The oft-cited statistics seem to say yes, but do they tell the whole story? Many people are still feeling the effects of the most recent financial crisis, this despite the fact that the unemployment rate is lower than ever and the national GDP has risen 20 percent. Ten years after the collapse of Lehman Brothers, all the statistical signs point to the financial crisis being kaput, but are they giving us a false sense of the recovery?
Is GDP a good indicator?
The government’s measure of national output, called the Gross Domestic Product or the GDP, was invented during the Great Depression. But does it do a good job of capturing the realities of modern American life? Although technically the numbers are accurate, and they do show that the economy is robust, they provide a misleading portrait of people’s lives. A big reason is income inequality, wherein a small, affluent part of the population receives a large share of the economy’s wealth. The GDP probably just describes the experience of the affluent.
The unemployment rate
Another common statistic used to determine the health of the economy is the unemployment rate, but the unemployment rate may not be so meaningful an indicator either. It does not take into account idle, working-age adults who have given up looking for work because they cannot find any. That the official unemployment rate ignores millions of discouraged workers in its assessment is an issue.
The stock market
Yet another indicator that may be misleading is the stock market. The stock market has more than recovered and yet, like the GDP, the most wealthy of the population are the ones who own the bulk of the stocks. So, while the market is higher even than it was before the crisis, household net worth is still lower than it was in 2007. For most Americans, it is their home that is their most valuable asset, not their stock portfolio.
A new methodology
Perhaps new statistics are needed to more fully describe the economy, and, indeed, a movement is growing around academic economists including Gabriel Zucman, Emmanuel Saez and Thomas Piketty, that seeks to do just that. They advocate separating out the share of national income flowing to rich, middle-class and poor; a new version of the GDP. The work is starting to receive attention.
The Labor Department also could change the monthly reports to give attention to other unemployment numbers or provide more data on wages rather than just broad averages. The Federal Reserve could publish quarterly estimates of household wealth by economic class.
A better set of economic indicators would include: The overall share of working-age adults who are actually working; pay at different points on the income distribution; and the same sort of distribution for net worth.
The point of statistics is to describe reality. When they stop doing so, it’s time to find a new one, not to try to twist reality to fit the statistics. Even Simon Kuznets himself, the economist who invented GDP, cautioned people not to confuse it with economic welfare.
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