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GDP & Beyond:
Measuring Economic Progress &
Sustainability
COPAFS
September 11th, 2009
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Long Standing Issue
▪
Kuznets original concerns regarding the scope of the original accounts
▪
"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…
▪
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."
-- Robert F. Kennedy Address, University of Kansas,
Lawrence, Kansas, March 18, 1968
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Long Standing Issue
▪ “The success of our economy has always
depended not just on the size of our gross
domestic product, but on the reach of our
prosperity; on the ability to extend opportunity
to every willing heart -- not out of charity, but
because it is the surest route to our common
good.”
-- President Barak Obama, Inaugural Address,
Washington D.C., January 20, 2009
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Long Standing Issue
▪ “The big question concerns whether GDP provides a
good measure of living standards. In many cases, GDP
statistics seem to suggest that the economy is doing far
better than most citizens' own perceptions. Moreover, the
focus on GDP creates conflicts: political leaders are told to
maximize it, but citizens also demand that attention be
paid to enhancing security, reducing pollution, and so
forth - all of which might lower GDP growth.
▪ The fact that GDP may be a poor measure of well-being, or even of
market activity, has, of course, long been recognized. But changes in
society and the economy may have heightened the problems, at the
same time that advances in economics and statistical techniques may
have provided opportunities to improve our metrics.”
-- Joseph Stiglitz, Economist.com, September 10th 2009
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What Can We Do Within The NIPA’s: Economic
Progress & Sustainability
▪ Measures of Economic Progress:
 Households
 Regions
 Business
▪ Measures of Sustainability:




www.bea.gov
GDP
Investment
Asset Prices
Leverage
5
Percent
Real GDP, Real DPI & Real Compensation
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
2.4
2.7
2.1
0.4
-1.0
Avg. growth, 2000-2007
Real GDP
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0.5
Real Disposable Personal Income
2008
Real Compensation
6
Household Income: Alternative Estimates
3.0
2.5
2.7
2.4
2.0
1.8
1.5
1.5
Percent
1.0
0.4
0.5
0.5
0.0
-0.5
-0.4
-1.0
-1.5
-1.4
-2.0
Avg. growth, 2000-2007
Real GDP
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Real DPI
Real DPI per capita
2008
Real DPI less transfers per capita
7
Spendable Income: Cash Measures
2.0
1.8
1.5
1.5
1.1
Percent
1.0
0.5
0.0
-0.5
-0.4
-0.5
-1.0
Avg. growth, 2000-2007
Real DPI per capita
www.bea.gov
Real Compensation per worker
-0.7
2008
Real Wages per worker
8
Regional Household Income
Adjusting for regional price differences
10,000
8,000
7,423
6,000
$ Difference
4,000
2,000
0
-2,000
-4,000
-6,000
-8,000
-7,403
-10,000
West Virginia
New York
Source: BEA Regional data.
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Regional Household Income
Impact of classifying retirement income in state of residence
14.0
12.5
12.0
10.0
$ Difference
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-4.7
-6.0
Florida
Maryland
Source: BEA Regional data.
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Sustainability
▪ Measuring Sustainability:
 Long-Term
 Examples from Recent Experience
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Business Income: Real GDI & NDI
2.5
2.2
2.0
2.0
Percent
1.5
1.0
0.5
0.0
-0.5
-0.4
-1.0
-0.9
-1.5
Avg. growth, 2000-2007
2008
Real GDI
Real NDI
Source: BEA NIPA data
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Business Income: Real Gross & Net Domestic
Investment
5.0
1.5
0.0
-1.9
Percent
-5.0
-5.5
-10.0
-15.0
-20.0
-21.9
-25.0
Avg. growth, 2000-2007
Real Gross Domestic Invest.
2008
Real Net Domestic Invest.
Source: BEA NIPA data
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Housing & Personal Income
Ratio of Residential Fixed Investment to Personal Income
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
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70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
0.0
www.bea.gov
Source: BEA NIPA data & Federal Reserve Board Flow of Funds data
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Equity prices, NIPA profits & GDP
100
90
80
1 9 49 =1
70
60
50
40
30
20
10
0
1 949
195 4
1959
19 64
Nom inal GD P
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1 969
1974
19 79
"S& P clos ing prices"
Source: BEA NIPA data, Standard and Poor’s data
19 84
1989
199 4
1999
2004
Dom estic P rofits from C urre nt Pdn.
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Household asset values & savings
65000
1.60
60000
1.40
55000
Billions of dollars
45000
1.00
40000
35000
0.80
30000
0.60
25000
0.40
20000
15000
Index, 80Q1:1.00
1.20
50000
0.20
10000
0.00
5000
-0.20
80
Q
81 1
Q
82 1
Q
83 1
Q
84 1
Q
85 1
Q
86 1
Q
87 1
Q
88 1
Q
89 1
Q
90 1
Q
91 1
Q
92 1
Q
93 1
Q
94 1
Q
95 1
Q
96 1
Q
97 1
Q
98 1
Q
99 1
Q
00 1
Q
01 1
Q
02 1
Q
03 1
Q
04 1
Q
05 1
Q
06 1
Q
07 1
Q
08 1
Q
1
0
Net worth
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Personal savings rate
Net worth as % of DPI
Source: BEA NIPA data & Federal Reserve Board Flow of Funds data
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Business Sector Leveraging
1.20
1.15
1.10
1.05
1.00
0.95
0.90
0.85
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70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
0.80
Financial Business TL / TA
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Source: BEA/FRB Integrated U.S. Macroeconomic accounts
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Missing the Mark
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What Else Should We Highlight?
▪ The thrust of the Economist cover story
(and others like it) is that economists
failed to adequately incorporate risk and
the financial sector into their models of
the real economy
▪ We need to provide them with the
toolkit to help do that.
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