The authors, members of a San Francisco think-tank called Redefining Progress, tackle the paradox: Why, when the conventional measure of the economy, gross domestic product, says things are getting better, does everyone feel so lousy? Or as the title of the piece asks, "If the GDP is up, why is America down?" The answer: things aren't getting better. They really are getting worse.
The GDP's reckoning of a nation's output of goods and services, the authors write, is a "statistical Potemkin village" that hides the economy most people actually experience. Because it counts only what is exchanged in the money economy, it overlooks those activities that contribute to our quality of life, for good or ill, but to which no price is attached.
On the one hand, it overstates output, by failing to subtract the costs of such unpriced social blights as pollution. On the other hand, it understates output, since it places no value on services performed for free, whether in the voluntary sector or within the household. More broadly, it counts any activity for which money changes hands as a plus, regardless of whether it is of net benefit to society.
There's much good sense in this - and much nonsense. The authors' case is strongest when it comes to the environment. Economists have long recognized the harm done when neither producers nor consumers bear the cost of cleaning up the effluents and other pollutants thrown off at various stages of a product's life. So far as this is not included either as a cost of production or in the final price of the good, national income is indeed overstated. Likewise, the value of leisure should probably be incorporated into the figures somewhere, either by attaching a price to it as a "good," or simply by dividing GDP by number of hours worked.
No such plausibility attends the rest of the authors' arguments. The most commonly heard is the claim that the national accounts should include the value of chores done around the house, usually by women: the unpaid housework conundrum. The short answer is that in many cases they are paid, as part of the traditional marriage's implicit bargain. She cleans up around the house; he shares his income with her.
The authors would value unpaid housework "at the approximate rate a family would have to pay someone else to do it." By the same argument, the figures should be adjusted to take account of unpaid sex, at the going rate for a prostitute. Almost everything we buy today families used to make for themselves at home. If we choose still to do some things in- house, it may be because it is not worth it to hire someone (or because we like doing it ourselves). If the service is not offered at a price we are willing to pay, it shouldn't be counted as if it was. On the other hand, if the service is worth the price - as it must be, for the exchange to occur - it should be counted. The proposal to discount "defensive expenditures" such as crime prevention on the grounds that these don't really make people better off, but only stave off some perceived ill, could be extended to include most of the economy. People who live in cold climates generate GDP "merely" by heating their homes. On the other hand, those who live in hot climes create wealth "simply" by buying air conditioners.
We are told, in short, that GDP is a misleading indicator. But an indicator of what? Many centuries ago, St. Augustine answered this question. An oar, resting in water, appears broken when viewed from a certain angle. Is this evidence that sensory perception is unreliable? No, said Augustine. The eye correctly records the very real phenomenon of refraction. It is the mind that deceives us, incorrectly interpreting this as a report that the oar is broken.
In the same way, GDP is no more than what it appears to be: a measure of output, or rather, measurable output. If some falsely interpret it as an index of progress, well-being or contentment, the fault is with them, not the data.