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The Two Faces of Economic Reporting

piggy%20bank.jpg

GDP up, incomes down. Why bother reporting about GDP at all?

This just cheeses me off.  Yesterday, the US government released figures showing that GDP grew at an annualized pace of 3.3%.  The implicit message:  Yippee, we're not in a recession!

The press, of course, ate it up.   AP crowed:  "The U.S. economy grew in the spring at a 3.3 percent pace. The best gross domestic product results in nearly a year beat Wall Street's expectations."  The Voice of America's headline trumpeted: "US Economy Growing at Faster Rate Than Predicted."  Even the Canadian press got into the act:  "US economy shows vigour in Q2."

But today, the other shoe dropped.  Even though GDP was up last quarter, personal income declined in JulyApparently it was the largest drop in three years.  So just one day after the press hypes a good news story about how "the economy" is growing, we find out that people are actually poorer!!  Talk about whiplash.

There are so many lessons in this little episode...


1. Too many reporters elevate the "economy" over people

Look, the GDP is just an accounting convention.  It measures how much
money changes hands, NOT what people get for their money:  it counts what we spend, not what we value.  In an ideal world, GDP statistics should be a footnote to economic reporting.  Instead, it's become the man story:  for some reason, reporters and policymakers have elevated this one statistic above all else, and joyfully trumpet the good news for the "economy" even as more and more people are falling behind. 

2.  GDP and income aren't closely linked anymore.  One reason, perhaps, that GDP figures are so entrenched is the memory of the broadly shared economic growth of the 1950s and 1960s -- when incomes and GDP really did rise hand in hand.  But those days are long gone.  For decades now, reports of economic "growth" have had very little to do with economic gains for the poor and middle class. So it should be absolutely no surprise that trends in income and gross output can move in opposite directions -- and that the "economy" can do well even as people struggle.

It's high time that reporters caught on to the new reality -- GDP isn't much of a bread-and-butter story anymore, and "economic growth" doesn't mean what we think it does.

3. We read too much into the blips.  The stock market soared yesterday, in part on the news of the strong GDP figures. It's fallen back today, perhaps because of worries over consumer spending. But both GDP and income figures are probably wrong -- they're typically revised, sometimes substantially, in subsequent data releases.  Besides, quarter-by-quarter and month-by-month blips don't tell much, really, about long-term economic trends.  The monthly and quarterly data often contains as much "noise" as "signal."  But we still seem to treat the most recent releases as gospel.  That's simply a mistake.  (On the market, fortunes are made and lost betting on the short term direction of these trends -- and it really is betting.)

[Piggy-bank picture from Flickr user Odalaigh.

Photo credit: Flickr user Odalaigh, Creative Commons License

This piece originally appeared on The Sightline Institute's blog, The Daily Score

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Comments

GDP is not calculated the same way it used to be - it is finessed to look better than it is. See http://bigpicture.typepad.com


Posted by: O2 on 2 Sep 08

Perhaps now is the time to shed some light on a need for economic changes, with the hope of assuring a substantial, sustainable global economy and a good enough future for our children.

How is adequate, sustained attention to be drawn to the greedy kings and self-proclaimed masters of the universe who are responsible for the perpetration of such a colossal, fraudulent and patently unsustainable scheme as we see in the rampant process of seemingly endless economic globalization?

At least to me, it appears that the huge scale of unbridled global economic growth is a canker threatening to overspread and eventually ruin Earth as a fit place for human habitation.

Changing from an unsustainable world economy {the one constructed as a perpetual motion machine and managed as a pyramid scheme} to a sustainable one has got to be made the goal, does it not?

Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilitysoutheast.org/index.php


Posted by: Steven Earl Salmony on 3 Sep 08

The two reports, taken together, mean we're eating our seed corn. Economic growth depends ultimately on the power of people to purchase. Feed their power, and a 'beneficial cycle' begins; starve their power, and a 'vicious cycle' begins.

GDP up when incomes fall? That's the worst possible news for everyone. It means rich people are getting a bigger slice, but the pie is shrinking. We gotta make more pie, and that means giving more people the means and incentive to develop new ways to make wealth.

Why would rich people put money into higher-risk development work right now? Taxes are low, so even a safe investment will keep them ahead of taxes. It's not only the poor people who quit working when they get a handout.

Progressive taxation, and investment in development -- it's an oversimplification, but one that actually can work. The opposite oversimplification -- give the money to the people who "know how to produce wealth" (or whose father did, or whose subordinates did)and let it 'trickle down'-- seems reasonable at first, but is ultimately self-defeating.


Posted by: Ron on 3 Sep 08



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