On Feb. 4, President Donald Trump addressed Congress about the state of the union, touting familiar figures illustrating the strength of the U.S. economy. The GDP was moving up, the stock market continued to soar and unemployment was low. The president’s conclusion: Based on the standard metrics, American workers were better off than ever. But as we have witnessed in the weeks since that speech, this economic well-being was an illusion because our normal economic metrics — metrics that some have questioned for years — are flawed.
A few months ago, New York Times’ opinion columnist David Leonhardt described why many economists did not view the GDP as a valid measure of well-being because “an outsized share of economic growth flows to the wealthy.” He noted that, since 1980, incomes for the top 10% have spiked while incomes for the rest of wage-earners have fallen behind the economic growth of the nation as a whole.
Others have pointed out that the GDP is flawed for another reason: It fails to distinguish how money is spent. For example, on a personal level, the GDP makes no distinction between money spent for vacations or money spent on medical bills, or between groceries and dining out in a restaurant. On a national level, the GDP makes no distinction between the money our government spends to wage wars or the money our government spends for infrastructure: A dollar spent for armaments and a dollar spent on stores of emergency medical equipment both add equally to the GDP. If the GDP rises because we spend money arming other nations, the state of the economy is improved. The well-being of citizens? Not so much.
The stock market boom was similarly touted as good news for the economy. But, like the GDP, a rising stock market does not mean an improvement in the overall well-being of citizens. According to Gallup, about 55% of Americans own stock — largely because of 401(k) programs — which sounds egalitarian. But that data point masks the wealth differential in our country today. According to the Financial Times, the richest 1% of Americans now own almost 50% of stock market wealth. The burgeoning stock market is good news for those relative few, but it means little to those whose jobs were outsourced to foreign countries in the name of corporate profits.
The lower unemployment rate has also been used as evidence that the economy is sound, but it, too, has not been good news for everyone. A recent Forbes article by Steve Denning, “Understanding the U.S. Economy: Lots of Rotten Jobs,” describes one inherent flaw in using employment data to measure the well-being of workers: The numbers don’t differentiate between low-wage jobs with irregular hours and few or no benefits and higher-wage jobs that provide sufficient income to live on. He noted that the “leisure and hospitality” sector showed the fastest growth in our economy, with jobs in that sector averaging $16.58 an hour for a typical work week of 25.8 hours. That works out to about $428 a week, or $22,256 a year. The challenge of living on that wage is immense, but it does count as a job in the employment data. Worse, as a result of COVID-19, nearly all of those kinds of jobs have disappeared.
And unemployment statistics have an even bigger flaw: They do not account for the more than 95 million capable workers who have abandoned the job market altogether.
While the COVID-19 pandemic has laid bare the inherent flaws in the metrics we use to determine the state of our union, it has also given us a once-in-a-lifetime opportunity to reset the way we look at and measure our economy. But this opportunity will be squandered if our ultimate goal is to “return to normal” — a “normal” where 90% of the workforce saw wages stagnate over the past 40 years; where the richest households own most of the stock market wealth; where millions of people have given up looking for work and millions more are working at “rotten jobs.”
Instead, we need to begin measuring our economy in ways that ensure it is creating well-being for all citizens and for the planet we all share. As the famous maxim has it: “What gets measured gets done.” With that in mind, I suggest four metrics that could guide us to a new and better “normal.”
■ Social Progress Index: Developed by economists Amartya Sen, Douglass North, and Joseph Stiglitz, this index measures the well-being of a society by observing social and environmental factors such as health, shelter, sanitation, equality, inclusion, sustainability, security and personal freedoms.
■ Genuine Progress Indicator: This metric, based on the Index of Sustainable Economic Welfare developed in the late 1980s and first studied at the state level in Vermont in 2004, uses some GDP data as a baseline. But it separates those activities that diminish well-being, such as pollution and crime, from activities that help enhance it, such as volunteer work and maintaining a household.
■ Underemployment Rate: Underemployed workers fall into two categories — those who are highly skilled but working in low-paying or low-skill jobs, and part-time workers who would prefer to have full-time employment.
■ Full-time Quality Employment: Such a metric would report on the percentage of the workforce employed in full-time, year-round jobs that offer health benefits, paid leave and predictable schedules.
If we change the metrics we use to measure the economy, we can improve the quality of life for millions. If using a crisis like the COVID-19 pandemic to do this seems idealistic, keep in mind that the country’s efforts to respond to the Great Depression gave us the five-day, 40-hour work week, Social Security, child labor laws and international alliances that ultimately brought an end to World War II. We changed “normal” before; we can do it again. We should seize the opportunity we have before us.
Wayne Gersen lives in Etna.