GDP and American (Non-)Exceptionalism: Again Some More

Any knowledgeable economist will tell you that GDP (or GDP/capita) is a profoundly imperfect and non-inclusive measure of national well-being.

In particular, GDP doesn’t count any work isn’t paid for with money — painting your mom’s house, volunteering for the Rotary Club or your church (David Brooks, are you listening?), caring for your kids and your friends’ kids, cooking dinner for your family — even though that work clearly “produces” immense quantities of real human value. (Can you say “family values”?)

A while back I did a rough calc (based on Census time-use surveys and median hourly wage) suggesting that counting unpaid work would increase U.S. GDP by something like a third (and I think that’s an underestimate.) Since Europeans have much more free time for unpaid work, counting it would presumably increase their GDP by an even greater percentage.

If this thinking holds water, you’d expect to see other measures of well-being giving very different readings from the GDP/capita measure.

You would be right. Kentaro Toyama laid out out ten other measures in The Atlantic last month (hat tip: Don), all of which show the U.S. trailing European countries — often by quite dismaying amounts:

(ODA is official development assistance.)

The U.S. only stands out by one measure (and it’s still not #1) — GDP/capita — and that only if you calculate it by purchasing power parity. (How large a basket of goods would your share of GDP buy in different countries?)

Conservatives constantly point to the U.S.’s high GDP/capita to “prove” that their preferred model of unfettered capitalism and stripped-down government is superior in delivering national well-being. Even if they ignore all those other measures (which conservatives are happy to do, as with any facts that contradict their faith-based beliefs), their claims for GDP superiority themselves contradict their own beliefs.

Think about it: PPP adjustment — the procedure that’s necessary for conservatives to claim American exceptionalism by the one measure that they cling to — by its very nature asserts that currency exchange rates are wrong — that they’re not being properly arbitraged by the market to represent the “true” value of the different currencies in terms of real goods.

So yeah: America kicks everybody else’s ass (except Norway’s) — as long as you assume that markets are imperfect.

Cross-posted at Angry Bear.







6 responses to “GDP and American (Non-)Exceptionalism: Again Some More”

  1. Detroit Dan Avatar
    Detroit Dan

    Excellent stuff! Thank you. Good ammunition in the battle for America’s heart and soul. Are economy requires continuously increasing GDP — otherwise a lot of 401k holders will be disappointed. In this light, universal health care and other fringe benefits including shorter work week (the European model that Romney has been disparaging) make a lot more sense

  2. Detroit Dan Avatar
    Detroit Dan

    *our* economy

  3. Tom Hickey Avatar
    Tom Hickey

    Three points. First, not only is the informal economy neither valued quantitatively nor qualitatively, but also neither is leisure and leisure certainly has great qualitative value as an exercise in freedom. By general admission, freedom is priceless.

    Secondly, the informal economy is estimated to be the second largest economy in the world, the estimate coming in at about ten trillion USD. See Stealth of Nations by Robert Neuwirth, bookand blog.

    Thirdly, GDP does not measure distribution so it is incorrectly equated with prosperity. Measures like the Gini coefficient also have to be considered. The US is wealthier in absolute amount than other countries but not as prosperous as many other countries relatively, owing to extreme and growing inequality.

  4. Oliver Avatar

    I’m a bit skeptical of your choice of countries. Norway is an outlier in that it’s Europe’s oil well, whereas the other countries (except Denmark, I think) are all part of the Euro zone. It might be better to compare the zone as a whole with the US instead of cherry picking those countries that have benefited most from the common currency. I’m sure that if you throw Spain, Portugal, Ireland, Italy and Greece into the pot, Europe no longer compares quite as favourably as your table suggests. But I agree that GDP isn’t the way to go.

  5. Asymptosis Avatar

    @Tom Hickey

    All excellent points. Thanks for the Neuwirth link. Good stuff. His number, though, is Friedrich Schneider’s estimate of shadow economies — still money exchange, but under the radar. Different issues, of course, but interesting.

    On inequality, GINI’s a good first-blush approach, sort of like GDP/capita is, but I also like the 90th/10th and 50th/10th percentile ratios, both by income and (very hard to find data good) wealth. The Luxembourg Wealth/Income databases are about the best I’ve found.

  6. Asymptosis Avatar

    @Oliver “I’m a bit skeptical of your choice of countries.”

    Right, understood, but they weren’t my choices. Just passing that on.

    When I do these comparisons to the U.S. myself, I prefer to use what I call the Euro 13 — the prosperous western european countries, excluding Norway (oil) and Luxembourg (small, banking). can often deliver that data.