One of the sillier arguments you’ll read about in the coming weeks and months is over whether the US has technically entered a recession.
Most Americans, according to a recent AWN poll, think it has.
The White House and the Treasury Department point to low unemployment to argue there is not yet a recession.
One of the major indicators of a recession has long been two straight quarters of negative growth as marked by the gross domestic product, or GDP. The US registered its second straight quarter of contraction per government data released on Thursday.
There’s a valid argument that GDP is a flawed way to view the economy since it only charts growth and does not include any of the costs of that growth.
There’s a more holistic approach, the genuine progress indicator, or GPI, which accounts for the costs as well as benefits of growth.
I talked to Jon Erickson, a professor at the University of Vermont, where they have tried to chart GPI. He’s also the author of a forthcoming book, “The Progress Illusion: Reclaiming Our Future From the Fairy Tale of Economics.”
I was surprised at his argument that the US has actually been in a form of recession for decades.
Our conversation, conducted by phone and lightly edited for length and flow, is below.
Why is GDP a flawed metric?
WHAT MATTERS: You are among a lot of people who think that GDP is not something we should be paying as much attention to. Can you explain that whole idea to me?
ERICKSON: GDP historically has been a very good estimate of economic activity. The challenge is when the estimate of economic activity, the amount of stuff made in a one-year time period, is equated to human well-being.
That’s where the logic falls down. GDP has never been a very good estimate of the net contribution of the economy to human well-being.
Do the costs of growth outweigh the benefits?
WHAT MATTERS: You talked about the “net contribution” to our economy. What do you mean by that?
ERICKSON: Well, we should have ways of knowing whether the benefits of a growing economy outweigh the costs of a growing economy.
It’s basic economics that says when something expands and grows and grows and grows, eventually you hit a point where you get to what are called diminishing returns to growth. Each new unit of growth gives you less benefits than the last. And eventually you hit the point of increasing costs of growth, where each new unit of growth costs more than the last.
When those two trends hit together, we enter a period of what my mentor Herman Daly and ecological economists called “uneconomic growth.”
You won’t see that in any textbook on economic growth, where the benefits of the growing economy are surpassed by the cost of the growing economy. By that metric, if you really take an honest accounting of all the benefits of the economy and all the costs of the economy, we’ve been in what you might call a “progress recession” since the late 1970s.
Seriously? A progress recession since the ’70s?
WHAT MATTERS: The stock market has gone up more than 10 times since the ’70s. We’ve had technological advances that have changed the condition of everyone. Almost every American now has almost immediate access to the internet. We’ve changed access to child care. More women are in the workforce. There has generally been progress since the ’70s. So explain to me exactly how we should view it as being in a recession.
ERICKSON: Genuine progress should account for net progress. There are many, many signs that a growing economy has contributed benefits. … But there are also signs, most of which are not accounted for, that the growing economy also creates costs.
So an honest assessment. If you are a business, this is what you would do in your own books as you would count the benefits of a growing business and the costs of a growing business.
We don’t do that with GDP.
We count every single dollar spent, whether it’s on a regrettable expense, whether it’s on overemployed income, whether it’s on the cost of sending your children to child care as soon as they’re born, because we have no maternity or paternity leave policy in the United States.
We count every single expenditure in GDP as a benefit. When you do the math, and then you count benefits as benefits and the costs as costs, we see that we’ve been in a net decline, a progress recession since the late 1970s.
WHAT MATTERS: So essentially you’re arguing the US has been moving backward — for most Americans and the entire duration of most Americans’ lives?
ERICKSON: Yeah, I mean gross domestic product was invented in the 1930s and ’40s to really try to understand whether the economy was growing or shrinking. Back in the Great Depression, we didn’t have such metrics. We didn’t know if policy was affecting the trajectory of the economy. So we were in desperate need of economic bookkeeping.
But the folks who created the GDP always warned that:
- a) It would be highly political. That’s of course what you’re seeing now with the release of the new numbers, and
- b) That it’s not a measure of human well-being. It’s just a measure of economic activity.
As the economy has grown, especially since the post-1970s, it’s grown in a more inequitable way.
It’s grown in a way that favors the very, very top income groups, but not the middle to bottom income groups. It’s grown in a way that’s creating many more costs — environmental costs, social costs — than it is in private benefits. … GDP counts everything, every penny spent, every dollar spent as a benefit, and nothing as a cost.
The average American knows that there are regrettable expenditures. As a nation, the United States has the most military spending, the most incarcerated citizens, the most single-parent homes. But does that make us any happier, healthier?
We know that in order to continue on the current growth trajectory that we have to deplete our oil and our minerals. That we have to unsustainably harvest our forests and our fisheries. That we have to mine soil nutrients in order to support industrial agriculture.
But those full costs, those full depletion costs of our growth, aren’t counted in something like GDP. They all measure short-term income instead of long-term depreciation as well.
When did the US make progress?
WHAT MATTERS: What was the period in US history that saw the most progress? Is there a golden age for American progress from the GPI perspective?
ERICKSON: You have two big different growth stories in recent US history. We grew as a nation on a more equitable growth path with improving social metrics of well-being from after World War II, from the 1950s through the early 1970s.
We grew in a way where the lowest income groups were growing faster than the highest income groups. We grew in a way that maintained and created big social safety nets.
Since the late 1970s, we kind of flipped the switch, if you will, and continue to grow but on a very inequitable growth path. We grew since the late 1970s by deregulating and privatizing the economy, by cutting spending in public infrastructure and education, by weakening our social safety nets in our society, by destroying our unions, which gave labor power in the kind of growth that we saw pre-1970s.
Crises reveal the limits of the current system
WHAT MATTERS: What am I missing?
ERICKSON: I think this is a time period that has been very revealing of the current model.
We’ve kind of realized the vulnerability of a global supply chain that is built on cheap energy and exploited labor. We’ve exposed the lack of resilience in our most basic societal systems we saw coming out of the coronavirus with widespread failure of medical and food systems. We see this dependence on an undervalued and underpaid essential workforce in producing, stocking and delivering necessities.
And I think this time period that we’re living in is laying bare a legacy of structural racism that predetermines access to health care, job prospects and public safety based on the color of your skin.
The genuine progress indicator is by no means a perfect alternative to the GDP, but it starts us on a different conversation, on a different path — a new way of defining the new economy that provides for all.
