The Commerce Department reported better than expected results in growth of the gross domestic product Thursday, a rise of 3.5%. A consensus of economists surveyed by Bloomberg earlier this week had put the likely increase at 3.2%. The previous four quarters of GDP were negative. The Wall Street Journal pointed out:
The rise in GDP was the first since the second quarter of 2008. It served as an unofficial confirmation that the longest and deepest recession since the Great Depression has ended. The purveyor of the official word on recessions, the National Bureau of Economic Research, declared the slump began in December 2007. The private, non-profit research group has yet to announce an ending date.
Consensus was also wrong about expectations for initial claims for jobless benefits. The median of surveyed economists put the number at 525,000 earlier this week, down from last week's 531,000. But the number of initial claims only dropped to 530,000. Since July, initial claims have moved up and down in a relatively narrow band between 524,000 and 589,000, well down from the 674,000 seasonally adjusted peak the last week of March. Today's announcement reinforces the view of most economists, both optimists and pessimists, that despite what will likely be modestly positive GDP figures in the next five quarters through the end of 2010, job recovery, when it arrives, is likely to be tepid.
Based on adjustments in the Bureau of Labor Statistics to be officially announced in February, the economy has officially lost 8 million jobs since December 2007, when the Great Recession began. Many fear that, as in the much milder recessions of 1990-91 and 2001, the GDP recovery may be accompanied by a far slower job recovery, something that has been oxymoronically and insultingly referred to as a "jobless recovery." While gains in employment always lag behind GDP growth, starting in 1991, the lag has become longer. In 1991, it took 21 months from the time the recession was considered over technically until it generated a number of jobs equal to when the recession began. After the 2001 recession technically ended, it took 47 months to return to the number of jobs being worked when the recession began. If that trend continues, it could take 60 or far more months for jobs to recover.
The good news about the claims figure comes from the four-week running average - which smoothes out the weekly volatility. That number decreased to 526,250. The total of people collecting unemployment benefits dropped below 6 million for the first time since the spring. However, most economists believe that number is distorted by those Americans who have exhausted their benefits.
Whatever employment improvement comes about depends on increased economic growth, so today's GDP figures are welcome news on that score. But the so-called Blue Chip Consensus is that the 3.5% figure may turn out to be the highest rise in GDP through the end of 2010. That puts the GDP rise for the next five quarters at about 2.6% overall.
While the GDP announcement is understandably being greeted with smiles, more and more observers of the economy are challenging the whole premise of relying on the figure - used since the end of World War II as the key measure of economic health - is a bad one. Megan McArdle, for instance, writes in Misleading Indicator in the November Atlantic:
GDP does not, and cannot, reflect the waste of enormous effort, and precious natural resources, that went into building something that suddenly no one wants. Moreover, it misses many other aspects of our existence. Strip-mining a picturesque mountaintop, or clear-cutting a primeval forest, shows up in GDP only as a boost to output. Meanwhile, in India’s national accounts, all of Mother Teresa’slabors among the poor would have had only the most minimal possible impact. GDP can record how much money we spend on health care or education; it cannot tell us whether the services we are buying are any good.
And as I noted on Tuesday:
While it is not as desperately needed as a fix for the one in five Americans who is unemployed or underemployed, we also need a fresh measurement to replace GDP. Because that gauge does a lousy job. For example, the destruction of natural habitat and of the social structure are counted as pluses if it leads to more production. Pollute a stream while manufacturing some toxic toy, you get a rise in the GDP. Clean up the stream, another rise in the GDP. Pump unreplenishable fossil water out of the Ogallalla Aquifer to irrigate Nebraska wheat fields, another rise in GDP. Running the war on some drugs puts people to work, so another rise in GDP. Build a tank, a rise in GDP. Have it blown up in a war, a rise in GDP to build a new one and to cover the medical treatment the soldiers who were it will need.
Several efforts have been attempted to come up with better indexes. For instance, there was for a brief while the Genuine Progress Indicator. But a serious, systematic job was begun in February 2008 by French President Nicolas Sarkozy who put Nobel laureate Joseph Stiglitz in charge of the Commission on the Measurement of Economic Performance and Social Progress. Prompting this was the increasing disconnect between what politicians and statisticians tell people about the economy and the distrust arising from how those people perceive the economy affecting their day-to-day life. As Sarkozy said of this distrust when the commission's 292-page report was published September 14: “Nothing is more destructive for democracy.” People, he said, "think we're lying to them."
"GDP has increasingly become used as a measure of societal well-being, and changes in the structure of the economy and our society have made it an increasingly poor one. ... In an increasingly performance-oriented society, metrics matter. What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which citizens are worse off ...
"Most governments make a fetish out of it. If you take one message out of our report, make it avoid GDP fetishism."
Even so, the commission did not suggest dropping GDP as a measurement altogether. And although it came up with many ideas, it didn't actually produce a new gauge, like, for example, what I could call if it were my choice, a Sustainability Index. Instead, Sarkozy and Stiglitz view the work as the beginning of a conversation.
Let us hope that this isn't fancy talk for putting it on a shelf. Because underpinning the 18-month-long project was idea that the general well-being of people should be at the core of any new measurement. That means, among other things, not only how many jobs, but what kind of jobs, and dealing with issues of technological displacement of workers like those raised by Jeremy Rifkin in his book The End of Work.
It also means measuring something that GDP can't - the benefits to the populace of full-time jobs based on 30-hour work-weeks, as well as living in a country that is #1 in health care, as France is, and #37, as the United States is.
Measuring in a new way is appropriate for measuring a new economy, the kind of economy that is being discussed today in Washington, D.C., at the Campaign for America's Future's conference: Making It in America: Building the New Economy. That new economy needs to include public investment, a new manufacturing strategy and a new trade policy.