Green shoots or brown weeds?
GDP growth or contraction?
The verbal and statistical battle rages over whether the end of the recession is near. Unfortunately we have spent a lot of time analysing the battle, while forgetting the war.
At times like this it is important to recall the words of Robert Kennedy (below):
Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product ... if we should judge America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.
"Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.
What gets measured gets done:
In business school one of the early mantras that you learn is "What gets measured, gets done"
So with an economy fixated on measuring GDP, it should come as no surprise that maximizing (or increasing) GDP is a political and economic priority. Everything action appears to be measured through the lens of its impact on GDP. Unhealthy? Of course.
Recessions, despite, or maybe because of the pain they cause, can be times for renewal, times for finding new and better ways of doing things. This recession should be no different.
This recession offers opportunities for real change, not just rearranging the proverbial deck chairs on the financial ship of state. Unfortunately so far the new administration has been fixated on reviving the old system, instead of focusing on building an improved and stronger new one. Changes that have been made or proposed so far have been mildly incremental, not transformational, and not by any stretch of the imagination, visionary.
Today is the day when a committee chaired by the economist Joseph Stiglitz, and initiated by Nicolas Sarkozy, President of France, called the International Commission on the Measurement of Economic Performance and Social Progress releases its report.
Stiglitz writes about it today in the Financial Times
What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which most citizens have become worse off. We care, moreover, not just for how well off we are today but how well off we will be in the future. If we are borrowing unsustainably from this future, we should want to know.
Flawed statistics may also lead us to make incorrect inferences. In the years preceding the crisis, many in Europe, focusing on America's higher rates of GDP growth, were drawn to the US model. Had they focused on metrics such as median income - providing a better picture of what is happening to most Americans - or made corrections for the increased indebtedness of households and the country as a whole, their enthusiasm might have been more muted.
No good accountant would ignore the depreciation of a company's capital, but the standard GDP measure not only does that but also takes no account of resource depletion and environmental degradation. Our increased awareness of the scarcity value of environmental resources makes this lacuna especially troubling.
Today is also the day when President Obama will make on speech on new financial system regulation.
While I am hopeful of real change, I am not optimistic. So far the administration proposals have been "weak", concerned more with papering over the cracks than with actually making banking boring again, a servant to the system, not the driver of the system.
As Stiglitz also said this weekend:
Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.
"In the U.S. and many other countries, the too-big-to-fail banks have become even bigger," Stiglitz said in an interview yesterday in Paris. "The problems are worse than they were in 2007 before the crisis."
Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of bank
It's time:
It is time for real change. Just as the Chinese word for crisis contains the character for opportunity, it is time for the administration to start proposing REAL change both to the financial system and to how we measure "success".
We may soon see an increase in GDP for the third quarter. Wall Street will be celebrating but I will not be cheering. The truer measures of "performance" will not have improved. Let's start looking at the real results instead.