‘WHAT’S in a name?’ Shakespeare asked. But hey, I’m an economist, so let me ask a somewhat different question: What’s in a number?
Quite a lot, suggest United States senators Chuck Schumer and Martin Heinrich. They introduced a bill that would direct the Bureau of Economic Analysis, which produces estimates of gross domestic product (GDP), to produce estimates telling us who benefits from growth — for example, how much is going to the middle class.
This is a really good idea.
Now, I’m not one of those people who think GDP is a terribly flawed or useless number. It’s a number we need for many purposes. But on its own, it isn’t an adequate measure of economic success.
There are a number of reasons this is true, but one key issue is that it tells you only what’s happening to average income, which isn’t always relevant to how most people live. If Amazon boss Jeff Bezos walks into a bar, the average wealth of the bar’s patrons suddenly shoots up to several billion dollars, but none of the non-Bezos drinkers has got any richer.
There was a time when asking who benefits from economic growth didn’t seem urgent, because income was rising steadily for just about everyone. Since the 1970s, however, the link between overall growth and individual incomes seems to have been broken for many Americans. On one side, wages have stagnated for many; adjusted for inflation, the median male worker earns less now than he did in 1979. On the other side, some have seen their incomes grow much faster than the income of the nation as a whole. Thus CEOs at the largest companies now make 270 times as much as the average worker, up from 27 times as much in 1980.
A similar disconnect between overall growth and individual experience seems to lie behind the public’s lack of enthusiasm for the current state of the economy and its disdain for the 2017 tax cut. GDP numbers have been good in recent quarters, but much of the growth has gone to soaring corporate profits, while median real wages have gone nowhere.
But how do facts like these fit into the overall story of economic growth? To answer this question, we need “distributional national accounts” that track how growth is allocated among different segments of the population.
Producing such accounts is hard but not impossible. In fact, economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman have produced estimated accounts with considerable detail over the past half century. The main message is one of growth going disproportionately to the top and not shared with the bottom half of the population, but there are also some surprises in the other direction. For example, the middle class, while still lagging, has done better than some common measures indicated, thanks to fringe benefits.
But there’s a big difference between estimates produced by independent economists and regular reports from the United States government, both because the government has the resources to do the job more easily, and because people (and politicians) will pay more attention.
That’s why the Washington Centre for Equitable Growth, a progressive think tank, has been campaigning for something like the Schumer-Heinrich bill.
So why not do this?
Some might argue that creating distributional accounts is tricky, that it requires making some educated guesses about how to pool different sources of information.
But that’s true of the process used to create existing national accounts, including estimates of GDP. Economic numbers don’t have to be perfect or above all criticism to be extremely useful.
In a reasonable world, then, something like the Schumer-Heinrich bill would become law in the near future. In the real world, of course, the proposal will go nowhere for the time being, because Republicans don’t want anyone to know what distributional national accounts might reveal. --NYT