Plutocracy versus democracy:
How the GDP misleads everybody

Here's the word every American needs to learn -- plutocracy.

It means government by the wealthy.

I bring this up after seeing a poll on CNN where more and more Americans are believing the rich are get richer and that the middle class is getting the shaft. It's not exactly an Earth-shaking concept, but what's notable is how the notion is gaining currency among citizens at large.

There's a sense of quiet bewilderment today as people contemplate globalization and outsourcing and all the other standard-of-living erosions. There's an accompanying question, too. How could this be happening?

Well, here's one way to explain; not exactly in how its happening, but in how public opinion has been kept at a simmer instead of a boil.

Let's look at the GDP.

***

Economic growth, as touted by politicians and reported by the press, is measured by the Gross Domestic Product, the sum total of all goods and services. Despite its wide acceptance, the GDP, a production yardstick developed during World War II, was never intended for use as a general economic barometer.

Consider, for instance, a broken window. You go out and replace the window. To the GDP, the world is one window better, when, obviously, it's not. Whenever there are hurricanes and such, the economy -- as conventionally measured -- doesn't take a hit. It booms. The billions of dollars are counted as growth, even when common sense says otherwise.

While economists have argued about bad economic analysis for decades (like anyone listens to obscure arguments in obscure economic journals) the advocacy group Redefining Progress has come up with a replacement indicator. Under their Genuine Progress Index, America peaked in 1976, and has been sliding down ever since. By their estimates, the GDP overstates U.S. wealth by $7 trillion.

Without getting too boring, let me summarize the Redefining Progress people as contending the GDP does not measure the huge non-monetary areas of the economy (stay-at-home moms, volunteer work), and that it doesn't distinguish between business activity that causes harm and business activity that does harm.

Consider for a moment a polluted strip mine. It's an economic gain when the minerals are sold, and it's even more of an economic gain when the resulting mess is cleaned up -- even if the cleanup costs actually outweigh the initial benefits.

There are two other areas where the GDP is blind. First, the notion of how the business activity is distributed is unaccounted for; one person making $10 billion in a day is just as valid as a billion people starving along on $10 a day. Secondly, it does not account for the influx of foreign assets. The American way of life is being financed by borrowed money from China and Japan. The GDP sees growth, not a looming debt or currency crisis.

So just as you've seen recent stories about the GDP going up, you've probably seen stories that the number of jobs have gone up, too.

I guess I don't have to tell you that it doesn't matter if they are $8 an hour jobs replacing $20 an hour jobs. The employment stats are as myopic as the GDP numbers. A new job is a new job. Progress is progress. Why let facts get in the way of a spin?

It's worth noting that President Bush's approval numbers have climbed about five points lately, in large part on the basis of good economic news.

Now a bad way of measuring the numbers doesn't necessarily mean the overall numbers are bad, but it sure would be nice if the economy could be measured as accurately as presidential approval.

Even in a plutocracy.

-30-