production and nonsupervisory workers (assuming a work year of 50 weeks). It is clearly similar to but different from the Marxian rate of exploitation, surplus-value divided by the value of labor power—since, among things, it does not include distributions of the surplus to members of the top 10 percent in the numerator.

**A third observation is also relevant: the ratio of profits to wages has fallen prior to every recession since 1968. The recent decline in the ratio (since 2013) therefore portends another recession in the near future. However, I’m no more keen on making predictions than on coming up with New Year’s resolutions. It was John Kenneth Galbraith who wisely wrote, “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

global wealth

The premise and promise of capitalism, going back to Adam Smith, have been that global wealth would increase and serve as a benefit to all of humanity.* But the experience of recent decades has challenged those claims: while global wealth has indeed grown, most of the increase has been captured by a small group at the top. The result is that an obscenely unequal distribution of the world’s wealth has become even more unequal—and, if business as usual continues, it will turn out to be even more grotesquely unequal in the decades ahead.

The alarm was most recently sounded by Michael Savage, in the Guardian, who cited a projection produced by the House of Commons library to the effect that, if trends seen since the 2008 financial crash were to continue, then the top 1% will hold 64% of the world’s wealth by 2030.”


I finally managed to track down that report, which was commissioned by MP Liam Byrne, who is the chair of the All-Party Parliamentary Group on Inclusive Growth. It relies on data compiled by Credit Suisse and a projection assuming that total wealth grows at the same rates as during the period 2008-17.

The problem, of course, is global wealth is notoriously difficult to calculate—for both empirical and theoretical reasons—and Credit Suisse doesn’t reveal its methodology.

That’s why the work of the World Inequality Lab is so important.** They’re doing the painstaking work of calculating the wealth that has been generated by global capitalism and how its ownership is distributed.

Thus far, they have reasonably good data for a selection of nations: China, Europe (represented by three countries, France, Spain, and the United Kingdom), and the United States. Those are the numbers illustrated in the chart at the top of this post (with the vertical green line, at 2015, separating past trends from future projections). What they find is that

At the global level represented by China, Europe, and the United States), wealth is substantially more concentrated than income: the top 10% owns more than 70% of the total wealth. The top 1% wealthiest individuals alone own 33% of total wealth in 2017. This figure is up from 28% in 1980. The bottom of the population, on the other hand, owns almost no wealth over the entire period (less than 2%).

The share owned by the top 1 percent is less than reported by Byrne but it’s still an astounding one-third of global wealth. (The share for the top 1 percent in the United States is even higher: an astounding 41.8 percent in 2012.)

But the projection looking forward is similarly dramatic: according to the World Inequality Lab, if present trends continue the share of each of the top groups—the top 1 percent, the top 0.1 percent, and the top 0.01 percent—would grow by one percentage point every five years. What that means is that, by 2050, the share of each group would increase dramatically. In particular, the share owned by the top 0.1 percent would eventually match that of the declining middle group—at a quarter of global wealth.

What we’ve been seeing in recent decades is that an unequal distribution of wealth leads to even more inequality, since wealth inequality is amplified as wealth is concentrated in the hands of a small group at the top. First, past wealth is capitalized at a faster pace, since the rate of return on wealth is faster than the rate of growth of the economy. Moreover, this effect is reinforced by the fact that rates of return tend to increase with the level of wealth: the rates of return available to large financial portfolios are usually much higher than those open to small bank deposits and the other savings vehicles available to everyone else.

None of this is new. Those in the small group at the top have long been able to put distance between themselves and everyone else precisely because they’ve been able to capture the surplus and then convert their share of the surplus into ownership of wealth. And the returns on their wealth allow them to capture even more of the surplus produced within global capitalism.

In short, unless radical economic changes are made within nations, the unequal distribution of global wealth created by contemporary capitalism is both the premise and promise of an even more unequal distribution of wealth in the decades to come.


*To be clear, the “wealth of nations” that Smith referred to was current production or, as it is currently measured, Gross Domestic Product—the “immense accumulation of commodities” produced and exchanged in a country’s economy over a particular period of time. Mainstream economists (such as Robert Barro) often claim that inequality in global capitalism is decreasing, because of “convergence,” that is, growth rates in developing countries of the Global South are faster than in the developed North and the gap in GDP per capita is closing. Today, wealth refers to the ownership of assets, both financial (stocks, bonds, etc.) and nonfinancial (especially housing)—as against income (flows of value associated with either doing or owning) or sums of transactions (which is what is captured in GDP).

**The other major sources of information on global wealth are Forbes (which publishes global rankings on the world’s billionaires) and the French business consulting company Capgemini (which issues an annual World Wealth Report focused on the wealth of global High Net Worth Individuals).


The 2017 Social Progress Index is out and according to Michael Green [ht: ja], the CEO of SPI, the United States is “flatlining,”

primarily due to its falling scores on measures of tolerance and inclusion. . .

Green said that in order for under-performing countries like the US to improve their scores in 2018 and 2019, they’ll need to embrace long-term investments in protecting people’s rights.

“The US is not under-performing because of the Trump administration or the Obama administration,” he said. “It’s about the story of long-term under-investment in the justice system, in the education system, in healthcare. Those are the real challenges.”

Overall, the United States ranks 18th out of 128 nations.

The only area in which the United States outperforms other nations of similar wealth is higher education, with a large number of colleges and universities. But that doesn’t include cost and thus accessibility, which is reflected in a low score on inequality in the attainment of higher education.

And then there are all the other categories in which the United States comes up short in comparison to the rest of the world: nutrition and basic medical care (36th), water and sanitation (27th), homicides (70th), access to information and communications (27th), environmental quality (33rd), political rights (32nd), freedom over life choices (65th), and discrimination and violence against minorities (39th).


That’s why the overall U.S. score is only 86.43, which puts it behind many other high-income nations: Denmark, Finland, Iceland, Norway, Switzerland, Canada, Netherlands, Sweden, Australia, New Zealand, Ireland, United Kingdom, Germany, Austria, Belgium, Spain, and Japan.


The authors of the report note that, while social progress generally improves as national income rises, there’s no one-to-one correspondence between them. Thus, the United States underperforms on the Social Progress Index compared to its per capita national income.

What is clear, from the sample of countries in the chart above, is the United States has a much more unequal distribution of income compared to countries that rank higher in the SPI.

That’s one of the real reasons why, independent of Trump and Obama, the United States is flatlining when it comes to social progress.

Greg Kahn

I am quite willing to admit that, based on last Friday’s job report, the Second Great Depression is now over.

As regular readers know, I have been using the analogy to the Great Depression of the 1930s to characterize the situation in the United States since late 2007. Then as now, it was not a recession but, instead, a depression.

As I explain to my students in A Tale of Two Depressions, the National Bureau of Economic Research doesn’t have any official criteria for distinguishing an economic depression from a recession. What I offer them as an alternative are two criteria: (a) being down (as against going down) and (b) the normal rules are suspended (as, e.g., in the case of the “zero lower bound” and the election of Donald Trump).

By those criteria, the United States experienced a second Great Depression starting in December 2007 and continuing through April 2017. That’s almost a decade of being down and suspending the normal rules!

Now, with the official unemployment rate having fallen to 4.4 percent, equal to the low it had reached in May 2007, we can safely say the Second Great Depression has come to an end.

However, that doesn’t mean we’re out of the woods, or that we can forget about the effects of the most recent depression on American workers.*


For example, while Gross Domestic Product per capita in the United States is higher now than it was at the end of 2007 ($51,860 versus $49,586, in chained 2009 dollars, or 4.6 percent), it is still much lower than it would have been had the previous trend continued (which can be seen in the chart above, where I extend the 2000-2007 trend line forward to 2017). All that lost output—not to mention the accompanying jobs, homes, communities, and so on—represents one of the lingering effects of the Second Great Depression.

HS  college

And we can’t forget that young workers face elevated rates of underemployment—11.9 percent for young college graduates and much higher, 30.9 percent, for young high-school graduates. As the Economic Policy Institute observes,

This suggests that young graduates face less desirable employment options than they used to in response to the recent labor market weakness for young workers.

income  wealth

Finally, the previous trend of growing inequality—in terms of both income and wealth—has continued during the Second Great Depression. And there are no indications from the economy or economic policy that suggest that trend will be reversed anytime soon.

So, here we are at the end of the Second Great Depression—no longer down and with the normal rules back in place—and yet the effects from the longest and most severe downturn since the 1930s will be felt for generations to come.


*As if often the case, readers’ comments on newspaper articles tell a different story from the articles themselves. Here are two, on the New York Times article about the latest employment data:

John Schmidt—

Any discussion about “full employment”, when there are so many people who’ve essentially given up looking for work or who’re working in low-skill or unskilled labor positions, seems like the fiscal equivalent of rearranging deck chairs on the Titanic. Based on data from the Fed and the World Bank, GDP per capita has doubled since 1993, while median household income has risen ~10%. Most of the newly-generated wealth and gains from productivity increases are being funneled upward, such that the average worker very rarely sees any sort of pay increase. Are we expected to believe that this will change now that we’ve [arguably] passed some arbitrary threshold? Why should we pat ourselves on the back for reaching “full employment”? Shouldn’t we be seeking *fulfilling* employment for everyone, instead, at least inasmuch as that’s possible? Shouldn’t we care that the relentless drive for profit at the expense of everything else is creating a toxic environment where the only way to ensure a raise is to hop from job to job, eroding any sense of two-way loyalty between companies and their employees?

I’m not sure what the solution is, but I know enough to see there’s a problem. Inequality of this sort is not sustainable, and it’s not going to magically disappear without some serious policy changes.

David Dennis—

There is a critical parameter missing from full employment data. very critical. Here in Pontiac, Michigan before the collapse of American manufacturing, full employment meant 10, 000 jobs working at GM factories and Pontiac Motors making above the mean wages with excellent health insurance as well as retirement pensions. You can not compare full employment at McDonalds and Walmart with the jobs that preceded them. The full employment measure doesn’t mean much if it isn’t correlated with a index that compares that employment with a standard of living as it relates to a set basket of goods, services, and benefits.


Mainstream economics presents quite a spectacle these days. It has no real theory of the firm and, even now, more than nine years after the Great Recession began, its most cherished claim to relevance—the use of large-scale forecasting models of the economy that assume people always behave rationally—is still misleading policymakers.

As if that weren’t embarrassing enough, we now have a leading mainstream economist, Havard’s Martin Feldstein, claiming that the “official data on real growth substantially underestimates the rate of growth.”

Mr. Feldstein likes to illustrate his argument about G.D.P. by referring to the widespread use of statins, the cholesterol drugs that have reduced deaths from heart attacks. Between 2000 and 2007, he noted, the death rate from heart disease among those over 65 fell by one-third.

“This was a remarkable contribution to the public’s well-being over a relatively short number of years, and yet this part of the contribution of the new product is not reflected in real output or real growth of G.D.P.,” he said. He estimates — without hard evidence, he is careful to point out — that growth is understated by 2 percent or more a year.

This is not just a technical issue for Feldstein:

it is misleading measurements that are contributing to a public perception that real incomes — particularly for the middle class — aren’t rising very much. That, he said, “reduces people’s faith in the political and economic system.”

“I think it creates pessimism and a distrust of government,” leading Americans to worry that “their children are going to be stuck and won’t be able to enjoy upward mobility,” he said. “I think it’s important to understand this.”

Here’s what folks need to understand: mainstream economists like Feldstein, who celebrate an economic system based on private property and free markets, build and use models in which market prices capture all the relevant costs and benefits to society. And, since GDP is an accounting system based on adding up transactions of goods and services based on market prices, for mainstream economists it should represent an accurate measure of the “public’s well-being.”

Mainstream economists can’t have it both ways—either market prices do accurately reflect social costs and benefits or they don’t. If they do, then Feldstein & Co need to stick with the level and rate of growth of GDP as the appropriate measure of the wealth of the nation. And, if they don’t, all their claims about the wonders of free markets simply dissolve.

Notice also that, for Feldstein, the problem is always in one direction: GDP statistics only undercount social well-being. What he and other mainstream economists fail to consider is that whole sectors of the economy, like financial services (or, more generally, FIRE, finance, insurance, and real estate), are counted as adding to national income.

As Bruce Roberts has explained,

because “financial services” are deemed useful by those who pay for them, those services must be treated as generators in their own right of value and output (even though there is nothing there that can actually be measured as output at all). . .

the standard (neoclassical) approach embedded in GDP accounting means, in concrete terms, that profits in FIRE must be treated as a reflection of rising real output generated by FIRE activities, requiring a numerical “imputation” of greater GDP. And, worse, that *rising* profits in FIRE then go hand in hand with *rising* levels of imputed “output” and hence enhanced “productivity.”

If Wall Street doesn’t add to GDP—if FIRE activities just represent transfers of value from other economic sectors (both nationally and internationally)—then its resurgence in the years since the crash doesn’t contribute to output or growth.

The consequence is that GDP, as it is currently measured, actually overcounts national output and income. Actual growth during the so-called recovery is much less than mainstream economists and politicians would have us believe.

That’s the real reason many Americans are worried they and “their children are going to be stuck and won’t be able to enjoy upward mobility.”


Regular readers know I take statistics quite seriously. So, as it turns out, did Stephen Jay Gould who, in the most poignant story about statistics of which I am aware, explained how important it is to go beyond the abstractions of central tendencies and understand the distribution of variation within the numbers.

And right now, when the numbers are under attack—when, for example, the new Trump administration is threatening to purge the inconvenient numbers about climate change—it is even more important to understand the role statistics play in economic and social life.*

William Davies [ht: ja] offers one story about statistics, starting with the recent populist attacks on public statistics and the questioning of the experts that produce and interpret them. His view is that, for all their faults, the numbers collected and disseminated by technical experts within national statistical offices need to be defended—as the representation of “common ideas of society and collective progress”—against the rise of private “data.”

A post-statistical society is a potentially frightening proposition, not because it would lack any forms of truth or expertise altogether, but because it would drastically privatise them. Statistics are one of many pillars of liberalism, indeed of Enlightenment. The experts who produce and use them have become painted as arrogant and oblivious to the emotional and local dimensions of politics. No doubt there are ways in which data collection could be adapted to reflect lived experiences better. But the battle that will need to be waged in the long term is not between an elite-led politics of facts versus a populist politics of feeling. It is between those still committed to public knowledge and public argument and those who profit from the ongoing disintegration of those things.

I understand the threat posed by big, private data—all those numbers that are collected “behind our backs and beyond our knowledge” when we travel, make purchases, and participate in social media, and in turn are utilized to sell us even more commodities (including, of course, political candidates).

But I also think Davies, in his rush to condemn private control over big data, presents too uncritical of a defense of “the kinds of unambiguous, objective, potentially consensus-forming claims about society that statisticians and economists are paid for.”

Consider, for example, one of the “unambiguous, objective, potentially consensus-forming claims about society” Davies himself cites: GDP. Just last Friday, the headlines reported that the U.S. economy grew “only” 1.6 percent during the last quarter of 2016, “the lowest level in five years.”

The presumption was that the decline in the number (with respect to both previous quarters and economists’ forecasts) represented a fundamental problem. But why should it—why should a decline in the growth rate of GDP be taken as a sign of something that needs to be fixed?

Davies does mention that GDP “only captures the value of paid work, thereby excluding the work traditionally done by women in the domestic sphere, has made it a target of feminist critique since the 1960s.” But the controversies surrounding that particular statistic are much more widespread than Davies would have us believe. As a number of recent books (including Ehsan Masood’s The Great Invention: The Story of GDP and the Making and Unmaking of the Modern World) have clearly explained, the initial formulation of that particular measure of national income as well as subsequent revisions have involved theoretical and political choices about what should and should not be included—government expenditures but not labor within households, the production of fossil fuels but not the destruction of the natural environment, sales of private security but not the growing inequality it is designed to protect against.**

Even more fundamentally, GDP is a measure of market transactions, of goods and services produced—and thus the contemporary counting of the elements celebrated by Adam Smith’s notion of the “wealth of nations.” But what it doesn’t measure are the conditions under which those commodities are produced.

Me, I’d be much more willing to join forces with Davies and defend the claims about society that statisticians and economists are paid for if they were also paid to calculate and publicly report one other number, S/V, the rate of exploitation.


**We should remember that perhaps the real hero of volume 1 of Capital was Leonard Horner, who as a factory inspector “carried on a life-long contest, not only with the embittered manufacturers, but also with the Cabinet, to whom the number of votes given by the masters in the Lower House, was a matter of far greater importance than the number of hours worked by the ‘hands’ in the mills.”

**Other useful books on GDP include the following: Philipp Lepenies’s The Power of a Single Number: A Political History of GDP (Columbia University Press, 2016), Lorenzo Fioramonti’s Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (Zed Books, 2013), and Thomas A. Stapleford’s The Cost of Living in America: A Political History of Economic Statistics, 1880-2000 (Cambridge University Press, 2009).


The clear reemergence of and spreading interest in anti-establishment politics in the United States (together with the electoral success of left-wing and right-wing parties in a growing number of European nations) can be blamed squarely on capitalism.

As I see it, it’s the combination of the failures of capitalism and the unwillingness of the existing economic and political elites to effectively deal with those failures that explains the rejection of mainstream (center-right and center-left) candidates and policies and the turn to alternatives. The failures of capitalism go back some four decades—including stagnant wages, rising indebtedness, and growing inequality—and culminated in the crash of 2007-08—after which wages remained stagnant, people were not able to rid themselves of debt, and inequality continued to grow. What recovery there has been in recent years has mostly been captured by large corporations and wealthy individuals, while economic growth has remained slow. Meanwhile, economic elites have continued business as usual (moving production and jobs at will around the world, more interested in lowering costs, avoiding taxes, and inventing new labor-saving technologies than anything else) and political elites do everything they can to save large financial institutions and a business-friendly environment and imposing the costs—of the bailouts, the continued opening and expansion of markets, the refugees from war-torn zones, and much else—on the working and unemployed populations of their nations.

From this perspective, it’s no surprise that, in the United States, both Donald Trump and Bernie Sanders have attracted so much support—or, that, in Europe, both the Left (e.g., in Greece and Spain) and the Right (e.g., in Poland and Austria) are increasingly able to challenge mainstream parties.

To be clear, this is not to say that politics—political parties and movements, voter attitudes and behaviors, candidates and coalitions—are solely determined by the economy (or some subset of the economy, like class interests). There’s a great deal more that affects the rise and fall of political ideas and campaigns—from political practices and institutions through discourses and identities to media and communication technologies. Still, the failures of capitalism and the unwillingness of economic and political elites to solve or mitigate the effects of those failures to the benefit of the majority of the population have played a significant role in the current disenchantment with mainstream parties and the success of left-wing and right-wing alternatives in the United States and Europe.

But it is interesting that there appears to be a determined effort to absolve capitalism of any responsibility for these new political events. Both Greg Ip (writing for the Wall Street Journal) and Peter Eavis (for the New York Times) have attempted to argue that “it’s not the economy” that explains politics, but something else. And, if it’s something else, it can’t be the failures of capitalism that are to blame.

For both writers, “the economy” is economic growth, specifically growth in GDP. In Ip’s case, the difference between the 1960s (when social disarray and political dissension were accompanied by solid growth and “shared prosperity”) and now (when similar levels of voter discontent are occurring with slow growth and high levels of inequality) means we can’t make sense of electoral grievances in terms of economic discontent. For Eavis, most voters are currently “doing sort of O.K.” (with thousands of new jobs and a low unemployment rate). Therefore, he argues, this election can’t really be about the economy.

Desperate as they are to make such an argument, both Ip and Eavis miss two key issues. First, the economy is not just GDP growth. It’s also, at least for the majority of the population, about a great deal more: the tradeoff between wages and profits and the level of inequality, the ability of the government to capture portions of the surplus and to use it for social programs, the degree of security concerning jobs and the quality of the communities in which people live and work, and a great deal more. And second, capitalism doesn’t always exert its effects in the same way: in the 1960s, when both wages and profits were rising and the possibility of using part of the surplus to improve society (both for those who had prospered and those who had been excluded from that first. “Golden Age” decade of postwar growth), capitalist success created rising expectations (including the rethinking of aspects of capitalism that had previously been deemed successes); while now, in the midst of capitalism’s multiple, spectacular failures, the opposite is true (as people demand redress for their low-paying jobs, crumbling infrastructure, obscene levels of inequality, and the corruption of democratic politics by large corporations and wealthy individuals).

So, no, capitalism can’t be let off the hook. It creates and perpetuates the problems it claims to address. And even though economic and political elites want to believe otherwise, holding firm to the notion that people should be satisfied with current economic arrangements, recent developments in the United States and Europe suggest they’re not.

Not by a long shot.


Special mention

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