A Note On GDP (Part 2)

At this point, I hope that I have proven that GDP is a poor measurement of a society's well being. It is a highly flawed statistic in that it weighs damaging and negative costs equally the beneficial costs. What is so frustrating is that economists have known about this imbalance since the inception of GDP as a measurement tool in the 1930s (it used to be called GNP then).

Why then is there so much reluctance on the part of economists to take a critical look? The sad reality is that there is too much money to be made in the "negative" factors that hurt society. Big Business is happy with GDP as it is. That way, the public at large is left in the dark about the damage being done to the environment or the widening gap between rich and poor.

When war always ends up in the economic win column, why not stage a few every couple of decades?

Fortunately, the good folks at Redefining Progress have created an Index that actually measures all of these costs appropriately. Called the GPI or Genuine Progress Indicator, it is based on the economic reality of all of these costs that consumers and business incur throughout the years.

Suffice it to say the the GPI has not painted a flattering picture of America's economic growth over the last 30 years. When plotted against GDP, GPI has been trending downward even though GDP growth has been plodding along consistently for 50 years. Take a look:


The chart indicates that since 1970, the GPI has been heading south. The facts on the ground bear this out. It was easier for a family to buy a house in the 70's than it is today. Real wages are down. The gap between rich and poor is widening. Is it merely just a coincidence that all of these factors seem to move in cadence with the GPI?

You can read more on the Redefining Progress website, but I will highlight some of the factors that GPI subtracts from its wealth index that the GDP adds to its calculation.

• Income Distribution

• Housework, Volunteering, and Higher Education (these non-transactional-based exchanges are added in)
  

• Crime

• Resource Depletion

• Pollution

• Long-Term Environmental Damage

• Decline in Leisure Time

• Defensive Expenditures

• Lifespan of Consumer Durables & Public

• Infrastructure

• Dependence on Foreign Assets

Until we adopt a reasonable measurement for wealth and well-being; we are doomed to continue our slow decline.

A Note on GDP (Part 1)

One cannot turn on the news these days without hearing some talking head blathering on about how the US is either in a recession or headed for one. To me the debate is ridiculous. I think it can be argued quite persuasively that we have been in a recession for 30 years.

Sounds like a overstatement, huh? Let me explain.

GDP or Gross Domestic Product is the statistic that economists use to determine the growth of "wealth" within a particular nation or society. Its growth rates are carefully charted and measured. GDP growth is the sole determinant in deducing whether the economy is expanding or in recession.


The problem with GDP is that it is composed, in part, by junk. Literally. But allow me to start from the beginning. The components of GDP are:

• Consumption- all the goods and services purchased by consumers.
• Investments- all capital investments both in financial products and physical assets
• Government Spending- all tax receipts and government borrowing
• Net Exports- always negative in the US thanks to Chinese manufacturing and our oil consumption.
  

In simple terms, GDP is expressed as:

C (consumption) +I (investent)+G (government spending)+NX (net exports)

This expression covers just about everything that goes into what a country can produce. So what is the problem?

The problem is that GDP is used not only to determine total production; it also used to determine the wealth of a given society. If you divide GDP by the country's population, you will arrive at per capita GDP. Per capita GDP is the de facto statistic used to compare the standard of living across countries and societies.

Currently Qatar has the highest per capita GDP of any country in the world ($80,870). The US currently ranks 8th at $45,745. Those numbers seem plausible. Qatar, with all of its massive quantities of oil reserves and a small population; should be able to deliver the highest production per person of any country. For a country the size of Qatar, the GDP calculation is relatively easy. There are less than 1,000,000 citizens of Qatar and the entire economy is essentially based on one product: oil.

A country like the US has an economy that is far more complicated to calculate. To properly calculate GDP, in addition to the mundane factors, the following exotic / non-traditional costs need to be measured:

• Cost of pollution clean-up (estimated to be as high as 4.3% of GDP in China)
  
• Increased medical costs due to higher rates of cancer
  
• The costs of treated injured Iraq War veterans
  
• Kevin Federline's legal fees to gain custody of his children

The cost of all of these factors are added together and actually INCREASE Total GDP. Think about that. Do any of these things improve society or makes us "wealthier"? Of course not.

Imagine a steady increase in the level of pollution over a period of 25 years. During that time, incidents of cancer increase dramatically. Productive workers are forced to leave the workforce in order to receive treatment. The real effect of such an example is that society suffers. We are indeed made "poorer" because people are getting sick at greater rates.

However, GDP does not capture the effect properly. Instead of going down, GDP will in fact increase as a result.

Let's assume the cost of cancer treatment is roughly $1 million dollars per patient. In order for GDP to go down, a sick worker would have had to earn more than $1 million dollars in salary during the time that they were unable to work (currently less than 1/10 of 1% of the US population).

As this example illustrates, the problem with GDP is that all of the negatives in society are lumped in with the positive. It doesn't take an economist to figure out that putting too much weight in this statistic could lead a society off track. If positive factors decrease (technological innovation, cures for disease, etc.) but negative factors increase to make up the difference, then GDP would dictate that society is static or holding steady. That is a dangerous assumption to make as it can lead to bad decisions about future investment and consumption.

People have a right to know the true costs and benefits of all the inputs that make up their Country. Armed with that knowledge, citizens may be able to make better decisions about how their government operates and the decisions it makes.

Presidents often win or lose elections based on the strength of the economy. When GDP is the sole determinant measuring the economy; then we are being lead astray. It is certainly easier to artificially boost GDP in the short term by doing something negative (like borrowing billions of dollars to fund a war) than investing in technologies that take time to turn into a positive (like inventing alternative fuels to stave off climate change).

Perhaps the most frustrating aspect of the GDP conundrum is that there are perfectly good alternatives that value each contributing factor to the economy accurately.

In Part 2, I will examine how all of these effects should and can be counted and how from a historical perspective, American Wealth has been in decline for decades.

A Note On Future Indian Dominace

I have been working with an Indian company. It has not been easy. The time change makes it nearly impossible to develop a normal working relationship. But even in my short and limited dealings, the experience has convinced me more than ever that this century belongs to South Asia.

In a nutshell, the deal entails selling my company's available web ad impressions that occur when some from India visits our sites. As of now, these impressions have no value; so the marriage is a win-win for all involved.

Yet the Indian company sought us out. Not the other way around. Indian industriousness knows no bounds.

It is hard to comprehend how hard people work in India. It all starts with the job application process. A typical job has thousands of applicants for one position. That is life in a country of more than one billion people.

So you can imagine that once this elite individual starts work; his/her ethic is unparalled. Consider the following: on several occasions, I have received calls from my Indian counterparts after 11pm India time (smack in the middle of the work day for me). The work day never ends there.

My Indian friends at business school would apply to university programs in India where 10,000 people applied for each open slot. In order to compete, prospective Indian students must study before school and after school. Often my friends would be studying past midnight for these entrance exams.

What do you think life must have been like for them when they got to an American business school? I will give you a little perspective. In 95% of MBA programs, most work is done in groups and it is harder to get a "C" than to earn an "A". Indeed most professors valued the learning process rather than mastering the material.

Sure, there are Americans who work just as hard as these examples; but it is not the norm. It is in India. Competition is what has made America great. With all of that competition, how can India not succeed? In the past, Imperialism and then Socialism have served as a yoke on the Indian economy. Now unrestrained, we shall see our economy eventually eclipsed by mid-century.

The current GDP growth rates bear this out; but sometimes it is nice to look at the micro level for reasons why things are happening at the macro level

A Note On War And Prosperity

Having your cake and eating it too. An old adage, but one that seems to have to be retaught every generation or so.

While that sentiment dates back nearly 500 years; it seems that Dick Cheney, George Bush, and Alan Greenspan never learned the lesson. Unlike any other War policy in US history, the Iraq War policy attempted to achieve the simultaneous objectives of achieving War-time economic growth without the necessity of individual sacrifice.

Cheney and Bush were the architects of the war policy, and Greenspan helped to ensure that no one (except the volunteer army) would have to lift a finger or pay a dime. He just borrowed like crazy, kept interest rates near zero, and turned our money into worthless paper.

Pretending to live in the prosperity of peace time while fighting a war, has come with dire consequences; both in lives lost and what is likely to be a prolonged recession.

Recessions do not always need to follow wars, but in this case it was inevitable. Since Bush and Cheney were determined to fight the war without raising taxes; the US has funded this debacle with debt. Intense borrowing increases the money supply and inevitably leads to inflation. (Forget the statistics, if you don't believe me take a look at what has happened to housing costs, health care, oil, and other raw materials during the last 5 years.)

In order to stem the tide of inflation, the strict monetary policy usually employed by the Fed (raising rates and constricting the growth of the money supply) usually causes a recession. In this case, since inflation seems to be continuing unabated, we might get the double whammy of inflation AND a recession. That's called stagflation and it is not pretty. Rising prices and a sagging economy-- the worst of both worlds.

Stagflation has occurred once in modern history--during the Carter Administration, and oil was the culprit. What irony! It is precisely the fear of a return to stagflation that has driven American foreign policy for the last 30 years: securing and guaranteeing access to cheap oil. It is that exact foreign policy (the pursuit of cheap oil) that has led us back to the precipice of stagflation.

You can't make this stuff up.

A Note On Political Pundits

Meet the Press this morning had nothing to offer. I am tired of seeing the same "pundits" blather on week after week. Bob Schrum, Mike Murphy, James Carville and Mary Matlin spent most of Sunday's show dissecting comments that Barack Obama made last week.

This is what Obama said in San Francisco on April 6th:

"You go into these small towns in Pennsylvania and, like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothings replaced them…And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. And it's not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations."

Now it is worth noting that the only text I could find of these comments on the web was this truncated version. It leaves out much of the explanation and context behind the conclusions that Obama makes at the end of his statement. That shouldn't surprise you for it is nothing compared to the hackery of what followed on MTP:

Instead of undertaking an appropriate analysis of his comments; the pundits simply retreated to the positions of the candidate that they each support. Murphy and Matlin, the two Republicans on the panel didn't even brush against unbiased analysis. All they did was spout off campaign talking points. Matlin said "Obama is not what he says he is". Carville actually said that "there are people out there who hunt for fun!".

What on Earth does that have to with the angst that people feel in small towns across the country? How about taking a look at the content of what Obama said and analyzing it for accuracy?

What bothers me the most about this incident, is that Obama's comments were 100% true. They were not elitist! He made frank and honest statements about the feelings that many Americans have. These pundits are so deep in political circles that they don't see truth when it is front of their face. All they see is what is a statement that can be distorted to hurt the opponent of their chosen candidate.

Obama's comments can be seized on by his rivals (both Clinton and McCain have already criticized it). They can be twisted and made to seem "elitist" "anti-religious"or "anti-gun"; but that doesn't take away the essential truth of his statements.

It is pundits like these (on both sides) that are destroying the essence of democracy. Candidates must couch everything they say because of these people. If a candidate gets too close to the truth, watch out. Some pundit will twist it around and use it against them.

A Note On The Corporate Machine

Welcome, readers. I've spent most of my three-plus years as a blogger dedicated to the mundane support of my favorite sports teams. The escapism it provides feeds my passions while shielding me from the harsh realities of life in the 21st Century. With "The Anti-Corporatist", I will attempt to explore modern politics and economics.

How many of us can truly appreciate how horribly the new Millennium has started? To paraphrase the tag line from Tom Friedman's overrated opus, "The World Is Flat"; I will attempt a brief history:

• The subversion of our democracy by the Supreme Court of the United States during the 2000 election
• The attacks of September 11
• The immoral invasion of Iraq
• The cost of Crude Oil has more than quadrupled since the eve of the Iraq War ($110 vs. $24)
• 4000 soldiers dead, 30,000 wounded and counting
• Hurricane Katrina
• The dismantling of the free press into corporate profit centers
• The ironically named "Patriot Act" (every founding father would have been against it. If you don't believe me, read some Ben Franklin).
• A Global Climate Crisis that our President refuses to admit exists.

Seriously, could you imagine a worse President at this time in our history? George W. Bush is on the wrong side of every issue! When we needed serious leadership on the environment; his first action as President was to back out of the Kyoto Treaty on Climate Change.

For an encore, he bull-rushed the Middle East in the aftermath of 9/11, when nuance was of utmost importance.

When the history is written about our time (that is if the Earth remains inhabitable for the long!); the polarity of Bush's decisions with what, in hindsight, turned out to be the correct course will prove mystifying. After all, if he Bush had simply used a coin-flip to help him make the tough decisions, he would have been right half the time. Instead, Bush was wrong every time. W is like a gambler on an eight-year cold streak; except WE are the losers.

But, this is not a blog about him.

For make no mistake, we are fighting in Iraq to preserve the corporate profits of those who support Bush the most: Exxon, Chevron, and Halliburton. These free-market Friedmanites, who decry government intervention when it comes to helping out the world's poorest; are often the first in line when the Federal Government is doling out no-bid contracts (er, corporate welfare).

The climate is not killing off species and melting the ice caps because we are addicted to oil. We have a climate crisis because American corporations are addicted to oil profits. There are solutions, available today, for sustainable and renewable energy.

With this blog, I will try to explore these issues and expose the those who choose greed over honest profit.