Since Obama's economic record is so terrible, it's time to start ignoring GDP

One characteristic of dysfunctional, self-serving bureaucracies is the elimination of measurement systems that make them look bad and the substitution of alterative metrics that make them look good.  In her brilliant and prophetic 1989 analysis of what went wrong at General Motors, Maryann Keller documented the process by which that once dominant company delayed recognition of the problems that led to its downfall and ultimate bankruptcy two decades later.  Key to its downfall was management’s practice of discarding metrics that made it look weak, and substituting other measurement systems that made management look good (and kept the bonuses flowing).

So it is a sign of the times that Politico Magazine published an article yesterday urging us to discard reliance on the Gross Domestic Product as any kind of measure of economic success.  In an article titled “GDP’s Going Down? That’s Good!,” Zachary Karabell liberally applies lipstick to the Obama economic record pig.

… GDP is a critically flawed measure—so flawed that, believe it or not, ever-larger portions of the world would be best served not by GDP going up but possibly by it going down. GDP growth these days is nothing less than a relic of the past.

Right.  In the new fundamentally transformed world that President Obama has given us, “staycations” are preferable to actually going somewhere different, and we should all get with the program and revel in the workers’ paradise wonderful new world of fairness and justice and diversity.

You see, GDP emphasis was really a product of the Cold War:

During the Cold War, Americans turned to GDP as a way to measure whether capitalism was trumping Communism, and meanwhile the Soviets developed their own version of GDP to prove that their system was better. In many ways, the Cold War evolved as a contest of whose economy was bigger and better, better at making stuff and better at enriching people. Think of the famous “kitchen debate” in 1959 between then U.S vice president Richard Nixon and Soviet premier Nikita Khrushchev in front of a model kitchen at a Soviet industrial fair, arguing about whose economy was more modern and more productive. Bragging rights went to the country with biggest GDP.

Apparently the fact that our shelves were overflowing with an increasing variety of sophisticated products, while Soviet shelves were often bare and people lined up for blocks to obtain meat when a shipment came in, had nothing to do with GDP.  It was all just propaganda, apparently.

Without ever mentioning the word “deflation,” Karabell touts it:

If our collective and individual incomes ceased to rise while our costs of necessary goods and services declined, our living standards would improve in much the same fashion. If the proverbial man or woman on the American street were told that their income would be stagnant, the reaction almost certainly would be negative. If you were told that whatever you earn today would be identical in 20 years, that would be taken as bad news. Yet if during that time costs fell by 25 percent, the effect would be the same as a 25 percent raise.  By lowering the cost side of the equation, you can boost collective affluence just as effectively as by increasing the income side of the equation.

Deflation is one of the most intractable spirals an economy can fall into.  People defer purchases in the expectation that prices will fall.  This strangles economic activity, and leads to declining incomes and declining opportunities.  Just ask Japan.

So fasten your seat belts.  This essay is a leading indicator of where the propagandists are going to be taking us.  And they will do for Americans what GM’s management did for their shareholders.  Only, with American national bankruptcy, there is nobody to bail us out.

Hat tip: iOTW Report

One characteristic of dysfunctional, self-serving bureaucracies is the elimination of measurement systems that make them look bad and the substitution of alterative metrics that make them look good.  In her brilliant and prophetic 1989 analysis of what went wrong at General Motors, Maryann Keller documented the process by which that once dominant company delayed recognition of the problems that led to its downfall and ultimate bankruptcy two decades later.  Key to its downfall was management’s practice of discarding metrics that made it look weak, and substituting other measurement systems that made management look good (and kept the bonuses flowing).

So it is a sign of the times that Politico Magazine published an article yesterday urging us to discard reliance on the Gross Domestic Product as any kind of measure of economic success.  In an article titled “GDP’s Going Down? That’s Good!,” Zachary Karabell liberally applies lipstick to the Obama economic record pig.

… GDP is a critically flawed measure—so flawed that, believe it or not, ever-larger portions of the world would be best served not by GDP going up but possibly by it going down. GDP growth these days is nothing less than a relic of the past.

Right.  In the new fundamentally transformed world that President Obama has given us, “staycations” are preferable to actually going somewhere different, and we should all get with the program and revel in the workers’ paradise wonderful new world of fairness and justice and diversity.

You see, GDP emphasis was really a product of the Cold War:

During the Cold War, Americans turned to GDP as a way to measure whether capitalism was trumping Communism, and meanwhile the Soviets developed their own version of GDP to prove that their system was better. In many ways, the Cold War evolved as a contest of whose economy was bigger and better, better at making stuff and better at enriching people. Think of the famous “kitchen debate” in 1959 between then U.S vice president Richard Nixon and Soviet premier Nikita Khrushchev in front of a model kitchen at a Soviet industrial fair, arguing about whose economy was more modern and more productive. Bragging rights went to the country with biggest GDP.

Apparently the fact that our shelves were overflowing with an increasing variety of sophisticated products, while Soviet shelves were often bare and people lined up for blocks to obtain meat when a shipment came in, had nothing to do with GDP.  It was all just propaganda, apparently.

Without ever mentioning the word “deflation,” Karabell touts it:

If our collective and individual incomes ceased to rise while our costs of necessary goods and services declined, our living standards would improve in much the same fashion. If the proverbial man or woman on the American street were told that their income would be stagnant, the reaction almost certainly would be negative. If you were told that whatever you earn today would be identical in 20 years, that would be taken as bad news. Yet if during that time costs fell by 25 percent, the effect would be the same as a 25 percent raise.  By lowering the cost side of the equation, you can boost collective affluence just as effectively as by increasing the income side of the equation.

Deflation is one of the most intractable spirals an economy can fall into.  People defer purchases in the expectation that prices will fall.  This strangles economic activity, and leads to declining incomes and declining opportunities.  Just ask Japan.

So fasten your seat belts.  This essay is a leading indicator of where the propagandists are going to be taking us.  And they will do for Americans what GM’s management did for their shareholders.  Only, with American national bankruptcy, there is nobody to bail us out.

Hat tip: iOTW Report