Tag: Growth

GDP is Dead, and the Social Progress Index Succeeds It

By Craig Axford | Canada

The gross domestic product (GDP) made sense in the 1930s. For one thing, we lacked both the understanding and the tools to effectively track progress in many of the areas that people really care about. For another, we were in the midst of a depression that demanded some means of confirming the success of our efforts to escape it.

In the immediate aftermath of World War II, the GDP was likewise a useful statistic to measure economic progress in countries that had been ravaged by the conflict. Though it was understood by some, including the economist who developed it, Simon Kuznets, that it wasn’t necessarily an indicator of human welfare, the fact remained that anything like human welfare was impossible to address in nations whose major cities had effectively been reduced to rubble.

The US, for its part, saw only positive impacts from the conflict. The war had pulled it from The Great Depression while two large oceans had made a bombing campaign against cities and industries based on its mainland impossible for either the Germans or the Japanese to practically pull off. Given its unprecedented economic and military position on the world’s postwar stage, America’s decision to use what was then referred to as the GNP to track economic activity and growth almost feels in retrospect like rigging the game to ensure the score always placed it way out in front.

What society measures are an indication of what it values. To Americans, the GDP figure has achieved something like the same status E=MC² enjoys amongst physicists. Donald Trump could hardly contain himself when the last quarterly report indicated America had temporarily achieved greater than 4% annualized GDP growth and felt certain that such growth figures had vindicated everything from his fiscally irresponsible tax cuts to his dangerously ill-conceived tariffs.

The problem, as has been pointed out by figures no less notable than Robert Kennedy, is that the GDP doesn’t distinguish between car accidents and car sales. The GDP “does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.” Kennedy continued, “It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.” Nearly three months after he delivered those words, the GDP measured the amount of money spent to mourn and bury Robert Kennedy after an assassin shot him in the kitchen of Los Angeles’ Ambassador Hotel.

Some will undoubtedly object that Robert Kennedy was being unrealistic. ‘We can’t measure the beauty of our poetry’ they will say, ‘or the intelligence of our public debate.’ What society needs, according to these GDP apologists, is an objective measure of how the economy is doing and, according to them, that’s precisely the role the GDP plays.

But there’s a problem with this line of reasoning, and it’s a big one: the economy isn’t an objective thing, at least not in the sense many economists and politicians mean. There isn’t a family on the planet that thinks that because a loved one’s death took roughly the same financial toll as their last family vacation together these two events are objectively equivalent. There isn’t a soul on earth who thinks that a weekend spent engrossed in a hobby that they truly enjoy or playing with their children is less valuable than a miserable day at work just because the GDP counts the latter as the larger contributor to economic activity. What things cost reflects how much we pay for them, not how much we value them.

In his book, Utopia For Realists, Rutger Bregman demonstrates why the GDP has always been too blunt an instrument to use as an accurate indicator of progress. Output has always been what the GDP measured best. However, automation and other improvements to efficiency are now dulling the GDP to the point that it’s practically useless as a tool for dissecting what’s happening within the economic sphere. Bregman writes:

When the musical mastermind [Mozart] composed his 14th string quartet in G major (K. 387) in 1782, he needed four people to perform it. Now, 250 years later, it still requires exactly four. If you’re looking to up your violin’s production capacity, the most you can do is play a little faster. Put another way: Some things in life, like music, resist all attempts at greater efficiency. While we can produce coffee machines ever faster and more cheaply, a violinist can’t pick up the pace without spoiling the tune.

In our race against the machine, it’s only logical that we’ll continue to spend less on products that can be easily made more efficiently and more on labor-intensive services and amenities such as art, healthcare, education, and safety. It’s no accident that countries that score high on well-being, like Denmark, Sweden, and Finland, have a large public sector. Their governments subsidize the domains where productivity can’t be leveraged. Unlike the manufacture of a fridge or a car, history lessons and doctor’s checkups can’t simply be made ‘more efficient.’

Policymakers and citizens alike are likely to make better choices when they have a diverse collection of data resources from which to draw. The GDP lumps too much together under the same umbrella, counting money spent on cancer treatment the same as money spent visiting a national park. When GDP growth alone is a nation’s primary public policy goal policies that often increase personal costs yet worsen people’s lives are too frequently incentivized.

Source: Social Progress Index website

Fortunately, there is an alternative to GDP. The Social Progress Index (SPI) tracks a nation’s progress by creating a score for categories and subcategories listed under three main headings: Basic Human Needs, Foundations for Wellbeing, and Opportunity. So, for example, one of the four main categories listed under Basic Human Needs is nutrition and basic medical care. To determine how a nation is doing in this area the SPI looks at a country’s rate of undernourishment, depth of food deficit, maternal mortality rate, child mortality rate, and deaths from infectious disease. The SPI evaluates 50 indicators overall to determine the score for any given country.

The Index aims to be a practical tool that helps leaders and practitioners in government, business and civil society to implement policies and programs that will drive faster social progress. To achieve that goal, we measure outcomes in a granular way that focuses on specific areas that can be implemented directly. The framework allows us to provide not only an aggregate country score and ranking, but also granular analyses of specific areas of strength and weakness which allow change-makers to identify and act upon the most pressing issues in their societies. ~ Social Progress Index methodology

Unfortunately, citizens are not used to thinking about all the particulars that go into creating maximum wellbeing and opportunities for fulfillment, and politicians from across the political spectrum too often seem to like it that way. Political leaders have an interest in keeping their voters focused on a single number rather than having the information they need to identify areas needing improvement within their communities, states, and countries.

The pleasure Donald Trump recently took in reporting a temporary quarterly spike in growth is a prime example of just how toxic focusing on GDP alone can be for a society. Because he had “good” GDP numbers to report the president was able to not only completely ignore the ongoing stagnation in wages but divert the public’s attention away from the slow-motion economic and political crisis that stagnation is creating. In addition, America’s skyrocketing health and education spending actually increase the GDP, incentivizing politicians that associate economic improvement with gains in this single metric alone to potentially make these problems even worse for the average American rather than better.

This laser-like focus on the GDP causes us to lose sight of the big picture. We believe we have an indicator that functions as a kind of grand unified theory of economics. In fact, the data used to generate it comes from too many disparate sources to tell us much of anything about how the economy is really doing. It tells us even less how the people that make up that economy are managing.

The GDP is a kind of life preserver thrown to the status quo. It makes it difficult to impossible to hold government, business, or other civic institutions accountable or to develop plans that target specific problems that are often desperately in need of our attention. The GDP in Flint, Michigan, for example, will probably go up in spite of the lead in its water because increases in health care spending are one of the many unfortunate side effects of lead poisoning. But while Flint’s GDP may rise, its Water and Sanitation and Environmental Quality scores on the SPI cannot. This fact alone should be enough to give those defending the GDP some objective considerable pause.

“Growth for the sake of growth,” the American writer Edward Abbey wrote, “is the ideology of the cancer cell.” We should have started asking ourselves a long time ago what ends all this economic growth was meant to serve. Instead, we lazily allowed growth itself to become the end to which all other aspirations take a back seat.

It’s always possible to convince yourself you’re making progress when you’re measuring how far you’ve moved in the wrong direction. The US does have the largest GDP on the planet, for example, but it also has tens of millions of uninsured and under-insured citizens and an infrastructure that is decaying much faster than current investment can keep up with. The $1.5 trillion in student debt that disproportionately burdens its young and poor all adds to the nation’s GDP as well but at the expense of leaving them feeling increasingly hopeless and angry.

America, along with much of the rest of the world, can keep putting off a great debate about what really matters but sooner or later entropy will demand that debate not be postponed any longer. Climate change, if nothing else, looks increasingly poised to force the issue. The SPI gives us 50 places to start the discussion, but this needn’t represent an exhaustive list. The GDP, on the other hand, represents the “ideology of the cancer cell.” Left untreated we all know where that leads.

*Author’s note: The original measurement of economic activity was known as the gross national product (GNP). The US switched to the GDP in the early 1990s. Since the criticisms raised in this article apply equally to both means of measuring economic activity, the relatively minor differences between these two methods have been intentionally ignored. With one small exception, I chose to apply the contemporary term “GDP” throughout the article for consistency’s sake.


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Governmental Regulation: The Antiquated Barrier to Fresh Growth in America – Jesse Stretch

By Jesse Stretch | USA

The trade-off is a perception of public and consumer safety. A label that says you’re safe; a license to guarantee that a person is competent; a logbook proving experience. As a consuming American, the idea is that you’re never going to lose. You’ll never get hurt, swindled, tricked, ripped-off. The food you eat will be clean and wholesome. Your air conditioning man will be licensed and “know what he’s doing” as he crawls through your attic sporting tandem full-sleeve skull tats.

As a farmer, business owner, contractor and product producer, I am licensed and unlicensed in all sorts of fields that many of my customers and friends have never heard of or considered. I know from personal experience that barriers to growth and virtual impossibilities exist in the governmentally-instituted regulatory system that make starting or growing a small, fully compliant business almost impossible for the average working American.

Production and product costs in the agriculture field are up, with much of the rise
attributed directly to the time-intensive process of regulatory compliance. For instance, due to regulation, we must now drive two hours each way to have our cattle processed for customers, because the skilled butcher just down the road has decided that FDA inspection is a pain, and he would rather just process deer and livestock for personal consumption. He has decided that it is easier to turn down business than to comply with the FDA. We local farmers all know he’s a great butcher, but without the Federal Government’s consent, we can’t hire him to process meat for our customers.

In the age of free information transfer, where one person can communicate instantly with an entire nation of peers, the question arises: Do we always need the government to tell us what is safe and what is not? Do we need the government to tell us who to trust now that we have our friends and associates at our fingertips every hour of the day to give us reference?

The first regulatory agency in America was set up in the late 1800s to regulate the railroads. This agency was set up in part because a train could get from Point A to Point B faster than any other communication, meaning that railroad companies had the advantage of far superior information dissemination over the people. With that kind of speed and power, unethical manipulation of commerce was very possible. Thus, the Federal Government stepped in to regulate. Back in the 1800s, this made sense, and it protected small businesses and individuals from a larger manipulative entity.

From there, more than four hundred federal regulatory agencies have sprung up to protect us. They regulate your ability to own a dog, plant a tree, and buy certain foods. As many consumers are aware, purchasing and selling the formerly essential household product raw milk is now illegal in much of the United States. Not only did the federal government tell us that it’s better to pasteurize milk, they told us they’d fine and/or jail us for selling or purchasing its counterpart. There is something wrong with a system that outlaws an elemental, ancient, healthy, local food product. Raw milk is not dangerous.

Most of these regulations were devised years ago because people had no way to
communicate quickly to blow whistles on quality issues. If Farmer Joe sold a bunch of disease-ridden food which was then put on a train to New York City, the situation could escalate for days, weeks, before the word would get out. Hence, Farmer Joe faced regulation to ensure sanitation on the production end— aiding in the prevention disease outbreaks at the controllable single source and not the open multi-consumer end.

These days, however, technology gives consumer groups the ability to instantly report a
quality or service issue. One voice is no longer lost in a crowd, but can often be heard on social media or elsewhere online. Farmer Joe’s bad meat would last a day on the shelf, maybe less, and people would be wary of buying from him again. Society will govern itself in this way. Many federal food safety regulations are rendered almost pointless by this ability to communicate and establish relationships based on trust, free information, and consumer history rather than on an antiquated safeguarding oligarchy.

In all of this, we see the institution of government regulation costing money to producers
and consumers, while not delivering an adequate or necessary return on value for either party.

Over-regulation poses issues for the future of fresh business growth in America, as such
intensive and time-consuming compliance requirements stifle the ability for new ideas to reach fruition. I say fresh growth because that’s just what it is; it’s not a barrier to growth for entities with a net worth north of a few million dollars—they have the funds to hire compliance personnel and pay the fees required to grow under the watchful eye of the regulatory committees. The growth problem exists most for the small business who gets lost under the bureaucracy and can’t find daylight; the little farmer, craftsman, tradesperson—the local girl who wants to sell fresh pastries on her townhouse porch (but is shut down by food safety regulations) or the guy who has a few greenhouses and wants to peddle lettuce greens in a parking lot but can’t because he would need a location with tier three commercial zoning, the highest level of commercial zoning, just to do so.

My business is relatively simple: Farming and Landscaping. In this simplicity, however, one can find the reason why over 20 licenses and/or registration accounts are technically required for such a business to exist. Each license will cost money, take hours to complete, and many will require exams and/or yearly renewals. For a working person, maintaining twenty or more licenses can be virtually impossible—especially if the business is a startup.

There is a really old guy down the road from my farm who used to sit outside his garage
where he’d fashioned a small vegetable stand. They shut him down because of regulatory issues. He was sitting out there under a carport in his lawn chair sleeping half the day, selling tomatoes and melons that he grew in his backyard. They somehow found a way to shut that down because it was deemed a health issue.

Regulation has reached a point where the system no longer creates a safe environment for the consumer but rather projects upon the masses endless doldrums of big box stores and boring commercial multiplicities. Such intensive over-regulation overwhelms the business owner into a state of bewildering semi-compliance. The maze of rules and agencies sequesters growth, mildewing a stagnant climate of anti-creativity in which eligible and worthy business owners are forced to fudge or forego licensing information or credentials, and thereby subvert the institution of regulation itself.

Fresh growth begs simplicity, and simplicity will only come from casual civillydisobedient reformation. If everybody threw their pointless dog license papers away, the dog license would go away. If everybody started selling baked goods on the corner, the agencies would never enough have time to stop them all. I’m not advocating the complete disbanding of regulatory agencies, nor anarchy, but for small business to thrive, something has got to give.

Wouldn’t it be nice to go downtown on Sunday and buy pastries from the girl’s porch
just off Cary Street, eat fresh lettuce from a conscientious farmer, and cut open melons with an 80-year-old man in his carport? I think so.

I, for one, would like to spend less time filing paperwork and fudging truths to
bureaucracy, and more time farming and growing my business under the watchful eye of my peers—not the watchful eye of the federal and state bureaucracies. We don’t need the government to tell us who to trust, we have our friends in commerce for that now. The internet will oust a bad producer in an instant—their operation shall wither and die under the power of online public opinion. In the age of social media and abundant online information, the need for institutional regulation is fading.

To our government: There was a time when we needed your blessing on what farmer or tradesperson to trust. That is true. But this was before we could all get together and communicate instantly online. These days, thanks to the little flickering screens in our palms, we can regulate ourselves, tell our friends who they can trust, and spread our own truths instantly.

We don’t need an inspector to tell us that we can or can’t eat an old man’s produce—but
thanks anyway.