Because of the need to repair this mistake, I decided to touch up a few other aspects of this post—specifically drawing attention to the fact that the private sector is just as guilty of the myopia that I describe as the public policy sector. GL.
So: Revised gross domestic product numbers came out—the U.S. economy grew 1.7% (annualized) during the second quarter.
Whoop-dee-fucking-doo—if this keeps up, does it mean that each person living in the United States will be 1.7% richer by the end of 2010?
Richer how? Because most people won’t be feeling richer by the end of the year—they’ll likely be feeling poorer. With good reason.
Over the last 40 years or so, “the growth in the GDP” has been the totem every politician, every economist, even most citizens hang their hat on—as if this percentage figure all by itself embodied all the goodness (if it was ≥4%) or evil (≤2%) there was in the world.
High GDP?—America happy!!!
Low GDP?—America sad!
(God forbid) Negative GDP?
AAAaaaaahhhhhhhhh. . . . . .
But all by itself, growth in the GDP number means absolutely nothing. The fact that so much of American industry has been demolished by the bulldozer of Globalization over the last thirty years—all while GDP steadily accreted—proves that growth in GDP means nothing.
Example: The owner of a textile mill in New England who shuts it down and moves his operation to Vietnam or Guatemala is certainly richer—his greater riches are duly added up, riches large enough to offset the reduced standard of living of his former workers, aggregating a little sliver to the U.S.’s growth in GDP for that year.
GDP up—everybody happy, happy, happy!!
But what of the workers left with lower-paying jobs, or without jobs altogether? What of the New England town where the textile factory used to be, raped and slashed and left for dead by the side of the Global Superhighway of Free Trade—are the townspeople happy? Their unemployed workers needing assistance, the children of the marginally employed needing free lunches at school, the tax base dwindling, forcing the township to cut back on needed services like firemen, ambulances, police, schools, libraries, etc.
Are they happy? They ought to be happy: GDP up—America happy!!
Why New England town so sad?
Current American economic policy both in the public and the private sector has been so perverted by the myopia of a single number that it has lost sight of what macro-economic policy in a representative democracy is supposed to bring about: A better society.
I am not talking solely about GDP—in every individual aspect of macro-economic policy as well as finance in the private sector, that aspect is analyzed by the metric of a few, or even a single number. In macro-economic policy, it’s GDP. In finance, it’s yearly profit—or more likely, quarterly profit.
This myopia of the single number points to the core problem of economics as an academic discipline: In its rage to import physics, and thereby give itself a patina of “scientific” accuracy, it has needed to make constant numbers which are not constant—numbers, rather, that are constantly in flux.
Or else, for the sake of mathematical simplicity, they have ignored certain numbers—numbers which matter.
That’s why so few economists saw the Global Financial Crisis coming—whereas a lot of non-economists saw it coming clear as a tornado on the horizon.
That’s why U.S. GDP has steadily increased—while the U.S.’s industrial base has eroded. While the middle-class has shrunk and the very rich have become obscenely hyper-rich. While the fiscal deficits have expanded exponentially, making the growth in GDP a lie.
Because fiscal deficits are not included in GDP figures: Only fiscal spending is included in traditional GDP metrics.
That’s why U.S. GDP since 1975 has been a lie—the ever-growing fiscal deficits (especially since 2000) show it to have been a lie: Anyone can fake being rich with a high-limit credit-card—but does that mean that you really are rich?
No it does not.
Likewise with corporate profits: If you fire 10% of your company’s workforce every single year, your company’s profits will rise every single year—Wall Street happy!! GDP happy!! America happy!!
And you? Sad, the day you realize you’re the only worker left in your company.
That’s what I mean by the near-sightedness of staring at a single number: If you only stare at the one number—GDP or quarterly profits—you miss all the other stuff going on all around.
Like now: Ben Bernanke and the Fed are concentrating on another number—inflation.
According to the minutes of the FOMC, Benny and his Lollipop Gang are actually trying to increase inflation. They seem to think it is a measure of the health of the U.S. economy.
Inflation low? America sad!
Inflation “at a moderate pace”? America happy!!!
They don’t seem to understand what inflation is: It’s just a number, a number that can mean a whole host of things.
One of the things it could mean is, the economy is expanding, producers are bidding up wages and consumables, so inflation is on the rise. Yeay team!
But it could also mean (as I have been arguing), the markets are losing faith in the dollar as a currency, so they’re exiting dollars and going into foreign currencies (especially emerging markets), or commodities.
The myopia of the single number makes Bernanke and his Gang push for inflation—they think that at this stage of the Global Depression, inflation is a sign of absolute good.
They don’t recognize it as a sign that the economy is getting closer to the edge of the cliff.
How happy is everyone going to be then?