Yves here. Doug Smith, the author of On Value and Values: Thinking Differently About We In An Age Of Me, raised some interesting questions about how the debate about recovery is being framed. The most common approach is to look it in terms of GDP, and look at various indicators to see is progress towards resumption of GDP growth is being made. But how useful is looking primarily through a GDP framework? Various economists, more prominently, Joseph Stiglitz and Amartya Sen, have questioned the utility of GDP as a measure of collective welfare. Even discussions around our dubious “recovery” include some odd constructs (which are really defenses of the status quo), like a “job loss recovery.”
From Doug Smith:
When looking at the recent deterioration in economic indicators, I was reminded of a question raised at dinner several months ago: What is the actual bar or threshold for a ‘real recovery’?
Now, put aside for the moment the important question about ‘rates of change’. They are critical to determining recovery — indeed, the most basic indicator that is used. The conversation at dinner, however, was grounded in a different concept/question: Do we need to return to heights of, say, 2005 or 2006 to have a true recovery?
Think about it this way. Pick a year when the economy — at least according to those in power — was really humming. Ignore for the moment whether that was the financial sector or the ‘real’ economy. Just pick some year when it was all good. Conceptually, take that year and make it “100”.
Do we need to get back to “100” for there to be a real recovery?
This is worth asking because many would maintain that “100” was and is an unsustainable illusion. A sleight of hand. In part, again, this illusion was due in part to the financiailization of the economy — the increasing dependence of GDP et al on a house of cards (credit etc), asset inflation and all that.
The point here though is more forward looking in order to raise issues about the nature of the objectives being pursued. If “100” is not sustainable in any way, then isn’t setting an objective — explicitly or implicitly — to get back to “100” also an illusion? And, if so, isn’t that a destructive red herring that can only lead to poor choices? What if, say, “90” is the best possible sustainable level we might get back to for, again, say the next 5 to 10 years? If that’s so, then it means seeking “100” is seeking to be more than 10% beyond sustainable. Is that wise?
Instead, what if there is some “90” that is consistent with sounder foundations for the real economy, real growth and real futures — something that might be characterized by such things as (1) jobs with living/good wages; (2) reductions in sources of uncertainty such as illness, job loss and so forth; (3) a rise in ‘utility’ banking that’s focused on investments in growth tied to real business, real innovation and so forth; (4) a shrinking of the casino activities of the financial sector; (5) bringing heretofore externalities (e.g. environment) into full pricing; (5) a different balance of distribution in wealth and income …. and so on?
What if we should be seeking that “90” instead of the 2006 “100”?” We can always shoot to beat that benchmark, but a 90 that corresponds to what in an accounting sense is higher quality “earnings” seems like a sounder long term goal than trying to restore a smoke and mirrors 100.