6 votes

G.D.P. doesn’t credit social distancing, but it should

7 comments

  1. skybrian
    Link
    It seems like changing the definition of GDP would just be a fig leaf that doesn't do anything. The best way to get people to stay home and show that this is valued would be to pay them to do it.

    It seems like changing the definition of GDP would just be a fig leaf that doesn't do anything. The best way to get people to stay home and show that this is valued would be to pay them to do it.

    6 votes
  2. [6]
    patience_limited
    Link
    From the article: ...

    From the article:

    The United States is in a deep recession, but the official numbers are missing something big.

    They don’t reflect the immense value of the sacrifices being made by millions of people who have stayed at home to stop the spread of the coronavirus.

    Because we don’t charge one another for saving lives, one of the most herculean efforts ever undertaken isn’t being counted in gross domestic product. But if you stop and think about it, you will see that this is a critical omission.

    If the lives that we are saving through social distancing are more valuable than whatever we were each doing last quarter, then the true value of our collective output must have risen. Unfortunately, the official measure of gross domestic product takes a much more limited view of what counts as “output,” and it hides this progress.

    ...

    G.D.P. rose in World War II largely because it counted the efforts of the soldiers as an addition to the nation’s output. In the dry parlance of national accounting, the soldiers produced “defense services.”

    Today’s war against the coronavirus is following a closely related script, in that millions of people have been asked — in many cases forced — to abandon their jobs to fight a common enemy. Just as soldiers were paid for their service, the government today is paying millions of people pandemic unemployment assistance for their service in reducing workplace-related transmission of the virus.

    But an arbitrary distinction changes how these battles are scored in the national accounts. During World War II, the wages paid to American soldiers were added to G.D.P. During this pandemic, the equivalent battle pay is disbursed through the unemployment insurance system. An accounting convention classifies these as “transfer payments” — mere shifts without productive value from one set of Americans to another — which means they’re not counted toward G.D.P.

    This doesn’t change the reality that in the war against the coronavirus, people who are staying home are producing valuable “public health services,” much as soldiers produce “defense services.” Indeed, if we paid them through the government payroll rather than the unemployment insurance system, the same accounting conventions would suddenly count that money toward G.D.P.

    1 vote
    1. [5]
      AugustusFerdinand
      Link Parent
      No. GDP rose in WWII because government expenditures, including salaries, are counted in the GDP and during WWII defense spending rose to 40% of GDP. This has nothing to do with "defense...

      G.D.P. rose in World War II largely because it counted the efforts of the soldiers as an addition to the nation’s output. In the dry parlance of national accounting, the soldiers produced “defense services.”

      No. GDP rose in WWII because government expenditures, including salaries, are counted in the GDP and during WWII defense spending rose to 40% of GDP. This has nothing to do with "defense services", it just has to do with who is paying people.

      Examples:

      Scenario 1. ExxonMobil spontaneously hires an unemployed petroleum engineer for $100K per year. She spends a year looking for new oil, she finds nothing.

      Scenario 2. The federal government spontaneously hires an unemployed petroleum engineer for the same $100K. She spends a year looking for new oil, finds nothing.

      Scenario 1 has zero impact on GDP. No oil to sell=no extra consumer purchases=no extra GDP. Salaries paid by private entities are not counted in GDP.

      Scenario 2 raises GDP by $100K. Government consumption expenditures includes compensation of employees and is counted in the GDP. Hiring a worker who (through no fault of her own) accomplishes absolutely nothing, but raises GDP if the government does the hiring.

      So if a private sector product spends years in the incubator, burning through thousands of person-hours of work and millions of dollars of salary–but never sees the light of day–then the product never shows up in GDP. But if the government had hired those same workers who worked just as long on a similarly fruitless project, their labor would give a big boost to GDP. Whenever possible, the GDP should be kept as a measure of genuine arms-length, market-test-passing purchases of goods and services.

      Social distancing is neither a good nor a service.

      3 votes
      1. [4]
        patience_limited
        Link Parent
        You're positing an inaccurate analogy. You've explained the GDP rationale as it exists, not as it should if it purports to capture the value of national economic activity. The author is suggesting...

        You're positing an inaccurate analogy. You've explained the GDP rationale as it exists, not as it should if it purports to capture the value of national economic activity.

        The author is suggesting that social distancing, like military activity, is a form of loss prevention labor from which the economy as a whole derives benefit.

        GDP, as a very general aggregate measure, has historically ignored or taken for granted many goods and services which don't directly increase revenues, but sustain the existence of economic activity. [Natural resources, child-bearing and household labor come to mind immediately.]

        Economies are made of human transactions - reduce the number of humans or impair their abilities to produce or exchange goods and services, and the scale of loss becomes incalculable quickly.

        Whenever possible, the GDP should be kept as a measure of genuine arms-length, market-test-passing purchases of goods and services.

        This is a statement of ideology; it's equally valid to assert that GDP should reflect economic activity holistically, not simply as a function of likewise ill-defined market tests.

        I'm not trying to extend this as far as claiming, say, that keeping people breathing is an economic service because they're exhaling CO2 as an agricultural input. But when we incorporate outputs, for example, of military goods in GDP, where those goods don't contribute to ongoing economic productivity or sustenance, we're inviting the classic broken window fallacy.

        3 votes
        1. [3]
          AugustusFerdinand
          Link Parent
          Yes, I deal with realism, not idealism. Even if the current model is flawed, no argument there, adding incalculable efforts like author posits doesn't help but to artificially inflate the GDP...

          Yes, I deal with realism, not idealism. Even if the current model is flawed, no argument there, adding incalculable efforts like author posits doesn't help but to artificially inflate the GDP further. We shouldn't count social distancing just because the powers that be decided to count military services. There is no "economic activity" in social distancing.

          3 votes
          1. NaraVara
            Link Parent
            I think you two are talking past each other a bit. The article's main contention is basically that GDP, as an accounting unit, doesn't reflect many forms of welfare-improving activity. Pointing...

            There is no "economic activity" in social distancing.

            I think you two are talking past each other a bit. The article's main contention is basically that GDP, as an accounting unit, doesn't reflect many forms of welfare-improving activity. Pointing out why certain things aren't reflected in the accounting is kind just restating the point.

            8 votes
          2. patience_limited
            Link Parent
            I don't want to conflate social distancing with lockdowns or actual quarantine, either. For many professions, it's possible to engage in nearly normal levels of productive activity, and maintain...

            I don't want to conflate social distancing with lockdowns or actual quarantine, either.

            For many professions, it's possible to engage in nearly normal levels of productive activity, and maintain nearly normal levels of consumption (excluding restaurants, bars, mass public entertainment, etc.) while masking and maintaining distance in public.

            Lockdowns are variable, but I agree that fully closing most public-facing businesses should have a negative impact on GDP as those services aren't being created or consumed.

            True quarantine means no public labor or consumption for the people affected. The proportion of people forced into quarantine remains relatively small, and they're often too ill to have contributed to GDP. The irony is that hospitalizing and burying them does get incorporated in GDP.

            2 votes