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Every
first Friday of the month there is the usual hemming and hawing about
what jobs numbers say about the Biden administration, the post-Covid
recovery economy and the changing nature of labour markets © REUTERS
Every
first Friday of the month, I get a lot of television requests to talk
about jobs numbers. There is the usual hemming and hawing about what
they say about the Biden administration, the post-Covid recovery economy
and the changing nature of labour markets. But what do these numbers —
or any of the other conventional data compiled by the US Bureau of Labor
Statistics (BLS) and other statistical agencies — really tell us about
our true wellbeing? And do they in fact present a misleading picture of
our economy itself?
It’s
a live question in Washington these days. A few months ago, I did an
interview with Heather Boushey, a member of Biden’s Council on Economic
Advisers, who spoke about the administration’s efforts to rebalance what
she described as the three legs of the economic stool — land, labour
and capital. Consider this excerpt from our conversation below:
“A
lot of the measures and metrics we use now are ones that we created
almost a century ago. So the data that we have now tells a story about
the economy that I think in many ways is misleading. Take gross domestic
product, which since the late 1970s has increasingly not been a good
indicator of what’s happening to the average American or the average
American family. If you look at the period from the middle part of the
20th century up until the late 1970s, if GDP grew by 3 per cent, then it
was the case that most Americans were seeing their incomes grow by
about 3 per cent. So we were really a country that was growing together
and GDP meant something. Since the 1970s, GDP has increasingly indicated
more what’s happening at the very top [of the economic spectrum] in an
odd way. Those in the bottom 80-90 per cent of the income distribution
are experiencing income growth that’s less than the average GDP
growth . . . But those at the top may be seeing 6 per cent growth in
their income. So because of inequality, that metric that we still report
every quarter doesn’t mean what it used to mean and it’s confusing.
It’s not the experience of the vast majority of Americans. What we need
to do is to actually disaggregate GDP. So when we get the numbers each
quarter, we would see what that looks like across the income
distribution. I do think having those metrics would give us a lot more
insight.”
The
efforts to create more and better metrics are now taking off, with
academics at various institutions weighing in on what would be a better
way to measure growth and wellbeing. I spoke last week, for example, to
former Greek economic minister Dimitri Papadimitriou, who is now
president of the Levy Economics Institute at Bard College. The institute
has been awarded a $300,000 federal contract by the BLS to study how
households actually produce and spend in far greater detail than is
calculated now.
The
hope is that this could help policymakers better understand both
consumption and inflation at a time when many inputs into these issues
don’t seem to line up. An example: one area of household consumption
that doesn’t get tabulated in the data is women’s unpaid work. And yet,
that’s probably the larger part of household consumption as a whole, in
the sense that it represents free child care, chores, upkeep of homes,
etc. (Sorry guys, the stats show that even woke men do far less
household labour than their female peers).
Given
that this is unpaid, and untracked, we have no idea what sort of
spending is being depressed, or how much more free time women with
paying jobs might have — to earn, or care — if we had a sense of what
this metric was. As Papadimitriou points out, by better accounting for
such production, we could get a more accurate sense of consumption
demand, which in turn could help inform an increasingly contentious
debate over things like inflation (the Bard team will be using their
money to study this in detail).
Likewise,
there’s a gaping hole in our understanding of housing costs. When
households are questioned about this by the BLS twice a month,
homeowners are asked to estimate their housing costs. But this skews the
real world picture of what those costs might be. Consider that I live
in a home I bought in 2007, with a lot of cash down, and it’s roughly
doubled in value since then. The mortgage I pay for the amount of square
footage I have is relatively low. At current market prices, I expect
that if a renter were to lease this space, they’d pay two to three times
more than the equivalent of my mortgage. That obviously skews our sense
of inflation. (On that note, in a future column I’ll explore whether
housing prices might be the new bread price in the sense that it could
become a rallying point for wealth inequality, and will forward some
thoughts about what should be done about it.)
I’m
glad that the White House is starting to think about the way we
understand, and don’t understand, our economy based on old or flawed
metrics. There’s certainly a wealth of work to be done on understanding
the digital economy.
Just
for fun, here’s one metric I think should exist: the blow dry index. As
a frequent hair salon visitor, I think that you can get a sense of the
development of the high-end service economy in any given city by the
number of blow dry bars that exist. |