Economy & Budget

The tools we use to measure the economy are broken

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Imagine running a high fever, but the doctor swears his thermometer indicates all is fine. Whom do you believe?

Millions of Americans find themselves in a similar quandary this election season. They are experiencing job loss, debt, foreclosure, stagnating salaries and more. Yet they keep hearing political leaders — the “doctors” of our economy — say the U.S. economy is healthy.

{mosads}This disconnect feeds the appeal of anti-establishment candidates such as GOP nominee Donald Trump. But a critical element in the disconnect are the economic measures themselves. The “thermometers” political leaders use to gauge the health of our country are broken.

Consider this. In its 2016 report, the Federal Reserve reported that 76 million adults are either “struggling to get by” or “just getting by.” About 40 percent of Americans live paycheck to paycheck and nearly 8 million need at least two jobs to make ends meet.

Yet political leaders claim we’re past the crisis point, citing data from a recent Census Bureau report showing that median incomes are up 5 percent. Our other chief economic indicators — measures of gross domestic product (GDP), income and investments — also indicate that things are looking up.

To many, this “good news” feels hollow.

First, the income numbers refer only to the past year. However, over the last two decades, we’ve seen a 10 percent loss among the lowest income earners, and a 6 percent gain among the top. People also work, on average, some 24 percent more today than they did in 1970.

Given these social realities, the anti-establishment anger, frustration and alienation of Trump supporters should come as no surprise. Nor should we be surprised that these voters mistrust government, when our government literally does not “count” their realities. They feel invisible to our leaders, who live on the other side of the railroad tracks, where things are swell, houses get bigger and kids go to colleges out of reach even for Americans earning a median income.

We shouldn’t be surprised, in other words, that these voters want to shake things up. If you’re not invited to sit at the decision-makers’ table, why not knock the legs off?

It’s not just an American story. Globally, rapid change is creating a prospering few and a wilting many. These economic changes helped fuel the British Brexit vote; France’s robust support for National Front leader Marine Le Pen; the rise of Germany’s right-wing party, Alternative für Deutschland; and the election of Indian Prime Minister Narendra Modi. Various versions of nationalist, right-wing politics are on the rise across the world, stoking resentment, fear and nativism.

Meanwhile, governments of various political persuasions continue to act tone deaf, ignoring the heavy toll global economic changes are exacting on millions. In part, this is because they are guided by faulty “thermometers” — that is, economic metrics out of sync with social, economic and environmental realities.

Take GDP, the most widely used economic indicator. GDP does not place human welfare on the ledger. Rather, it measures output. More cars, more extraction, more investments: these all count as successes, no matter what accidents, pollution and job turnover they leave behind. Economic growth should mean an increase in well-being. Instead, it privileges consumption over well-being. The happy couple contributes little to growth, for instance; only when the marriage runs afoul does the GDP meter start ticking — therapists, lawyers, eating out, separate living quarters. A great boost to growth, all.

In order not to mislead, metrics need to reflect actual conditions. People’s needs and grievances should not exist outside national performance indicators. Policymaking needs to be informed by popular well-being, not just income and output. If that were the case, disaffected voters such as those supporting Trump would show up on policymakers’ radar much earlier.

There is no shortage of available metrics that can do a better job, such as the Genuine Progress Indicator or the Social Progress Index. Unfortunately, they have zero political power behind them, even if experts in the European Union, the Organization for Economic Cooperation and Development and the World Bank are increasingly in favor of putting them to use. What’s missing is a basic recognition of the problem among elected leaders, and the political will to translate insight into policy.

In America, those watching the wave of change are dumbfounded by the latest polls: Trump may actually have a realistic chance to win in November. They shouldn’t be.

Philipsen is an economic historian at the Sanford School of Public Policy at Duke University. Renda is the head of the Regulatory Policy Unit at the Centre for European Policy Studies. Both are senior fellows at Duke’s Kenan Institute for Ethics.

The views expressed by contributors are their own and not the views of The Hill.

Tags Donald Trump Employment Genuine Progress Indicator Gross domestic product Unemployment

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