Our Phony Economy.

August 12, 2008 7:57 AM

Our Phony Economy.

From the conclusion:

The purpose of an economy is to meet human needs in such a way that life becomes in some respect richer and better in the process. It is not simply to produce a lot of stuff. Stuff is a means, not an end. Yet current modes of economic measurement focus almost entirely on means. For example, an automobile is productive if it produces transportation. But today we look only at the cars produced per hour worked. More cars can mean more traffic and therefore a transportation system that is less productive. The medical system is the same. The aim should be healthy people, not the sale of more medical services and drugs. Now, however, we assess the economic contribution of the medical system on the basis of treatments rather than results. Economists see nothing wrong with this. They see no problem that the medical system is expected to produce 30 to 40 percent of new jobs over the next thirty years. “We have to spend our money on something,” shrugged a Stanford economist to the New York Times. This is more insanity. Next we will be hearing about “disease-led recovery.” To stimulate the economy we will have to encourage people to be sick so that the economy can be well.

posted by chunking express (102 comments total)

I read this on the way to work today and thought it was really interesting. In particular, this quote from Simon Kuznets, who came up with some of the ideas behind measuring the GDP and GNP, was quite enjoyable: “The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.”
posted by chunking express at 8:00 AM on August 12, 2008

The purpose of an economy is to meet human needs in such a way that life becomes in some respect richer and better in the process. It is not simply to produce a lot of stuff.

Excellent. Make sure these behemoths earn their keep. I've long been making a related point: Businesses serve human beings, not vice versa. That is, businesses are the ones that have to evolve and and adapt to the ecosystem of human life. (That's a related point in that both arguments are about identifying the tail vs the dog.)
posted by DU at 8:06 AM on August 12, 2008 [3 favorites]

How did the notion of economy become so totally uneconomic?

Easy: a bunch of greedy people got their hands on the term and twisted it for their own purposes until it became meaningless.
posted by chuckdarwin at 8:09 AM on August 12, 2008 [2 favorites]

A fine article. And while he doesn't phrase it in quite the blunt terms of Edward Abee ("Growth for the sake of growth is the philosophy of the cancer cell."), I hope his message, being less confrontational and more explanatory, actually makes it out into the United States.
posted by Hactar at 8:09 AM on August 12, 2008

Let the invisible hand alone and the free market will take care of all things.
posted by Postroad at 8:15 AM on August 12, 2008

Tangentially-related: How Canada stole the American Dream. "The numbers are in. Compared to the U.S., we work less, live longer, enjoy better health and have more sex. And get this: now we're wealthier too."

Translation: sounds like the U.S. economic model isn't working out that well for most of you.
posted by The Card Cheat at 8:18 AM on August 12, 2008 [7 favorites]

The Economist Intelligence Unit's quality-of-life index (2005) "It has long been accepted that material well being, as measured by gdp per person, cannot alone explain the broader quality of life in a country...."
posted by ardgedee at 8:18 AM on August 12, 2008

Petty’s survey was the first known attempt in Western history to create a total inventory of a nation’s wealth
in the 17th century? what about the doomsday book?
posted by not sure this is a good idea at 8:22 AM on August 12, 2008 [2 favorites]

Let the invisible hand alone and the free market will take care of all things.

Yeah, shit like that is hilarious. People swallow it up like all the other new-age crap they shill on television.

June's issue of Harpers is actually quite good. The editorial is in a similar vein, though the topic of discussion is the subservience of the US electorate to their government.
posted by chunking express at 8:23 AM on August 12, 2008

Fake.
posted by cog_nate at 8:27 AM on August 12, 2008 [2 favorites]

the national accounts leave out a crucial dimension of the economy–the part that exists outside the realm of monetary exchange. This segment includes both the ecosystem and the social system–the life-supporting functions of the oceans and atmosphere, for example, and work within families and communities that is not done for money.

This passage reminds me of a chart I found once while working the graveyard shift at a copy center in Gainesville. I was running off bundles of photocopies for professors and during a run from the business school, I found a chart of the economy, mapped as relative flows between entities. What surprised me was that the primary input came from the sun, and aspects of our ecology that we don't associate with business and economics were also included -- photosynthesis was part of our economy. I made a copy for myself and kept it for years. I'm sure I still have it moldering among doodles. Reading this article and viewing that chart are rare occasions where the 'economy' has made sense to me. I'll need to unearth that thing.
posted by kingfisher, his musclebound cat at 8:31 AM on August 12, 2008 [2 favorites]

It's not like there are no attempts at quality of life measures, but those things can be difficult to quantify.

Also, this bit Just beneath it lies a deeper issue–the assumption that every purchase is beneficial simply because someone has paid the purchase price.

If they paid the purchase price, that means they must have done something to earn the money to buy it, or at least earn the money to keep making their credit card payments. The purpose of the capitalist system is to keep people working by keeping them motivated, so if they're buying things that means they have money, which they got from working. The main exception of course is inherited wealth, as well as social welfare programs

You can debate about whether this is a good idea, or if it might be less important them some other goal (like overall quality of life) but it's a bit of a stretch to call it "fake" I think.
posted by delmoi at 8:38 AM on August 12, 2008 [1 favorite]

The invisible hand brings you F-22 raptors. Lots of them. And more corn than anyone knows what to do with.

Still, I guess the upside of the whole Russia thing is the Raptors might have a plausible purpose soon.
posted by Artw at 8:45 AM on August 12, 2008 [1 favorite]

I'll bet there's something wrong with those Raptors, like the wings fall off when it gets damp, or they can't turn left, or something like that. I often wonder if we wouldn't be better off with brazilians of cheaper airplanes like F4 Phantoms. Or even F15s.
posted by Mister_A at 8:54 AM on August 12, 2008

The premise of this article seems to be that the field of economics has left out non-monetary aspects of society, and that somehow our focus on economics and the GDP is causing us to lose our values. I don't think that's correct at all, the reason that people focus so much on money is inherent to the concept of money itself, so modifying economics to take more aspects into account will not change that.

The founding documents of the US had a lot of language about freedom and the pursuit of happiness, but they were written by a bunch of rich slave owners whose main gripe was that they didn't want to pay taxes to England. Most of the wars that the US has ever fought in, including the Civil War, had a huge monetary component as the basis or catalyst.

The American Dream has always been about starting with no money and ending up rich. Modern Americans expect their paycheck to rise faster than inflation, and they want their 401k or pension to grow. You can talk about how "important" other issues are, such as the fact that we are making our planet uninhabitable for ourselves, but in a very real way money is the most important issue.
posted by burnmp3s at 8:57 AM on August 12, 2008

They see no problem that the medical system is expected to produce 30 to 40 percent of new jobs over the next thirty years. “We have to spend our money on something,” shrugged a Stanford economist to the New York Times. This is more insanity. Next we will be hearing about “disease-led recovery.” To stimulate the economy we will have to encourage people to be sick so that the economy can be well.

The preferred alternative is what - keeping our present shortage of doctors and nurses? Wait times measured in months?

What centrally-managed solution do you propose for managing the increased demand for healthcare? Euthanasia for the elderly? The prohibition of alcohol, cigarettes, junk food, and any lifestyle deemed by a federal board to be unhealthy?
posted by kid ichorous at 8:57 AM on August 12, 2008

What you want is some of these.
posted by Artw at 8:57 AM on August 12, 2008

The founding documents of the US had a lot of language about freedom and the pursuit of happiness, but they were written by a bunch of rich slave owners whose main gripe was that they didn't want to pay taxes to England.

Ah, Libertarians….
posted by Artw at 8:58 AM on August 12, 2008

Sheep. I mean sheesh.
posted by yoga at 8:59 AM on August 12, 2008 [1 favorite]

You should build lots of roads.
posted by Artw at 9:01 AM on August 12, 2008

The invisible hand brings you F-22 raptors. Lots of them. And more corn than anyone knows what to do with.

That hand is plainly visible. It's the one you voted with.
posted by srboisvert at 9:02 AM on August 12, 2008 [6 favorites]

Hey, lay off the F-22. That aircraft moves like no other plane I have ever seen in my life. When I was a kid, I saw movies like Star Wars and the Last Starfighter and wanted to be a space jockey. If I flew an F-22 (damn you, eyes...and motion sickness), I think I'd feel like I'd achieved that dream.
posted by adamdschneider at 9:03 AM on August 12, 2008

How Canada stole the American Dream.

I often ask myself this when I cross the Niagara River and see the well maintained parkland in Canada, when the parkland on the American side is often just busted glass and weeds. It occurs to me that everyday life in America might just could be made a little more tolerable if our government didn't spend so much on defense. It also occurs to me that Canada must have been a great beneficiary of American defense spending during the Cold War allowing it to spend it's resources on more beneficial domestic policies, rather than stopping the Russkies from coming over the polar cap.

Anyway, congrats to Canada for all of the health, money and sex.
posted by kuujjuarapik at 9:03 AM on August 12, 2008 [8 favorites]

That hand is plainly visible. It's the one you voted with.

Exactly. I'm not sure I understand Artw's point at all. Free markets have not a thing to do with federally-subsidized agricultural practices or with the military industrial complex.
posted by kid ichorous at 9:07 AM on August 12, 2008 [3 favorites]

Were the Russians ever actually itching to cross the polar cap? I wonder. People go on about how Canada benefits from US defence spending, but honestly, what countries out there are just itching to take Canada down?
posted by chunking express at 9:07 AM on August 12, 2008

The purpose of an economy is to meet human needs in such a way that life becomes in some respect richer and better in the process. It is not simply to produce a lot of stuff. Stuff is a means, not an end.

But stuff = joy. Duh.
posted by rhymer at 9:08 AM on August 12, 2008

It also occurs to me that Canada must have been a great beneficiary of American defense spending during the Cold War allowing it to spend it's resources on more beneficial domestic policies, rather than stopping the Russkies from coming over the polar cap.

There's probably some truth to that, except it would only explain the US defense budget being, at most, twice as big as any other countries. In fact, it is much larger than that. So even if we were providing all of Canada's defense, we'd still be able to provide basic health services AND afford a tax cut.
posted by DU at 9:09 AM on August 12, 2008

Exactly. I'm not sure I understand Artw's point at all. Free markets have not a thing to do with federally-subsidized agricultural practices or with the military industrial complex.

They have a lot to do with the existance, or otherwise, of said "free market".
posted by Artw at 9:10 AM on August 12, 2008

And more corn than anyone knows what to do with.

Invisible subsidies that visible economists don't like are a more likely culprit.
posted by dismas at 9:14 AM on August 12, 2008

Things are not well in the land of nod when we envy the sex life of Canadians.

***

And now, some old-time music to make your grandparents happy. Brought to you by the King Biscuit Flour Hour:

Boy the way Glen Miller played
Songs that made the hit parade.
Guys like us we had it made,
Those were the days.

And you knew who you were then,
Girls were girls and men were men,
Mister we could use a man
Like Herbert Hoover again.

Didn't need no welfare state,
Everybody pulled his weight.
Gee our old LaSalle ran great.
Those were the days.

***

They used to tell me I was building a dream, and so I followed the mob,
When there was earth to plow, or guns to bear, I was always there right on the job.
They used to tell me I was building a dream, with peace and glory ahead,
Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it's done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it's done. Brother, can you spare a dime?

Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!

Say, don't you remember, they called me Al; it was Al all the time.
Why don't you remember, I'm your pal? Buddy, can you spare a dime?

Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!

Say, don't you remember, they called me Al; it was Al all the time.
Say, don't you remember, I'm your pal? Buddy, can you spare a dime?
posted by ornate insect at 9:22 AM on August 12, 2008 [3 favorites]

Free markets have not a thing to do with federally-subsidized agricultural practices or with the military industrial complex.

It may be theoretically comforting to think of "government" and "economy" as separate things, but it doesn't actually work that way.
posted by regicide is good for you at 9:29 AM on August 12, 2008

I'm getting the impression most people didn't read the article.
posted by kingfisher, his musclebound cat at 9:35 AM on August 12, 2008

That hand is plainly visible. It's the one you voted with.

Citizens don't vote for federal policy here in the US, we vote for politicians. Lobbyists and campaign contributors vote for policy.
posted by hellslinger at 9:37 AM on August 12, 2008

The article starts with some real howlers:

We hear, for example, that efforts to address climate change will hurt “the economy.” Does that mean that if we clean up the air we will spend less money treating asthma in young kids?

No, you moron. It means that some people think that the controls that would be required to reduce CO2 output would increase the costs of manufacturing many goods, reducing the quantity demanded of them, and harming the firms and workers in the affected industries. I think those people are largely wrong, but it's not like they're transparently crazy to think so.

By the standard of the GDP, the worst families in America are those that actually function as families–that cook their own meals, take walks after dinner, and talk together instead of just farming the kids out to the commercial culture.

What? No. Assuming the marginal propensity to save or dissave doesn't correlate very strongly with that dichotomy, then families that do all that stuff together simply spend their income on different goods than families that spend their income "farming their kids out to the commercial culture."

I think this guy believes the broken window fallacy, and thinks that it's a bad thing. Which it would be. If it were true.

By that standard, the best kids are the ones who eat the most junk food and exercise the least, because they will run up the biggest medical bills for obesity and diabetes.

Huh? Broken windows again. The world where that kid is healthy and economically productive will have a higher GDP than the one where he sits there racking up medical bills.

I don't know that there's much of a point here in the face of such strong Just. Doesn't. Get. It.

The broader point he doesn't get is that GDP isnt' a summation of money spent, it's a summation of money earned or "value" added. Which means that it still misses things, like people working outside the market, and that it still counts money earned doing things that are immoral or in some other way bad. But all those bad things he thinks that need to happen so that money gets spent and "the economy" does better? Those bad things reduce earning and reduce GDP.
posted by ROU_Xenophobe at 9:46 AM on August 12, 2008 [3 favorites]

Just to be sure, I went back and searched the article for "invisible," not "invisible hand," just "invisible" so that no matter the appendage was pushing around the markets I would get a hit. Nothing. So no "invisible hand" or "invisible foot," nothing. Why? Because the article isn't about that, it is about the metrics used when evaluating a national economy, what does it measure, what doesn't it? What data are excluded? And so on. The GDP measure expenditure, regardless of what it is on, so it's a measure of twisted values where sickness because it forces spending contributes to the GDP and health does not. It is not a fucking article about mandating healthy lifestyles, Kid Ichorous. You only get that notion because you don't read anything and come in writing like you packed Ayn Rand into a salad shooter.
Ostensibly rational people make decisions based on the information in front of them, if the information contained in GDP is tainted by what it measures and what it leaves out, then we have a crappy tool for economic decision making. That's the gist of it.
posted by kingfisher, his musclebound cat at 9:52 AM on August 12, 2008 [3 favorites]

this is an argument i haven't really had the balls nor clarity of thought to make very often, but one which I think gets to the heart of what is wrong with capitalism as practiced. thanks a lot for posting this.
posted by es_de_bah at 10:02 AM on August 12, 2008

adamdschneider - That aircraft moves like no other plane I have ever seen in my life.

You've got to check out the SU-37, then....
posted by porpoise at 10:13 AM on August 12, 2008 [1 favorite]

Because the article isn't about that, it is about the metrics used when evaluating a national economy, what does it measure, what doesn't it? What data are excluded? And so on. The GDP measure expenditure, regardless of what it is on, so it's a measure of twisted values where sickness because it forces spending contributes to the GDP and health does not.

I did read the article, kingfisher, and I agree with the author's basic assertion that GDP is a blunt economic metric. However, if his argument is that we should judge not the quantity of spending, but rather the quality, I don't see how medical spending (which directly impacts quality of life) could possibly support his case. On the other hand, if his argument is that medical spending represents a broken window fallacy simply because it's prompted by sickness, I think he needs to be a little more explicit about what we're doing (or not doing) to "create" the expense of sickness. Either way, he plays a very weak card last by closing with the lament that we "see no problem that the medical system is expected to produce 30 to 40 percent of new jobs over the next thirty years."
posted by kid ichorous at 10:23 AM on August 12, 2008

"For one thing, the national accounts leave out a crucial dimension of the economy–the part that exists outside the realm of monetary exchange. This segment includes both the ecosystem and the social system–the life-supporting functions of the oceans and atmosphere, for example, and work within families and communities that is not done for money."

Those sectors are accounted for in the general political economic debate. On one side are so-called conservatives who deny their policies are causing damage to the environment, and on the other side are so-called liberals who deny their policies are causing damage to the social system. Their proposed reforms seem to cancel each other out most of the time, so both the environment and the social system suffer, and balance is achieved.
posted by hoverboards don't work on water at 10:25 AM on August 12, 2008 [2 favorites]

You should build lots of roads.
posted by Artw at 12:01 PM on August 12 [+] [!]

No, build high speed railways, because US domestic air travel is just about the worst travel experience I've ever had, and the US inter-city bus system is almost as bad. (Whereas I quite like Canadian inter-city buses, but I wasn't trying to go anywhere remote).

But just think about how much time and money and fuel could be saved if you could get a fast train from New York to Syracuse, Rochester and Buffalo (all of which had separate planes the day I travelled, all horribly delayed). It will take some serious investment to get the infrastructure in, but it would be so worth it.

Heck, even buying regular European trains (which run on ordinary powered tracks, but WAY faster than North American trains) would be worth it - it shouldn't take 2 hours to travel the same distance as a British train crosses in 45 minutes.

People go on about how Canada benefits from US defence spending, but honestly, what countries out there are just itching to take Canada down?

Denmark.
posted by jb at 10:30 AM on August 12, 2008 [2 favorites]

You've got to check out the SU-37 , then....

Holy shit.
posted by adamdschneider at 10:31 AM on August 12, 2008

We are going to spend a lot on medical care because of the Aging baby boomers. Or is this guy someone who thinks all our health problems are caused by poor policy making? Actually, you could probably make that argument, as a lack of universal health care does make people put off treatment until it because much more serious.
posted by delmoi at 10:34 AM on August 12, 2008

You've got to check out the SU-37 , then....

Holy shit.

Gotta love that Su-37.
posted by Artw at 10:36 AM on August 12, 2008

Huh? Broken windows again. The world where that kid is healthy and economically productive will have a higher GDP than the one where he sits there racking up medical bills.

What about the one where he's unhealthy and economically productive?
posted by TheOnlyCoolTim at 10:39 AM on August 12, 2008 [1 favorite]

The GDP measure expenditure, regardless of what it is on, so it's a measure of twisted values where sickness because it forces spending contributes to the GDP and health does not.

But he's just completely wrong about that. Illness reduces GDP because sick people don't earn, or don't earn as much. Health increases GDP because healthy people earn, or earn more.

if his argument is that medical spending represents a broken window fallacy simply because it's prompted by sickness

I think his argument is that the broken window fallacy isn't one. To him, it seems to be The Law of Broken Windows, and he's lamenting the "fact" that a higher GDP requires us to go around breaking windows and making people sick.
posted by ROU_Xenophobe at 10:45 AM on August 12, 2008

if his argument is that we should judge not the quantity of spending, but rather the quality, I don't see how medical spending (which directly impacts quality of life) could possibly support his case.

I think that's correct, the medical argument is a little weak, it doesn't account for better diagnosis, better treatment, longer life, etc. these ostensibly positive gains (not so sure about longer life) would be properly represented positively when measuring medical expenditures. That seems to be good. But poor treatment that fails and is costly would also appear positively, as would over-prescription of medication; whereas good health, which may manifest itself in the GDP elsewhere, would not be represented in medicine at all. Is his argument just the retelling of the broken window fallacy? In part it seems so, but it's also an interesting argument for our time when we may have new means to create more accurate and subtle measures of economic health.
posted by kingfisher, his musclebound cat at 10:53 AM on August 12, 2008

Huh? Broken windows again. The world where that kid is healthy and economically productive will have a higher GDP than the one where he sits there racking up medical bills.

That depends. Will he, as a healthy individual, produce more than would be produced in treating his illnesses?
posted by Pope Guilty at 10:54 AM on August 12, 2008 [2 favorites]

What about the one where he's unhealthy and economically productive?

To a first approximation, that one doesn't exist. In the world where he's healthy, he earns more. Misses less work, almost certainly does better work, and so on.

Even if there were, it wouldn't matter. He'd spend his money on something, or save and the money would eventually be invested (spent) on something so long as he didn't just keep it in cash under his mattress.
posted by ROU_Xenophobe at 10:54 AM on August 12, 2008

The day I realized this was the day my world turned upside down. It's on a level with the day I realized other people have feelings.

Apparently there are people who still haven't had those two days.
posted by fiercecupcake at 10:56 AM on August 12, 2008 [6 favorites]

"I think his argument is that the broken window fallacy isn't one. To him, it seems to be The Law of Broken Windows, and he's lamenting the "fact" that a higher GDP requires us to go around breaking windows and making people sick."

I disagree. I think he is arguing that the GDP makes broken window appear to pay off because we lack the means to truly measure the benefits of an unbroken window. You think otherwise, that health inevitably gets measure positively within the GDP somewhere. Maybe that's true. But are there other areas where the metric fails to collect data, or garners a positive score, where really the net cost to life is higher? And can that be measured?

The medical argument is an example, and maybe a poor one, but the core argument about the crudity of the GPD as a measurement of the health (in the figurative sense) of the nation remains.
posted by kingfisher, his musclebound cat at 11:01 AM on August 12, 2008

I often ask myself this when I cross the Niagara River and see the well maintained parkland in Canada, when the parkland on the American side is often just busted glass and weeds.

There are many words I might use to describe Niagara Falls, ON. Crass. Cheesy fun. Tourist trap. But I don't think "well-maintained parkland" would be high on my list. If anything, Goat Island is the only thing that makes NF,NY almost tolerable.

It occurs to me that everyday life in America might just could be made a little more tolerable if our government didn't spend so much on defense.

While I don't dispute the larger point, AFAIK in this case that bit of America would be in better shape if the chemical industry in NF,NY hadn't gone belly-up.
posted by ROU_Xenophobe at 11:11 AM on August 12, 2008

Not sure why I am posting so, much. I apologize, but it's a day off work (ironically my first sick day in almost a year).

The following sentence summarizes what I do not get about economics and why this article has so much value to me. In this form of economic reasoning, the snake eats its own tail, and all is without value:

He'd spend his money on something, or save and the money would eventually be invested (spent) on something so long as he didn't just keep it in cash under his mattress.

Can you unpack that? Can you take this "money will be spent" logic and show some differentiation so that some form of measurement has meaning? Or is at all about a total potential amount in circulation, some big-ass figure minus a smaller estimated figure representing money-in-mattresses? What he spends it on matters nothing here, nor when or where. Ultimately the "who" does not matter either, and a system of tubes, chutes, and little white-gloved levers passing money around to the tune of "Powewhouse" would be just as valuable as people. This leaves me utterly baffled, and I am sincerely hoping you can explain how value is measured when "eventually it will be spent" is both a core assumption and ultimate goal.
posted by kingfisher, his musclebound cat at 11:12 AM on August 12, 2008

DAmn, I want an Su-37 and a more holistic view of economic policy from the executive branch. Mostly the plane though.
posted by Mister_A at 11:16 AM on August 12, 2008 [1 favorite]

I disagree. I think he is arguing that the GDP makes broken window appear to pay off because we lack the means to truly measure the benefits of an unbroken window.

Even if that's his argument, it's still stupid. A broken window doesn't even appear to pay off in GDP terms. I was going to spend $X on some bundle of goods and services, but my window broke. So now I spend $X one some other bundle of goods and services that includes fixing my window. GDP didn't change, at best. Broken windows cause, at best, shifts in consumption and activity patterns, not increases in activity.

There wouldn't be any effect from me and my window, but if this were writ large we would expect the misallocation of resources away from other economic activity and towards window-fixing to reduce GDP.
posted by ROU_Xenophobe at 11:18 AM on August 12, 2008

one particularly appealing take-away: ending this recession is as easy as legalizing drugs so we can add them to our GDP figures. finally, the invisible hand of the market can do something useful...passing the bong around.
posted by snofoam at 11:19 AM on August 12, 2008

This article helped me articulate a point that's been kicking around in my head for a while. Although his points on black markets and real quality of production do indeed highlight weaknesses in our economic models, these points I think are part of economic debate. Much more subtle and interesting I think is that by our current measure, the greatest thing a citizen can do is maximize their 'consumer bandwidth'.

That is, if consumer x works 40 hours a week and survives in part by doing a great deal on their own, (e.g. cooking, cleaning, gardening, carpentry) they are contributing less to the economy than someone who works 60 hours a work and makes up the time difference by hiring others to do all the more domestic activities.

More succinctly, while division of labour in industrial production is encouraged by an increase in quantity and quality of good, a division of labour in domestic activities is encouraged merely by the fact that by bringing all 'sub-economic' productions into the proper economic model, the numbers get bigger, even though no one is gaining anything.

This is problematic both because there's good reason to believe that much of he economic growth we see is illusory in any practical sense, and that there seems to be serious sociological consequences to dividing up all domestic tasks, notably cooking and child care.
posted by Alex404 at 11:22 AM on August 12, 2008 [1 favorite]

kingfisher: But poor treatment that fails and is costly would also appear positively, as would over-prescription of medication; whereas good health, which may manifest itself in the GDP elsewhere, would not be represented in medicine at all.

Yeah, that's fair. I'll grant that even more of that 30-40 percent could disappear inside HMO management pyramids, pay for abusive patents (e.g. of stereoisomers of existing drugs), and so on.

TFA: "This is more insanity. Next we will be hearing about “disease-led recovery.” To stimulate the economy we will have to encourage people to be sick so that the economy can be well."

But this here does really cloud the issue. I tend not to view sick people as the broken window, as I don't think there's any useful place to go from that premise - smoking bans, dietary laws, and so on. Instead, I think the correctable problems in healthcare are massive corruption in the (1) HMO and (2) pharmacological industries, coupled with (3) a short supply of MDs and specialists to answer demand. Nationalized healthcare might do something about the first problem, but I expect it would be a dead giveaway to problem 2. On the other hand, 30-40% new jobs might do something about 3, which is why I have a hard time seeing it in a bad light.
posted by kid ichorous at 11:30 AM on August 12, 2008

Can you unpack that? Can you take this "money will be spent" logic and show some differentiation so that some form of measurement has meaning?

He's out there earning in the market, getting disposable income $X. He spends some of that on some bundle of goods and services that makes sense to him. If he's healthy, he spends it a bundle of goods and services that's light on health care. If he's sick, he spends it on a bundle of goods and services that has more health care and less of something else.

But he still spends $X. GDP doesn't change, at best. If he's sick, there's just more GDP in health care and less on, say, track shoes and home gyms.

In real life, he almost certainly earns less, and so GDP is lower. Or he spends his savings on health care instead of putting it into a bank where it can generate true investment, which reduces GDP because firms that would have invested end up less productive than they would have been.

It's more complicated than that because of health insurance and risk sharing, but still.

The broader point is that the author looks at GDP and sees a summation of costs, of spending. He's wrong. The GDP is a summation of earning, of income. Things that don't increase income but at best just shuffle consumption around, like breaking windows, don't increase GDP. Things that reduce income, like being sick, reduce GDP.
posted by ROU_Xenophobe at 11:33 AM on August 12, 2008 [1 favorite]

one particularly appealing take-away: ending this recession is as easy as legalizing drugs so we can add them to our GDP figures. finally, the invisible hand of the market can do something useful...passing the bong around.

Requires more analysis. Altria gets to start selling joints and their profits go up, but the profits of the private corrections industries and profits ancillary to law enforcement efforts go down.
posted by TheOnlyCoolTim at 11:36 AM on August 12, 2008

Can you take this "money will be spent" logic and show some differentiation so that some form of measurement has meaning?

Wealth is the sugary sap the Economy Tree produces and consumes. The economy takes inputs -- a) as mentioned above, energy from the sun, b) labor from workers using tools (capital goods previously built by other laborers) to dig out natural resources, plant, grow, and harvest agricultural commodities and produce goods and services that either feed the production beast, provide consumer goods, or provide services to the economy in general.

Our government provides us with a money supply so that we can, at the national level, exchange goods and services among each other efficiently. This money supply is not wealth, however.

Wealth, at its most basic, can be defined as that which satisfies human needs and wants.

The atomic particle of Wealth at this level is the Service. A roof is valuable for the Service it provides in keeping the rain out. A hairdresser's Service is keeping their client attractive.

To have Money in our economy is to have the ability to command Service, either by purchasing existing goods or paying for them from human participants in the economy.

To put your money in the mattress is to remove it from the economy. To save it in a financial institution is to provide that institution with money it can lend against, thus recycling it. To invest it requires taking risk above that of savings, with, nominally, rewards (interest) proportional to the risk involved.

My favorite economic statistic is that China and Japan have about $2T of dollar holdings. That is about 40M man-years of work @ $25/hr, work our descendants will be doing to pay off this, or, more likely, at 5% annual interest 2 million American workers working fulltime just to pay the interest on this accumulated trade deficit.
posted by yort at 11:45 AM on August 12, 2008

You could always lower the dollar more...
posted by Artw at 11:51 AM on August 12, 2008

My friend pointed me to this great RFK quote on this subject -- from 40 years back:

Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It 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. 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 tells us everything about America except why we are proud that we are Americans

- Address, University of Kansas, Lawrence, Kansas, March 18, 1968

posted by chunking express at 12:20 PM on August 12, 2008 [17 favorites]

Thanks Chungking; I suspected I had heard this general line of argument before but couldn't remember where.

The key part about understanding the economy is differentiating between exchange and consumption.

To labor is to exchange one's physical strength, mental faculties for wages, but the primary consumption is the laborer's leisure time (which is 24/7 in the absence for the need to labor).

A pure service economy can't exist since it consumes hard goods in the delivery of its Services, eg. cans of hairspray at the hairdresser's, pencils, paper, and electricity at the school.

Whenever I hear of trips to the hospital costing tens of thousands of dollars I wonder at what exactly is being consumed, and at what gross margins, to justify these costs.

The argument of this paper and RFK is that we need to track what Services we are getting out of collective labors, and, in the view of Center-Left political economists at least, it is the role of Government to steer, as much as it is able, the economy toward greater outcomes -- cf. the Scandinavian countries for evidence that government can succeed at this.
posted by yort at 12:37 PM on August 12, 2008

Metafilter: packing Ayn Rand into a salad shooter.
posted by cereselle at 1:19 PM on August 12, 2008

Things that reduce income, like being sick, reduce GDP.

Sure, except that it's only a reduction of income for the person who's ailing (more to the point, for whatever source supplies payment for his/her treatment). The sickness constitutes income for those whose job it is to treat it. I think the real question is whether your illness constitutes more income for someone than you would have otherwise spent had you been well.

My last dental visit racked up a bill of eight hundred dollars (only a portion of which was paid by me, but all of which was paid by somebody). I am confident that I would not have spent that amount otherwise in the space of that morning. So, in that instance, anyway, my illness certainly brought more money into the economy than my health would have.
posted by kittens for breakfast at 1:30 PM on August 12, 2008

ROU:
I think his argument is that the broken window fallacy isn't one. To him, it seems to be The Law of Broken Windows, and he's lamenting the "fact" that a higher GDP requires us to go around breaking windows and making people sick.

I have almost the exact opposite reading: He's saying that what we don't generally consider to be broken windows (a robust auto transport sector, Hollywood entertainment, industry) actually are (due to pollution, etc.), and he's lamenting the fact that the GDP as a metric in itself has no way to account for the fact that we are going around making people sick.

This, by the way, is not an argument against growth. To be reflexively against growth is as numb-minded as to be reflexively for it. Those are theological positions. I am arguing for an empirical one. Find out what is growing and the effects. Tell us what this growth is, in concrete terms. Then we can begin to say whether it has been good.

He's not saying that GDP-measured growth makes us hurt people. He's arguing that GDP has been used as a smokescreen to put off questions of whether people are being hurt, questions of what the true value of things are. I find it pretty hard to argue with that.
posted by regicide is good for you at 1:32 PM on August 12, 2008 [1 favorite]

Welcome to Economy! Economy! is the massively-multiplayer live-action role-playing game of chance. The object of Economy! is really quite simple: you want to win. You win by making Things, selling Things, and then buying Things.

Starting the Game
The game is already started. Don't worry about setting it up.

Character Classes
You will normally be:
-Unemployed or Indentured Servant: doesn't have very many Things, not able to buy many Things.
-Worker: makes things, buys Things.
-Manager: doesn't make many Things, is able to buy a few more Things than a worker.
-CEO: is able to buy many more things than a manager

Special Classes
-Lawyer
-Banker
-Retired
-Politician

Making and Selling Things
Different classes make different things. Workers will make DOC, XLS and PPT Files, which their Managers buy. The Managers produce Reports - essentially a collection of DOC, XLS and PPT Files - which the CEO buys. The CEO produces books about "being your true self" and "finding the leader within you" and sells those to the Managers and Workers. Politicians make Laws, which tell the Workers and Managers what to buy, and sell the Laws to CEOs.

Buying Things and Spells
You can buy Things other Workers make. You can even buy more things than you can afford by getting a Banker to cast a Credit spell. This will increase the Things you have for a short time, but will cause you to become an Indentured Servant.

If another player has something you want or if you do not like another player, you can employ a Lawyer to cast a spell on them. The spell will either be Civil or Criminal. Successful Civil spells will grant you some of the other characters Things. Very successful Civil spells will make the other player an Indentured Servant. Successful Criminal spells will make the other character Unemployable, unless that character is a CEO, in which case the character just becomes Retired or, possibly, a Politician.

Ending the Game
The game ends for you if you do not have enough Things or if you have too many of one kind of Things. You have to watch the Television to find out what Things you need or Things you need to get rid of.

That's pretty much it. Good luck!
posted by milkrate at 1:41 PM on August 12, 2008 [12 favorites]

The broader point is that the author looks at GDP and sees a summation of costs, of spending. He's wrong. The GDP is a summation of earning, of income. Things that don't increase income but at best just shuffle consumption around, like breaking windows, don't increase GDP. Things that reduce income, like being sick, reduce GDP.


"Expenditure" is used eleven times. "Income" is used five times. "Output" is used only once. The writer mentions "national income" once, while quoting Kuznets. I think the author sort of "gets it" but I wonder if he ever sat through the National Income Accounting 101 lecture.
posted by Kwantsar at 2:04 PM on August 12, 2008

Oh, I see you've played Eve Online.
posted by TheWhiteSkull at 2:16 PM on August 12, 2008

Actually, I kind of prefer the Economy! 2nd Ed. rules. There have been some changes to character classes:

-Unemployed or Indentured Servant: doesn't have very many Things, not able to buy many Things. Probably stays that way until death.
-Worker: makes things, buys Things. Is able to buy fewer and fewer things as time goes on but keeps getting asked to make more things.
-Manager: doesn't make many Things, is able to buy a few more Things than a worker. Is often worried about how many things they are able to buy and what other people think of those things.
-CEO: is able to buy many more things than a manager. Is kind of a dick.

2nd Edition rules now also include races. Note that your race will often determine your character class.
posted by TheWhiteSkull at 2:27 PM on August 12, 2008

Chunking Express: what countries out there are just itching to take Canada down?

not to extend the derail much further, but it takes just a cursory look at the history of Belgium to know that it is not necessary to be the target of aggression to have your way of life ruined. You just need to be in the right place in the right time.

ROU: that bit of America would be in better shape if the chemical industry in NF,NY hadn't gone belly-up.

And yet similar industries chug along in nearby Hamilton, ON creating jobs and prosperity that are completely lost to Western NY, presumably because American CEOs can get the job done cheaper somewhere else. Perhaps if some of our defense spending had been reallocated to a domestic healthcare system, employment costs would make domestic manufacture a little more feasible, and reinvestment in aging chemical manufacturing facilities wouldn't be so laughable, thereby employing more locals and increasing the local tax base, putting that bit of America on a more solid footing.
posted by kuujjuarapik at 2:47 PM on August 12, 2008

I think some may benefit from understanding how a twisted measurement system may affect many people on a very, very personal level.

For instance, take a friend of mine who is an brilliant network engineer. He holds a number of certification and he's a complete geek ; he knows the inside out of TCP-IP , he's the kind of guy in the office that fits this description : "he's strange, but damn he works very well". Often, in my experience, they are both slightly feared and are , therefore, often described as having a miserable life, which might be the case yet few really bother getting to know them.

That's exactly the kind of guy you pray you will have as a doctor, as he would give you the best chances of saving your life, who cares if he's weird.


Unfortunately, he is currently risking being sacked because some management come to the conclusion that his work could be somehow done by lesser trained EMPLOYED monkeys. As he's a contractor, his work doesn't count as work done by the employer department , therefore the management will not get any bonus out of his fine work. On the other hand, if his work is internalized, the manager will be praised for meeing the nth quarter expected productivity goal, which is just a friggin number.

All of his skill and experience, all sacked because of the desire (of few) to dress up a number, such as GDP.
posted by elpapacito at 2:48 PM on August 12, 2008

What centrally-managed solution do you propose for managing the increased demand for healthcare? Euthanasia for the elderly? The prohibition of alcohol, cigarettes, junk food, and any lifestyle deemed by a federal board to be unhealthy?

Can you tell me that you're unaware that there are other places like Scandinavia and Canada where they get good quality medical care at a much cheaper price than the United States does?

(And yes, I spent years under Canadian medical care, it rocks.)

Here are a few possibilities from about 10 seconds of thought...

1. Preventative care is strongly a negative factor in health care profits. If the consumer spends a few dollars now, he might not spent hundreds of thousands later.

Spending money on preventative care now, on infant nutrition now, on health education now, will pay off many, many times in the years to come. I understand that only communists would ever think of doing anything so uneconomic but you did ask for suggestions.

2. Insurance companies consume one health dollar in three or four.

3. Even the AMA admits that almost a hundred thousand Americans are killed every year by doctor mistakes. The reason is that doctors are massively overworked; the reason for that is that medical school is kept so expensive that the supply of doctors is kept artificially low and that when they do graduate, they have such a huge debt that they have to start working very long hours all the time. The solution: open up the medical schools. Invest money in training doctors now.

4. More paramedicals professionals, more nurses, pay doctors less. More choices for cheap, early care. Diverting money from hugely expensive emergency rooms to cheap community drop-ins.

5. Aggressive bargaining with drug companies by the state. Note how much cheaper the same drugs, from the same companies, are in Canada.

Any rational person who spends 30 seconds in the American system is aware of the fact that it has serious issues from top to bottom - that huge quantities of money are spent on things are actively deleterious to patient care.

The measure of the success of the health care system shouldn't be "how much money it makes" but "how healthy the population is".
posted by lupus_yonderboy at 3:27 PM on August 12, 2008 [8 favorites]

I have almost the exact opposite reading: He's saying that what we don't generally consider to be broken windows (a robust auto transport sector, Hollywood entertainment, industry) actually are (due to pollution, etc.), and he's lamenting the fact that the GDP as a metric in itself has no way to account for the fact that we are going around making people sick.

Maybe, but I think the erroneous examples he keeps offering up of bad things that increase GDP, which really don't, argue against that.

Even so, it just means he's discovered that economic activity can have negative externalities. Is that really a surprise to anyone in 2008? Or does it surprise anyone to think that places that go whole-hog for economic growth at the expense of all else find that it comes at the expense of all else? Likewise, is it really a shock to anyone literate that "GDP per capita" is not the same as "standard of living?"

And even if we take everything he says as given, it's still the case that nobody stands up and says "I will maximize GDP growth!" And in any case, IIRC the electorate pays closer attention to inflation rates and unemployment rates than it does to GDP figures, though I can't recall the cites offhand. GDP growth isn't the altar at which we sacrifice the other things.

And even beyond that, he's still, to a first approximation, wrong. Even if GDP figures don't include corrections for externalities, economists, policy analysts, and advocates for different positions commonly estimate such amounts, in real dollar terms even. Pollution costs [this much] directly, and [this much more] in lost productivity. Preventable diseases cost [this much] in direct costs and lost productivity.
posted by ROU_Xenophobe at 3:27 PM on August 12, 2008

Just gotta say, amen to this article.
posted by limeonaire at 3:31 PM on August 12, 2008

The author's central criticism just seems to be that the GDP spending doesn't accurately track some holistic sense of national welfare. This is true, but is there anyone who actually thinks otherwise? I don't think he's revealing any heretofore unseen truths by pointing out instances where spending can go up while the nation's well-being can go down. He just seems to want to interpret "the economy" in the broadest possible way, while most people are quite content to define it strictly as "the realm of monetary exchange."
posted by decoherence at 3:39 PM on August 12, 2008

kuujjuarapik, I'd certainly agree that the military and defense industries are a tremendous drain on the economy, and that almost any national health care system would be better than what we have now, and so on.

But I don't think any of that stuff has much to do with NF,NY being an irredeemable shithole. I think for that, you don't need to look any further than the epic fucked-up-edness of local and regional government in WNY. If you wanted to create a program to purposefully drive jobs and industries away, I doubt you could do much better than what Buffalo-Niagara has achieved unless you used bombardment.
posted by ROU_Xenophobe at 3:42 PM on August 12, 2008 [1 favorite]

ROU_Xenophobe: The broader point is that the author looks at GDP and sees a summation of costs, of spending. He's wrong. The GDP is a summation of earning, of income. Things that don't increase income but at best just shuffle consumption around, like breaking windows, don't increase GDP. Things that reduce income, like being sick, reduce GDP.

I don't think that's a reasonable argument.

You could apply this to any industry, iPods or pornography, and say that it couldn't increased the GDP. But when a new job is created, the GDP does increase, even though it's just the same money being passed around.

Even further, this ignores medicine's unique status as "unbudgeted". If I've just spent a lot of money on CDs I might not buy a new iPod. However, if I need that liver transplant to live or those prescriptions to cut down the pain, I'll go into debt if I have to - that's good for the economy, I've created money from nothing, the GDP has risen.
posted by lupus_yonderboy at 3:44 PM on August 12, 2008

The author's central criticism just seems to be that the GDP spending doesn't accurately track some holistic sense of national welfare. This is true, but is there anyone who actually thinks otherwise?

Many conservatives I've talked to believe that the real inflation-adjusted GDP is the final arbiter of national health. They consider arguments like "It makes goods cheaper," to be unanswerable. To them, the Invisible Hand defines and encompasses all morality (except for faggots of course, who should be persecuted even if they're rich).
posted by lupus_yonderboy at 3:47 PM on August 12, 2008

Many conservatives I've talked to believe that the real inflation-adjusted GDP is the final arbiter of national health. They consider arguments like "It makes goods cheaper," to be unanswerable. To them, the Invisible Hand defines and encompasses all morality (except for faggots of course, who should be persecuted even if they're rich).

This is true. Of course, economic conservatives also are wont to call "broken window fallacy" at the drop of a hat, so it seems they at least some some notion, if perhaps a limited and inchoate one, of the disconnect between money, spending and "actual" value.
posted by decoherence at 3:57 PM on August 12, 2008

epic fucked-up-edness of local and regional government

Absolutely. Which is kind of the point of the article, if your measurements can't help you move in a positive direction, you're screwed in the long run. This might explain why the public schools in Buffalo were around 50% vocational until the 80s, which explains the knuckleheads in the local gov't. If your measurement of an education is just what is useful to industry, then your future plans and generations are fucked when that industry moves on and out. The why of a measurement is almost as important as the what and the how.
posted by kuujjuarapik at 4:23 PM on August 12, 2008

Given the tendency of media to pun, I was expecting cellphones to be in there somewhere. Cellphone usage is probably a perfect example of growth for growth's sake: from what I hear in public, 60% of cellphone usage is idle, pointless yakking that generates a steady flow of profit for the cellphone companies. The remaining 40% of cellphone usage seems to serve the 24-7-365 office, in which your supervisor can call you while you're stuck in traffic on the way home and remind you chirpily about upcoming deadlines that you already have been reminded of three times. Nonetheless, your availability via cellphone adds to "productivity." The effect of cellphonitis on your blood pressure is also not taken into account.

I won't even go into where cellphone raw materials come from and where cellphones go when they die.

Sorry about the age of the links, but the problems have not gone away.
posted by bad grammar at 4:45 PM on August 12, 2008

God, this article is one long straw man.

First off, very few people use GDP or GNP to the exclusion of other metrics. When they do, they're often not making a very sophisticated point. When most people talk about "the economy" as an abstract, what they mean is a combination of employment and inflation—"The economy" is good when people can afford to buy things, basically, no matter what those things are. That's why his sidelong dig at FDR is moronic, as FDR's campaigns based on economic gain were explicitly grounded in getting people back to work and controlling deflation (where people stop spending because the goods aren't worth the money that they have, due to money being scarce). When remembered in the post-Hoover context, FDR's broad references to the economy as an abstract absolutely make sense.

Second off, it really doesn't matter what you spend your money on. Look, yeah, I hate the rich as much as anyone (I lure them to their deaths with promises of borderline illegal hedgefunds in my basement). But that $400 on shoes really is worth 20 times as much as $20 shoes, because money is fungible. Either way, the people you buy the shoes from have to then pay their suppliers, pay their own costs of living, etc. And yes, there are all sorts of practical considerations that mean that trickle-down economics doesn't work so well in practice as it does in theory. But when I buy a pizza, no one cares whether my dollars came from porn or from music reviews or from selling crack to pit-bull owners.

And that fungibility does mean that even when we buy things that are "bad" for us, we have made a choice that we would rather have that item than an equivalent amount of something else. Even if it's silly to spend $100 on tennis shoes instead of buying $100 worth of rice, by doing so, I've decided that it suits my needs and wants better. Love it or hate it, suasion is the only power we have regarding the vast majority of consumer prices, and that's a good thing (individual liberty as consumerism can be nihilistic, but doesn't have to be).

He does have a point regarding environmental costs, but until we tie restorative costs to resource extraction, there's no reason to argue that future debits must be deducted from the balances of today. This is why I support mandatory clean-up laws, to help make the cost/benefit analysis of industry more in line with the risks to society.

But basically, the whole argument boils down to "People are spending their money in ways I don't like, but GDP doesn't reflect that." To which the answer is, duh.
posted by klangklangston at 5:38 PM on August 12, 2008 [4 favorites]

And, to clarify, I agree with many of his priorities, but find his argument and misleading, and (based on the plaudits here) likely to be seized upon by people for whom it only really serves to reinforce their biases.
posted by klangklangston at 5:41 PM on August 12, 2008

lupus: 3. Even the AMA admits that almost a hundred thousand Americans are killed every year by doctor mistakes. The reason is that doctors are massively overworked; [...] The solution: open up the medical schools. Invest money in training doctors now.
4. More paramedicals professionals, more nurses, pay doctors less.

You remember how Rowe concluded the article by suggesting that more doctors was a bad idea? That's primarily what I was responding to - the idea that a 30-40% increase in the supply of healthcare jobs is necessarily a bad sign, as if decreasing the demands of illness were more realistic.

5. Aggressive bargaining with drug companies by the state. Note how much cheaper the same drugs, from the same companies, are in Canada.

But drugs are much cheaper in Canada because the US government conveniently restricts their resale; local price fixing tends to vanish unless someone is actively blocking open trade. And, just like regional media encoding, this would probably be read as an antitrust issue if it weren't bigger than any single court's jurisdiction.

If the US federal government is already showing favoritism to the lobby by preventing drug imports, what makes you think any nationalized healthcare plan wouldn't also turn into a transparent giveaway? The US doesn't use its "bargaining power" to leverage lower prices from Raytheon, Haliburton, or any number of other corrupt contractors; it does just the opposite.

I think this right here is the biggest threat to a successful nationalized healthcare in the US.

posted by kid ichorous at 6:39 PM on August 12, 2008

klangklangston: all spending is not the same. Consumption is not the same as investment and/or saving.

Not understanding that, in fact, is slowly killing us.
posted by Malor at 7:30 PM on August 12, 2008 [2 favorites]

Let the invisible hand alone

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

http://www.econlib.org/library/Smith/smWN.html
posted by rough ashlar at 8:04 PM on August 12, 2008 [2 favorites]

is it really a shock to anyone literate that "GDP per capita" is not the same as "standard of living?"

The author's central criticism just seems to be that the GDP spending doesn't accurately track some holistic sense of national welfare. This is true, but is there anyone who actually thinks otherwise?

What are you guys Danish or something? Have your ever been to the states? We elect are leaders over here based on how average they are. We don't want free health care because it's communist. A lot of people thought that some dirty Russians just invaded Savannah. We are a bunch of idiots.
posted by afu at 8:14 PM on August 12, 2008

What is it with some people taking one little point that is used in an attempt to illustrate the main thesis of the article and claiming that this then must prove that the entire article is wrong? (I bet there's a word for that in german) I thought that his basic message (growth just for the sake of growth is bad) is exactly right, and is something that has been bugging me for a while now. Isn't it time to evolve past the level of yeast?

For that matter, I think he's dead-on about the sick vs. healthy argument. I posit that anybody with some form of health care would 'benefit' the economy by being sick much more than they would by being healthy. You are only depriving the economy if you do not seek treatment. If I were to get sick I would still get paid the same (or slightly less depending upon the length of my illness), but I would then trigger an increase in spending which would most likely (thanks to the multiplying effect of my healthcare that pays for the majority of my actual billed health expenses) far outstrip the salary that I am still collecting.

So now I'm sick, but I'm still spending approximately the same amount of money as I would if I were healthy (fixed monthly expenses like food and rent), but in addition the hospital is getting paid by my healthcare provider for the treatment they are providing me. GDP increased, so we must be better off, right?
posted by inparticularity at 10:56 PM on August 12, 2008

So now I'm sick, but I'm still spending approximately the same amount of money as I would if I were healthy (fixed monthly expenses like food and rent), but in addition the hospital is getting paid by my healthcare provider for the treatment they are providing me. GDP increased, so we must be better off, right?

Not your employer.
posted by atrazine at 1:19 AM on August 13, 2008

Very good article, some thoughts to add.

If you define work to mean 'The expenditure of energy to the benefit of others that cannot be achieved by machinery and automation' then surprisingly few people work.

The real economy is design it, build it, then deliver it. (I include growing within the category of building) The rest is information such as, what do you want, where do you want it? Is the quality good? What is it's cost

There is a difference between wisdom and intelligence, intelligence is how and wisdom is why.

Ignorance is to innocence what confidence is to arrogance.

BTW a dollyknot is a truck drivers knot.
posted by dollyknot at 3:58 AM on August 13, 2008

If the US federal government is already showing favoritism to the lobby by preventing drug imports, what makes you think any nationalized healthcare plan wouldn't also turn into a transparent giveaway?

Such an objection is not specific to any suggestion I made. If the government is stealing from the people, any system will fail. One shouldn't give up on the idea of improving the system on that basis.
posted by lupus_yonderboy at 9:05 AM on August 13, 2008

Sorry I didn't make it more clear lupus, but that was an objection to your idea that giving the federal government more control over drug pricing would lower costs. In reality, the government's import blocks are completely responsible for effecting the artificially high cost of drugs here. In this light I think it's realistic to distrust any measure that puts price controls entirely into the government's hands.

I think a much better solution would be repealing the trade barrier and letting people buy from the world market; this would have the side effect of raising drug prices in Canada and Mexico, but so would any solution that actually lowered US prices.

As for nationalized healthcare, I'm not saying it can't work, but I just think resolving the drugs issue will be the most critical step to success. And I'm frustrated that most of the talk about this issue is politicized between poles of faith and pessimism without a more cautious look at the unique situation of the US. It's kindof a facile analogy, but building a snowman in Canada or Iceland is different from building one in Texas.
posted by kid ichorous at 10:17 AM on August 13, 2008

"all spending is not the same. Consumption is not the same as investment and/or saving.

Not understanding that, in fact, is slowly killing us."

I'm sorry, how am I supposed to take you seriously here when you argue that saving is spending? Or: Of course consumption isn't the same as investment and/or saving. When you save, you explicitly have access to that capital. When you spend, you've exchanged that capital for a good.

And, in terms of using the amount of money in exchange as a proxy for economic health, all spending pretty much is the same.
posted by klangklangston at 10:18 AM on August 13, 2008

It's the difference between buying tanks and tractors, klangklangston. By your measure, that's the same thing. By any kind of real economic measure, tractors are far preferable.

Buying something to make money -- with which you will be productive -- is enormously superior to buying something to play with. Wii sales are not as good as drill sales. In fact, when it's debt driving the purchases, Wii sales are actively bad for the long-term health of the economy. Incurring debt for the purchase of consumption items is never a good idea.

Nearly all of our 'economic growth' has been fueled by debt, and much of it has been frittered away and wasted on useless consumer crap. We're not going into debt to build factories, we're going into debt to buy big-screen TVs. From an economic standpoint, it's a freaking disaster.

This author is correct that a very great deal of our economic growth is illusory bullshit. The "assets" we've picked up are crap, but the debts are real.
posted by Malor at 12:18 AM on August 15, 2008 [1 favorite]

Ignorance is to innocence what confidence is to arrogance.
can anyone explain this? i'm not sure how confidence is related to arrogance - perhaps if you are over-confident you might tend to be arrogant? so if you are over-ignorant you might tend to be innocent? that doesn't seem to make much sense. innocence is an inherent state that can only be lost, while arrogance is an attitude that could vary. nothing seems to fit together.
posted by not sure this is a good idea at 5:53 AM on August 15, 2008

As for nationalized healthcare, I'm not saying it can't work, but I just think resolving the drugs issue will be the most critical step to success. And I'm frustrated that most of the talk about this issue is politicized between poles of faith and pessimism without a more cautious look at the unique situation of the US. It's kindof a facile analogy, but building a snowman in Canada or Iceland is different from building one in Texas.
posted by kid ichorous at 1:17 PM on August 13

Yes, it is a facile analogy, and a completely invalid one. Single payer state-based healthcare functions quite well in warm climates as well as cold ones.

Now, there are factors which make health care (private or state-based) more expensive to provide. For example, low population density can make it difficult to provide full services to small, remote communities without either the patient or the health care provider (and all of his/her equiptment) travelling great distances. Given that they are quite close to being the same size, which would you say has a higher population density, the United States (300,000 million people) or Canada (30 million)? Which has a more extreme climate in its remote regions? Which has fewer roads?

Now, population size might be a problem - providing health care to 10 times as many people sounds much more difficult. Of course, more people also mean there are already more doctors, more hospitals and more taxes to provide for healthcare (proportional to the population), and higher population density (which makes it easier to provide healthcare). What about coordinating across such a large and diverse population? It's true that I don't know of a country of a similar size with universal healthcare, but already those healthcare programs which are being established have been done on a state by state basis, and I doubt you are going to argue that there are many American states which are larger or more diverse than Britain (60 million people, 3 countries and a province, two of which try to break away periodically, at least 2 official languages (not counting Brummie), immigration rate similar to the United States).

Or are you arguing that the United States is unque in having so many firearms, and thus so many more gun-shot victims? Well, I do believe Israel also has a fair number of guns and problems with gun violence.

I've actually lived in the United States, Canada and Britain, and seen first hand and been a patient in three different health care systems (2 single-payer but quite different state systems, one private system with heavy public subsidies trying to make up for all the failures of the private system), as well as reading epidemiology articles and stats for fun -- and I would say, yes, the US is a unique snowflake of a country. (Just like every other country on the planet).

For one thing, only the US seems to have a very powerful health insurance and private health providers lobby which is actively against state-based healthcare (Canada and Britain only have small health insurance lobbies).

The United States does have a relatively short patent protection period for drugs compared to other countries, which is the reason why patented drugs cost more money; the companies are trying to make as much profit as they can before the generics come on the market. This is something any attempt to reform drug prices in the United States will have to take into account.

And, of course, the United States has a middle and upper class who have been (until recently) largely unaffected by the inequalities of their health care system, and ignorant of its great inefficiencies (much higher administrative costs, more money spent per person than just about anywhere in the world but poorer health outcomes than most other developed countries). These politically powerful classes see themselves as potentially losing in any transition (and all transitions are difficult), and are frightened of change. Well, the upper class (bigger than you expect) do have something to lose; they might have to wait for non-urgent procedures with everyone else. But the middle classes, even those well above the median for household income, would have a lot to gain, as the rising costs of private healthcare is one of the leading factors in making middle class household budgets much more precarious today than they were 30 years ago.

Okay, the point (of this longer than I expected comment) is that people are not talking about universal state-based health care from a position of faith. We've LIVED it, many experts have STUDIED it, and it's WORKING elsewhere in situations very similar to or even more challenging than the situation in the United States. Unless it's an article of faith for you that all public hospitals should actually be igloos. Personally, in Canada, we tend to make them of concrete reinforced by steel, with glass windows and both heating and air-conditioning (because our weather goes from 40 degrees below freezing (C or F) to 40C or 100F above).

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Back to the original article - I think that at times the thinking was a bit fuzzy, but the original point stands - GDP is a sucky measure, and priviledges all economic growth over other good things in society. It's like feeding your kids nothing but starches, because that's what makes them grow the most, and wondering why they aren't healthy. (To finish on a facile analogy). But then again, I've been saying for years that the invisible hand does work, but we might not want what it's working towards.
posted by jb at 6:44 AM on August 15, 2008

"It's the difference between buying tanks and tractors, klangklangston. By your measure, that's the same thing. By any kind of real economic measure, tractors are far preferable."

You're conflating spending with investment, conflating private purchases with government investment, and making a whole raft of assumptions regarding the future utility of purchases. In terms of circulating money, a tank and a tractor are exactly the same. That's what the GDP measures.

Buying something to make money -- with which you will be productive -- is enormously superior to buying something to play with. Wii sales are not as good as drill sales. In fact, when it's debt driving the purchases, Wii sales are actively bad for the long-term health of the economy. Incurring debt for the purchase of consumption items is never a good idea.

Sez you. If I buy a drill, I'll be just as "productive" with it as if I'd bought a Wii—I might save myself a little time over my screwdriver or split fewer boards, but there's nothing I'd sell out of either. And when it's debt driving both purchases, they're the same. You can't invent negative attributes for one purchase in order to bolster your case.

Nearly all of our 'economic growth' has been fueled by debt, and much of it has been frittered away and wasted on useless consumer crap. We're not going into debt to build factories, we're going into debt to buy big-screen TVs. From an economic standpoint, it's a freaking disaster.

Except to people who build and sell big screen TVs. Which if you want to make some sort of nationalism argument about where those factories are, fine, sure, go for it. But realize that's orthogonal to GDP.

This comes down to the same thing that was wrong with the article—People are prioritizing things that you disagree with. But what, every consumer should be forced to only buy things they're productive with? That's retarded. And it's their money, so it's their choice.

This author is correct that a very great deal of our economic growth is illusory bullshit. The "assets" we've picked up are crap, but the debts are real.

That's for the people who buy things to decide. If they're happier with a Wii than with a drill, then their utility has been higher with the Wii. And in terms of the money put into the GDP, they're exactly the same.

Again, this is stuff that's pretty simple. Think of GDP as, say, batting average. Will the batting average tell you roughly how good a batter is at getting hits? Yeah. Is it a great predictor or a measure of overall run production or how many wins that baseball player will be worth over a season? No. There are better metrics, like OBP and OPS that get closer, and even more complicated formulas for Wins Above Replacement Value.

GDP is like the consumer price index or the Dow Jones Index—a broad and imprecise measurement that only gives us a general indication of the economy. Trying to cobble together specifics from it is foolhardy, just like trying to make predictions from the consumer price index or Dow Jones average. But in terms of showing economic activity, it's decent—it shows how much money is being exchanged for goods of any kind (not just the ones you like, not just the ones that folks on Free Republic like, not just what Paris Hilton likes).

And regarding whether all purchases are the same, you should look up fungibility again. You seem to have forgotten it.
posted by klangklangston at 8:47 AM on August 15, 2008

JB, I was actually talking specifically about drugs, and saying that the lobbying power of the pharmaceutical industry will make nationalized healthcare difficult to realize in the US. I even said as much as that in the section of my post that you quoted. This, and the particular venality of the US legislative process, and the hold Pharma has over the FDA and the USPTO, pose a unique situational challenge to nationalized healthcare.

You can ignore this and talk about roads, population density, firearms, and climate, which are all fine, but you're not actually addressing my point of concern.

The United States does have a relatively short patent protection period for drugs compared to other countries, which is the reason why patented drugs cost more money; the companies are trying to make as much profit as they can before the generics come on the market.

I don't think this is true. As I understand it, Canadian drug patents are 20 years, US drug patents 14 plus a 5 year extension for trials, for a total of 19 years. This one year doesn't explain such significant differences in price between the US and every other country on earth nearly so well as the FDA's restriction of imports, which allows drug companies to freely price fix within the US.

From Slate:

A Canadian law authorizes a review board to order a price reduction whenever the price of a drug exceeds the median of the prices in six European countries plus the United States. Since all the European countries intervene in various ways to hold down drug costs, Canada in effect piggy-backs on other countries' price controls.

In other words, Canadian drug prices are pegged to an index of European prices. If the US could work out a similar model of indexing against the international market, I think we'd be fine. My concern is that Pharma, seeing the US as their last cash cow, would do everything in their power never to let this happen, the same way they've propped the FDA trade imports up all these years.

A nationalized US healthcare without legal drug imports or some kind of sane, uncompromised price control system would be a dream for Pharma. They'd bilk it for all it was worth.
posted by kid ichorous at 11:12 PM on August 15, 2008

Just to post one example - the patent-protected drug Nexium is actually nothing more than an isomer (a mirror-image) of the generic drug Omeprazole. Omeprazole actually contains both Nexium and the mirror image of the molecule.

This didn't stop AstraZenica from repatenting Priolsec in the US as Nexium when the original patent was running out, and subsequently advertising it as some sort of new drug, enticing people to switch from cheap generics to an expensive new hotness, which, on a molecular level, is the same damn thing.

If the USPTO is already so corrupt that it will grant patents for the same drug twice, imagine what AstraZenica's lobby could do if the US government were buying PPIs in bulk.

This could all be fixed if drugs could be imported freely, because bad patents and bad legislative decisions could be countered by importing from a country with better prices. Tamper with the US market and we'll be buying from Europe, which means you've now tampered with Europe's prices too - this old divide-and-conquer approach will no longer work.
posted by kid ichorous at 11:34 PM on August 15, 2008

I'm sorry if I misunderstood you, but your "unique situation" line made me see red. I have met so many people who have made spurious and patently false arguments that the US is somehow innately different (bigger, more diffuse, more diverse) - and I was trying to point out that the difference is mostly the strength of the private health care lobby.

So, we actually agree on the lobbying situation - and it's not just the drug lobby, but the entire health care industry lobby (hospitals, for example, have their own lobbies). And I certainly wouldn't argue that the American patent system is sane, and your trademark system is worse. But I had read in an article that the pharmaceutical companies themselves say that the reason they charge more for drugs in the US is partly due to the fact that the patent period is shorter than in many other places, and thus they looked for more short term profits than elsewhere.

That said, it's still no argument against nationalised health care, which could be provided with or without drug benefits -- Ontario provides no drug benefits, except for over 65s and those on benefits, which the US already does provide.

Though it's sad that you assume that the US government is so innately weaker than those in other countries, who have successfully negotiated with pharmaceutical producers. Militarily, there are few who could stand against the US, but the US runs in the face of a few lobbyists in nice suits with some free travel mugs to give away. Maybe your system (individual campaigns for all congressmen and senators, heavy spending on tv ads in the name of "free speech") is broken. The best thing to do would be to ban privately purchased political tv ads, like Britain has -- which would have two benefits: reducing the spending on campaigns and thus the power of lobbyists, and putting an end to the aesthetically offensive campaign ads you are plagued with.
posted by jb at 8:18 AM on August 16, 2008

Thanks for the response, JB, I just wanted to make sure my point was clear. I kinda saw red myself when you said that higher American prices came from the shorter patent terms (by 1 year), because only pharma would make that argument. :P

That said, it's still no argument against nationalised health care, which could be provided with or without drug benefits -- Ontario provides no drug benefits, except for over 65s and those on benefits, which the US already does provide.

That's surprising, since Canada has its act together on drug pricing. I wouldn't be opposed to nationalized health care with drugs in the US provided we could re-create the Canadian price index.
posted by kid ichorous at 9:18 AM on August 16, 2008