Creative Destruction

April 3, 2006

GDP Growth = General Wellbeing?

Filed under: Uncategorized — Brutus @ 3:50 pm

As revealed earlier, I don't generally like to cite numbers of any sort in support of my contentions. Although I would never paint numbers as wholly useless along the lines of Adam's rather apt quote, "lies, damn lies, and then statistics," that's certainly the direction I tend. To be told, then, that I'm using numbers improperly in support of my perspective is a bit ironic, considering that I offered them only grudgingly in the first place. Ah, well, I didn't expect to win any arguments. (I will note, however, that I did yield some ground and admitted to a couple errors. Thus far, I've yet to see anyone else offer even a small gesture of conciliation.)

Anyway, of the various numbers one could cite, I find economics to be among the least convincing. According to this article, I'm not alone. Here is a useful snapshot from that article:

Most American households are not, in fact, seeing their economic fortunes improve. GDP is up, but virtually all the growth has gone into corporate profits and the incomes of the highest economic brackets. Wages and incomes for average workers, adjusted for inflation, are down in recent years; the median income for non-elderly households is down 4.8 percent since 2000 (Economic Policy Institute, 8/31/05). The poverty rate is rising, as is the number of people in debt.

The underlying message of the article is that media reports are uncritical of blanket claims (frequently by the Bush administration) that we're doing better, as measured by things such as Gross Domestic Product. It hasn't translated into improvements for most people. (There are both tangible and logical disconnects at work.) Rather, benefits are accruing to corporations and the top quintile. While some may regard that as evidence that entrepreneurialism and frees markets work properly and that the rewards (properly) go to those either willing to take risks or obtain skills necessary to join in the feast, I think that it is perhaps evidence of an inherently unjust system. I say "perhaps" because I'm not yet sure, and I don't think, as I've been obliquely accused of advocating, that forcible redistribution is the solution. It's probably a bigger question than I can fully understand from my armchair, but it's worth looking at nonetheless.



  1. GDP is a limited measure of prosperity to be sure, but consumption rates, in combination with a variety of other things, can actually give us a fairly accurate representation of the economic situation.

    The pet peeve you have stumbled upon can be exemplified with this sentence:

    It hasn’t translated into improvements for most people.

    Since you can’t demonstrate anything with evidence, as all measurable evidence is good enough for nuclear physics but apparently not good enough for economics, you’re just going to say what you believe and the very fact that you have said it will make it persuasive.

    Or maybe because you can find some reasonable-sounding philosophy that interprets our system as “inherently unjust”.

    No. The article you cite is no more evidence against the accuracy of statistical evidence than a tabloid article using a few facts to argue against thermodynamics would be evidence against empirical data.

    Anyone with any sense of statistics can tell you what GDP doesn’t tell you and what it suggests, and what other information you can use to get a more accurate picture of whatever subject you are interested in.

    Your argument against the value of statistical evidence is equivalent to a student arguing against the value of calculus simply because they don’t want to have to deal with it.

    There is accurate statistical analysis and there is less accurate statistical analysis. Looking down your nose at it altogether is to provide an excuse for people to argue from great ignorance of a subject.

    Note that I am neither calling you ignorant (as I’m well aware you are not) nor questioning your motives for making this argument: I believe your intentions are genuine. But your analysis serves as nothing but justification for irresponsibility.

    Comment by Adam Gurri — April 3, 2006 @ 4:18 pm | Reply

  2. You haven’t seen it yet, but I’m going to start wielding the knife if every objection is about methodology rather than the issue itself. I’ve offered several examples why certain methodologies don’t appeal to me — at the same time that I’ve used them in response to a request for evidence. By remaining focused on methodology, you’re avoiding addressing the issue. Grrr.

    Comment by Brutus — April 3, 2006 @ 5:52 pm | Reply

  3. Have to repeat the ol’ joke:

    Jim and Jan are at the bar when Bill Gates walks in. “Yippee!” exclaims Jim, “The average net worth of everyone in this bar just skyrocketed!”

    “So a billionaire just walked in,” Jan sniffed. “That doesn’t make you or me any richer.”

    Jim shoots back, “There you go again with your class warfare talk.”

    Comment by nobody.really — April 3, 2006 @ 6:58 pm | Reply

  4. But Brutus, this post is itself a methodological critique, is it not? 😀 After all, the substance of your argument would appear to be that the article used GDP figures irresponsibly, and that they don’t reflect the “inherently unjust” reality.

    But I’m game if you want to talk standard of living. I’ve got a fair deal on this here and here, but I’ll summarize:

    Looking at long-term trends, as you have pointed out is the most accurate method of judging anything, there has been improvement across the board. This is not to deny short-term downturns of varying severity, but studies on consumption rates, life expectancy, productivity, average total compensation, and the purchasing power of the average work time have all indicated an extraordinary increase in the quality of life of the average American. By the late 90’s, when Cox and Alm wrote their book, the average lower-income household had a better standard of living than most middle-income households in the 1970’s–and the situation has continued to improve.

    So what issue is it that I’m avoiding? Because if you don’t like pursuing the most accurate means of employing statistical evidence, it’s easy to just discount anything I have to say on the subject. On the other hand, I found your chart of top marginal rates in the 20th century to be most persuasive precisely because it was such a long-term survey.

    But I’m happy to engage when it comes to the American economy if you are. Just give me some more time on responding to the lengthier post you had up earlier; I’m getting to it, I promise! 😀 I intend to reply point by point.

    Comment by Adam Gurri — April 3, 2006 @ 7:30 pm | Reply

  5. Interestingly enough, Jim is closer to right than Jan. The opportunity to interact with a high-capital individual like Bill Gates is statistically likely to increase the available capital (even if “only” of the intellectual or human variety) of the lowlifes inhabiting the bar, if they take advantage of the opportunity.

    Jim might, but Jan will sit scowling into her beer and later write bitter Livejournal entries about the system keeping her down, man.

    Comment by Robert — April 3, 2006 @ 10:07 pm | Reply

  6. Google my full name and Harvard Tells the Truth on Taxes. The Harvard Alumni magazine did a piece on some analysis about the median family and their incomes – especially discretionary dollars. The 800 dollar delta from the 70s to today can be explained by taxes.

    Comment by James Atticus Bowden — April 3, 2006 @ 10:13 pm | Reply

  7. OK, I’ve calmed down and resheathed my blade. You’re right, Adam. It was a methodological critique I posted — of sorts. But you got my point wrong. The article supports the notion that the GDP is being abused by spin doctors to convince the masses of something that isn’t true for them. Robert Hayes is similarly skilled at turning something around (see comment 5 above).

    Beyond mere methodology, Mr. Bowden’s article (which I just read) makes many of the same points I’ve been making in the past few days. His comparison is roughly equivalent to mine: 70s to now vs. 60s to now, both being a comparison of our parents’ time to our own, depending on how old you are.

    Anyway, I will continue to press my points and appreciate that you’re good-natured enough to wink at me a promise to respond eventually.

    Comment by Brutus — April 3, 2006 @ 10:58 pm | Reply

  8. Anyway, I will continue to press my points and appreciate that you’re good-natured enough to wink at me a promise to respond eventually.

    Yes, and I apologize for buzzing like a fly in the meantime with nitpicky comments while I’m getting together the will to break my inertia and actually respond at length.

    Don’t worry too much about my buzzing, though–I have a strength of conviction in my beliefs, to be sure, but I generally don’t take myself too seriously. I’ve been proven wrong far too often 😀

    Comment by Adam Gurri — April 3, 2006 @ 11:27 pm | Reply

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