[OPE-L] GDP growth and rising poverty: let them eat cake...

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Tue Feb 27 2007 - 16:54:46 EST

Two persistent myths in political economy and the media are that changes in
real GDP are a synthetic indicator of economic growth, and that economic
growth necessarily means more jobs and less poverty. They are both false.

GDP excludes burgeoning property income, capital gains, transfers, land
rents and the like (since GDP was originally designed to be a measure of
"value-added" in production), and includes the fictitious "imputed rental
value of owner-occupied housing" (which in the US is equal to about 10% of
US GDP) plus various purely financial circuits. GDP of course also excludes
the net factor income from abroad, included in GNP (or GNI as it is now

Economic growth also does not necessarily mean more jobs and less poverty,
as is shown by intervals of "jobless growth" or "jobless recovery" (where
real GDP increases, while job numbers do not), and since GDP and its growth
tells you nothing about the real dispersion of disposable income.

As an ideology, the two myths have a surface plausibility, because in order
to be able to distribute more incomes as such, the size of the total cake
has to grow. That is why economic growth is thought to be good for
everybody. But GDP does not measure the total cake, and even if the cake
grows, this in itself says nothing about who it will be distributed to.

The macro-economic accounting system shows almost nothing about what
categories of people produce what sorts of things, and what real incomes
they derive from it. That is precisely its ideological use. But economic
growth isn't good for everybody, it is good at all only under specific
conditions - some kinds of economic growth are harmful to people, others
good. The gains of some may be at the expense of others. The only reason why
people still cling to GDP indicators is because solid scientific
alternatives are lacking.

The reality is that some sectors of production have experienced growth,
while others have declined, with the aggregate result that the total value
of net output is more or less stagnant in real terms (this is masked to some
extent by the specific techniques used to adjust for price inflation, see
e.g. http://www.kof.ethz.ch/pdf/wp_101.pdf). We are dealing with seemingly
"objective" concepts devised in the 1930s which no longer adequately
describe reality today, if they ever did (I don't think they did).

It's therefore interesting to read about some US research just released, in
which the authors reached the "surprising" finding that poverty had strongly
increased in the US in recent years, despite real GDP growth:

Poverty gap in US has widened under Bush

By Andrew Gumbel in Los Angeles

Published: 27 February 2007

The number of Americans living in severe poverty has expanded dramatically
under the Bush administration, with nearly 16 million people now living on
an individual income of less than $5,000 (2,500) a year or a family income
of less than $10,000, according to an analysis of 2005 official census data.

The analysis, by the McClatchy group of newspapers, showed that the number
of people living in extreme poverty had grown by 26 per cent since 2000.
Poverty as a whole has worsened, too, but the number of severe poor is
growing 56 per cent faster than the overall segment of the population
characterised as poor - about 37 million people in all according to the
census data. That represents more than 10 per cent of the US population,
which recently surpassed the 300 million mark. (...)

A small number of left-wing think-tanks, such as the Economic Policy
Institute, meanwhile, argue that the census figures are almost certainly
lower than the real picture because many people living in extreme poverty do
not answer census questionnaires.

It's a rather damning indictment of a government which fights enormously
expensive wars abroad at public expense, while neglecting its own backyard.


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