Saturday, February 28, 2009

What is the economy for anyway?

How should we evaluate whether the "new stimulus" is helping? What about the investments in infrastructure? Why not start defining economic effectiveness in a new way with new indicators? Here are some ideas to get us thinking quite seriously about re-imagining the economy--what it is and what it is for.

What’s the Economy for, Anyway?

By John de Graaf

“If they can get you asking the wrong question, they don’t have to worry about the answers.”
– Thomas Pynchon, Gravity’s Rainbow

Suggest any alternative to the status quo these days — greater environmental protection, for example, or shorter working hours — and the first question reporters are likely to ask is, “But what will that do to the economy?” Immediately, advocates must try to prove that their suggestions will not adversely affect economic growth or the Dow Jones industrial average.

It’s long past time for a new framing offensive, one that turns the obligatory question on its head and shifts the burden of proof to those who resist change. Imagine bumper stickers, posters, internet messages, a thousand inquiries visible everywhere, asking a different question:

What’s the economy for, anyway?”

It’s time to demand that champions of the status quo defend their implicit answer to that question. Do they actually believe that the purpose of the economy is to achieve the grossest domestic product and allow the richest among us to multiply their treasures without limits?

For in practice, that really is their answer.

But what if we answer the question differently, perhaps as Gifford Pinchot, the first Chief of the U.S. Forest Service, did a century ago?

His answer was, “The greatest good for the greatest number over the long run.”

In that light, economic success cannot be measured by Gross Domestic Product (GDP) or stock prices alone. It must take into account the other values that constitute the greatest good — health, happiness, knowledge, kindness — for the greatest number — equality, access to opportunity — over the long run — in a healthy democracy and sustainable environment.

Historical Background
It’s time to set America back on course.

After increasing social equality and greatly improving health and other quality of life measures (including major increases in leisure time) from World War II until the mid-1970s, the United States abruptly changed its economic trajectory.

“It will be a hard pill for many Americans to swallow,” Business Week predicted in October, 1974, “— the idea of doing with less so that big business can have more. Nothing that this nation or any other nation has done in modern history compares in difficulty with the selling job that must now be done to make people accept the new reality.”

Emboldened by Richard Nixon’s landslide 1972 victory, extreme conservatives moved to reduce the responsibilities (and increase the wealth) of wealthy Americans, while cutting back on public services for the poor and average working Americans.

These policies accelerated during the 1980s and early 1990s and are now enshrined in the “you’re on your ownership” attitude of the present federal policies.

Meanwhile, Western European nations took a different course, maintaining their social contracts and at least modestly improving their safety nets for the poor. Their provision of more public goods — healthcare, education, transportation, common space, etc. — supported by higher and more progressive taxation measures than in the United States — reduced the need (or desire) of individuals to maximize their own incomes.

So what happened?
First, in terms of productivity per worker hour, Western Europeans nearly closed the gap with the United States. They were producing, on average, 65 percent as much as Americans produced per hour in 1970. By 2000, their productivity was 95 percent that of Americans.

But on the other hand, their consumption of goods and services, measured in GDP per capita, remained where it was in 1970 — roughly 70 percent that of Americans.

There is a simple explanation for this seeming anomaly: European working hours, which in 1970 were slightly longer than those of Americans, dropped to about 80 percent of U.S. hours.

We could say that Europeans traded major portions of their productivity increases for free time instead of money, while Americans — consciously or otherwise — put all their gains into increasing their per capita GDP.

Pose the question, “What did that do to the economy?” and the answer appears clear — Americans, with a much bigger GDP, are the obvious winners.

But ask instead, “What is the economy for anyway?” and a different answer emerges.

For most of the final quarter of the 20th century, Europeans improved their quality of life relative to Americans in almost every measure.

While American health has improved in absolute terms since the 1970s, the United States once ranked near the top in terms of overall health. It now rates below that of every other industrial country, despite spending by far the highest percentage of GDP on health care.

If one looks at equality a similar pattern emerges. America, which was about at the median among industrial countries in terms of economic equality in 1974, now has the widest gap between rich and poor.

Savings are a key indicator of security for many people. While American personal savings rates (10 percent) were slightly higher than those of Europeans in 1970, they have dropped to negative numbers (-1.6 percent last year), while EU citizens now save an average of 12 percent of their incomes.

European progress has also come at a lower cost to the environment. While EU nations were choosing more leisure time rather than working harder to close the consumer gap with Americans, they also took greater steps toward sustainability.

The result is that EU countries require only half the energy consumption per capita as that of Americans, while producing 70 percent as many goods and services. The average American has an ecological footprint (the productive land and water necessary to produce his or her lifestyle) of 24 acres; for Europeans, the average is 12 acres.

One can find similar results in many other areas of quality of life, including: levels of trust, crime, incarceration, family breakdown, literacy, happiness indicators, pre-school education, and even access to information technologies.

Tellingly, the Genuine Progress Indicator — an alternative to the GDP developed by Redefining Progress that measures 24 quality of life indices — shows a fairly consistent decline in well being in the United States since a peak in 1973. Similar indices for Europe show consistent improvement in most areas of life, even if increases are sometimes slow or spotty.

Meeting Our Needs
One model for judging the success of the economy is to see how well it allows citizens to meet their needs as outlined by psychologist Abraham Maslow. In his often-cited hierarchy of needs theory, Maslow suggested that humans must first adequately satisfy such basic needs as food, shelter, health and safety, and “belongingness” before moving on to what he called “higher” or “meta” needs.

In the early 1970s, Maslow suggested that as a society the United States had met nearly all its citizens’ physiological and safety needs and was moving to satisfy higher needs as well. Ironically, by such a standard, we have lost ground rather than gaining it — we have more citizens living in poverty and a much greater overall sense of insecurity today than we did then, despite more than a 60 percent increase in real per capita GDP.

Most Americans know intrinsically that increases in GDP do not mean economic success if health outcomes and social connections continue to decline relative to other countries.

This is why we must raise the question “What is the economy for, anyway?” to a crescendo that cannot be ignored by the media or our political leaders. Only when we begin to ask the right question can we hope to find answers that can improve our quality of life.

We must then ask “What roles do the market, the state, non-governmental organizations, and our common wealth respectively have to play in achieving the greatest good for the greatest number over the long run?”

Inevitably, even sympathetic reporters and others will ask us, “Can we change the economy in the ways the Europeans have and still compete in the global economy?”

The answer, quite simply, is yes.

According to the World Economic Forum, the United States ranks second in world economic competitiveness. So it’s possible to do things our way — reducing government, slashing taxes, cutting the safety net, and widening the divide between rich and poor — and be competitive.

But is it necessary? Consider that the other four most competitive nations are Finland (ranked first), Sweden, Denmark, and Norway. In fact, European nations make up most of the top 10. All these nations are far more globalized and far more subject to international competitive pressures than we are and have been for many years.

And all of them are far more egalitarian than the United States.
Finland has, in fact, the smallest gap between rich and poor of any nation. The Finnish social safety net is a generous one and workers enjoy a great deal of leisure time — an average of 30 days of paid vacation. The story is similar in other European countries.
Clearly, it is possible to have a more just and people-friendly economy and compete globally.

Imagine seeing our simple question: “What’s the economy for, anyway?” everywhere — in print, posters, on bumper stickers, on websites — or hearing it asked over and over on TV, radio, and in forums and debates. It might be seen as a Trojan horse, seemingly innocent, but remarkably subversive.

The point of all this is not simply to change this or that specific policy, but to create a different thought context by which we might begin to change the entire trend toward privatization and inequality. The point is to show that current “common sense” about economics is “non-sense” if our goal is a better quality of life that is sustainable over the long run.

When we forget to ask, “What is the economy for, anyway?” we leave ourselves open to the GDP worship of so many of our leaders. When we ask the question over and over and demand answers, we open possibilities for a new and better world.

John de Graaf is the National Coordinator of the Take Back Your Time campaign, co-author of Affluenza: The All-Consuming Epidemic, and editor of Take Back Your Time: Fighting Overwork and Time Poverty in America. He is also a filmmaker and recently co-produced The Motherhood Manifesto.


The Measure of America: American Human Development Report 2008-2009 is the first time the human development approach has been applied in the United States or any other industrialized nation.


  • The U.S. will spend $230 million on health care in the next hour.
  • One in six Americans goes without health insurance (around 47 million people).
  • According to the National Academy of Sciences, lack of health insurance results in lost economic value equal to $178 million to $356 million every day, due to the poorer health and earlier deaths of the uninsured.
  • The U.S. ranks #24 among the 30 most affluent countries in life expectancy – yet spends more on health care than any other nation.
  • The U.S. infant mortality rate is on par with that of Croatia, Cuba, Estonia, and Poland; if the U.S. infant mortality rate were the same as that of top-ranked Sweden, 21,000 more American babies would live to celebrate their first birthdays every year.
  • A baby born in Washington, D.C. is almost two-and-a-half times more likely to die before age one than a baby born in Vermont. African American babies are more than twice as likely to die before age one than either white or Latino babies.
  • Changes in behavior and the physical and social environment can help avoid about 70 percent of premature deaths.
  • Insured adults under sixty-five are 50 percent more likely to have had cancer screenings than the uninsured; early detection saves lives and dramatically lowers treatment costs.
  • Premature death by homicide is more than five times higher in the U.S. than the OECD average; 68 percent of U.S. homicides in 2006 were committed with a firearm.
  • Nearly a third of all female murder victims were killed by intimate partners (husbands and boyfriends).
  • More than one million Americans are living with HIV.
  • One American dies every 90 seconds from obesity-related health problems.
  • According to the U.S. Census Bureau, children living in central cities are less likely to play outside than other children; in central cities, 48 percent of Latino children and 39 percent of African American children were kept inside because of parental perceptions of neighborhood danger. Inactivity is considered a major factor in obesity among 66 million young people.
  • African American children are two-and-a-half times more likely to be hospitalized for asthma than white children – and five times more likely to die of asthma.
  • Suicide is the eleventh-leading cause of death in the U.S. overall, and the third-leading cause of death among children and adolescents. More than 90 percent of those who die by suicide have had mental or substance-abuse disorders.
  • One in seventeen Americans (about 6 percent of the population) suffers from severe mental illness.
  • More than half of all personal bankruptcies in the U.S. are related to an inability to pay for illness or injury.

Access to Knowledge

  • College graduates can expect, on average, double the lifetime earnings of high school graduates.
  • Fourteen percent of the population – some 30 million Americans – lacks the literacy skills to perform simple, everyday tasks like understanding newspaper articles and instruction manuals.
  • Twelve percent of Americans lack the literacy skills to fill in a job application or payroll form, read a map or bus schedule, or understand labels on food and drugs.
  • More than one in five Americans – 22 percent of the population – have “below basic” quantitative skills, making it impossible to balance a checkbook, calculate a tip, or figure out from an advertisement the amount of interest on a loan.
  • In 2006, 4.5 million young people ages eighteen to twenty-four were not in school, not working, and had not graduated high school.
  • Nearly one in six American children lives in a family whose head didn’t graduate high school.
  • School quality is a decisive factor in choosing where to live for many families with school-aged children; in 2003, parents of about one-quarter of all students reported that they had moved to their current neighborhood to enable their children to attend a better school.White children ages one to five are about four times more likely to have been read to in the past week than Hispanic children, and about 50 percent more likely to have been read to than African American children.
  • By age three, the children of affluent mothers have vocabularies twice as large as those of the children of low-income mothers.
  • Among four-year-olds, 40 percent of children from disadvantaged backgrounds were proficient in number and shape recognition, compared to 87 percent of children from privileged families.
  • High quality preschool for disadvantaged children has positive long-term impacts; children who participated in the High/Scope Perry Preschool Project had a 44 percent higher high school graduation rate, had 50 percent fewer teen pregnancies, were 46 percent less likely to have served jail time, and had a 42 percent higher median monthly income than the control group.
  • Educational expenditures vary significantly by state; New Jersey and New York spend around $14,000 per pupil, Utah spends less than $6,000 per pupil.
  • Schools with high proportions of minority students, poor students, and English-language learners were more likely to hire novice teachers than schools with low proportions of these students. Minority and low-income children are more likely to be taught English, science, and math by an “out-of-field” teacher than are high-income and/or white students.
  • African American students are three times more likely than whites to be placed in special education programs, and only half as likely to be placed in gifted programs.
  • In 2003, 45 percent of children whose parents had advanced degrees were in gifted classes, compared with 10 percent of children whose parents did not graduate high school. Children whose parents were married and better-off also were more likely to be in gifted classes than children of the never-married or poor.
  • Only three-fourths of American public high students graduated on time (within four years) with a regular diploma in 2003-2004.
  • College-going rates among high-achieving high school graduates from poor families are about the same as the college-going rates for the lowest-achieving high graduates from affluent families.
  • Children whose parents have at least a college degree enter college at more than twice the rate of children whose parents did not graduate high school; disparities in degree attainment are greater still.

Standard of Living

  • The richest 20 percent of all U.S. households earned more than half of the nation’s total income in 2006.
  • The top 1 percent of U.S. households possesses a full third of America’s wealth.
  • Households in the top 10 percent of the income distribution hold more than 71 percent of the country’s wealth, while those in the lowest 60 percent possess just 4 percent.
  • Nearly one in five American children lives in poverty, with more than one in thirteen living in extreme poverty.
  • The poverty line for a family of four (two adults and two children) is an income of $21,027 before taxes; in 2006, more than 36 million Americans were classified poor by this definition.
  • In every racial/ethnic group, men earn more than their female counterparts.
  • In 1980, the average executive earned forty-two times as much as the average factory worker; today, executives earn some four hundred times what factory workers in their industries earn.
  • In 2004, median net worth was $140,800 for whites, and $24,900 for nonwhites.
  • The real value of the minimum wage has decreased by 40 percent in the past forty years.

Other Domestic Issues


  • Over the course of a year, at least 1.35 million children are at some point homeless.
  • More families with children are homeless today than at any time since the Great Depression.


  • The U.S. Department of Agriculture reported that on a typical day in November 2005, members of well over half a million households had their normal eating patterns disrupted due to lack of money or other resources.

Criminal Justice

  • The U.S. has 5 percent of the world’s people – but 24 percent of the world’s prisoners.
  • In absolute numbers and as a percentage of the population, the U.S. has more prisoners than any other country, including China and Russia.
  • From the 1920’s until the 1970’s, the U.S. prison population was stable at about 110 per 100,000, about the same as our peer nations today. But now more than 700 people out of every 100,000 are behind bars.
  • African Americans are imprisoned at six to eight times the rate of whites; the rate is much higher for African Americans who do not graduate high school; by age thirty-five, 60 percent of African American high school dropouts will have spent time in prison.
  • State and federal prison inmates average just eleven years of schooling.
  • About 1,900 people with criminal records are released every day and, according to the Department of Justice, two-thirds of them will eventually end up back in prison.

International Comparisons

  • A poor child born in Germany, France, Canada, or one of the Nordic countries has a better chance to join the middle class in adulthood than an American child born into similar circumstances.
  • The U.S. ranks second among 177 countries in per-capita income but 12th on human development, according to the global Human Development Index, published annually by the United Nations Development Programme. Each of the 11 countries ahead of the U.S. has a lower per-capita income than the U.S., but all perform better on the health and knowledge dimensions.
  • The U.S. infant mortality rate is on par with that of Croatia, Cuba, Estonia, and Poland.
  • If the U.S. infant mortality rate were equal to that of first-ranked Sweden, twenty-one thousand more American babies would have lived to celebrate their first birthdays in 2005.
  • In 98 countries, new mothers have 14 or more weeks of paid maternity leave. The U.S. has no federally mandated paid maternity leave.
  • The United States ranks second in the world in per-capita income (behind Luxembourg), but thirty-fourth in survival of infants to age one.
  • The U.S. ranks forty-second in global life expectancy and first among the world’s twenty-five richest countries in the percentage of children living in poverty.
  • In the 2006 OECD international assessment of fifteen-year-olds, in math, the U.S. came in twenty-fourth, and in science, the U.S. came in seventeenth.
  • The U.S. incarceration rate is five-to-nine times greater than that of our peer nations.

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