Let's say you need a vehicle and you're in the market for a low-mileage used car. The salesman takes you to a sporty-looking model and assures you that it gets unbelievable gas mileage". The odometer reading seems to confirm that the car was only used by its little old lady owner to drive to church on Sundays. The upholstery looks almost new. Or... wait... maybe it IS new.
You take the automobile out for a spin. There's a few worrisome squeaks and rattles and the suspension feels a bit mushy. As you drive along a rough stretch of road under construction, you notice that the numbers on the odometer seems to be wobbling back and forth. Then, when you take it out on the freeway, the odometer begins to actually go backward, unwinding a kilometre for every kilometre you travel. You take the car back to the lot, hand the keys to the salesman and walk away.
With the economy, it's not that easy. We're stuck with it. So it's important to find out what is wrong with it and fix it. The GDP is the economy's odometer. The broken odometer goes "backward" when it should be going forward; the faulty GDP adds value when no value has in fact been added. It's called "asymmetric entering." The GDP has long been criticized for not subtracting "bads", such as the effects of environmental pollution, crime or social disintegration. But that would be hard to do. How do you put a price tag on an oil spill or an increase in green house gases? The technical, accounting problem with GDP is that is does add the cost of fixing or cleaning up the environmental disaster. Sure, it's important to do the clean up but it doesn't make things better than they were before the problem happened.
But that's not the worst part. The worst part is that the faulty accounting creates financial incentives to neglect prevention, regulation and the internalization of the social and environmental costs of industrial activity. Yes, indeed, boys and girls, it is GOOD for the economy when that odometer runs backward! Or at least that's what the economists assume. Growth is good! (Just don't look under the hood). Of course just fixing the GDP isn't going to fix all the problems with the economy, but it's the necessary first step to identifying what else needs to be done.
So how do you fix the broken GDP? The GDP is a social accounting indicator. You fix it by using an authentic social-accounting framework instead of the slick siphons and gimmicks invented by military-industrial complex enablers and supply-side snake oil salesmen. It's not rocket science. Just plain common sense economics like the original architects of national income accounts, such as Simon Kuznets, Jan Tinbergen or John Maynard Keynes used back in the day. John Maurice Clark in the 1920s and Karl William Kapp in the 1950s and 1960s clearly articulated what such a social accounting framework should look like. Roefie Hueting, who collaborated with Tinbergen on development of the first environmentally-sustainable national income accounting systems, is an important contemporary source.
In Chapter Four of Jobs, Liberty and the Bottom Line, I outline a social accounting framework based on Clark's and Kapp's work and propose an institutional innovation, the labor commons union, to implement such a framework. The book begins with an account of the 1871 Engineers' Strike for the nine-hour day in Newcastle, England and draws four crucial lessons from that episode. As usual, I would welcome any comments, suggestions or questions you may have about the analysis in the book.
- Jobs, Liberty and the Bottom Line
- Time on the Ledger: Social Accounting for the “Goo...
- Intermediate Goods and Duplication
- The Long Term Problem of Full Employment
- The Source and Remedy of the National Difficulties...
- Grundrisse: "Capital (like property) rests on prod...
- Economic and Philosophical Manuscripts of 1844: "W...
- McCulloch on Combination Laws
- Submission to the White House Task Force on Middle...
- Thinking Along the Right Lines
- The Problem with "The Problem of Social Cost"
- State and Prospects of Manufactures