GDP

1
GDP Beyond Measuring Economic Progress
Sustainability
COPAFS September 11th, 2009
2
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

3
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

4
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

5
What Can We Do Within The NIPAs Economic
Progress Sustainability

• Measures of Economic Progress
• Households
• Regions
• Business
• Measures of Sustainability
• GDP
• Investment
• Asset Prices
• Leverage

6
Real GDP, Real DPI Real Compensation
7
Household Income Alternative Estimates
8
Spendable Income Cash Measures
9
Regional Household Income
Adjusting for regional price differences
Source BEA Regional data.
10
Regional Household Income
Impact of classifying retirement income in state
of residence
Source BEA Regional data.
11
Sustainability

• Measuring Sustainability
• Long-Term
• Examples from Recent Experience

12
Business Income Real GDI NDI
Source BEA NIPA data
13
Business Income Real Gross Net Domestic
Investment
Source BEA NIPA data
14
Housing Personal Income
Ratio of Residential Fixed Investment to Personal
Income
Source BEA NIPA data Federal Reserve Board
Flow of Funds data
15
Equity prices, NIPA profits GDP
Source BEA NIPA data, Standard and Poors data
16
Household asset values savings
Source BEA NIPA data Federal Reserve Board
Flow of Funds data
17
Business Sector Leveraging
Source BEA/FRB Integrated U.S. Macroeconomic
accounts
18
Missing the Mark
19
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.