Inequality in the 21st Century

March 19, 2018

Inequality in the 21st Century

by Kaushik Basu

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As inequality continues to deepen worldwide, we do not have the luxury of sticking to the status quo. Unless we confront the inequality challenge head on – as we have just begun to do with another existential threat, climate change – social cohesion, and especially democracy, will come under growing threat.

At the end of a low and dishonest year, reminiscent of the “low, dishonest decade” about which W.H. Auden wrote in his poem “September 1, 1939,” the world’s “clever hopes” are giving way to recognition that many severe problems must be tackled. And, among the severest, with the gravest long-term and even existential implications, is economic inequality.

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The alarming level of economic inequality globally has been well documented by prominent economists, including Thomas Piketty, François Bourguignon, Branko Milanović, and Joseph E. Stiglitz, and well-known institutions, including OXFAM and the World Bank. And it is obvious even from a casual stroll through the streets of New York, New Delhi, Beijing, or Berlin.

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Voices on the right often claim that this inequality is not only justifiable, but also appropriate: wealth is a just reward for hard work, while poverty is an earned punishment for laziness. This is a myth. The reality is that the poor, more often than not, must work extremely hard, often in difficult conditions, just to survive.

Moreover, if a wealthy person does have a particularly strong work ethic, it is likely attributable not just to their genetic predisposition, but also to their upbringing, including whatever privileges, values, and opportunities their background may have afforded them. So there is no real moral argument for outsize wealth amid widespread poverty.

This is not to say that there is no justification for any amount of inequality. After all, inequality can reflect differences in preferences: some people might consider the pursuit of material wealth more worthwhile than others. Moreover, differential rewards do indeed create incentives for people to learn, work, and innovate, activities that promote overall growth and advance poverty reduction.

But, at a certain point, inequality becomes so severe that it has the opposite effect. And we are far beyond that point.

Plenty of people – including many of the world’s wealthy – recognize how unacceptable severe inequality is, both morally and economically. But if the rich speak out against it, they are often shut down and labeled hypocrites. Apparently, the desire to lessen inequality can be considered credible or genuine only by first sacrificing one’s own wealth.

The truth, of course, is that the decision not to renounce, unilaterally, one’s wealth does not discredit a preference for a more equitable society. To label a wealthy critic of extreme inequality as a hypocrite amounts to an ad hominem attack and a logical fallacy, intended to silence those whose voices could make a difference.

Fortunately, this tactic seems to be losing some of its potency. It is heartening to see wealthy individuals defying these attacks, not only by openly acknowledging the economic and social damage caused by extreme inequality, but also by criticizing a system that, despite enabling them to prosper, has left too many without opportunities.

In particular, some wealthy Americans are condemning the current tax legislation being pushed by Congressional Republicans and President Donald Trump’s administration, which offers outsize cuts to the highest earners – people like them. As Jack Bogle, the founder of Vanguard Group and a certain beneficiary of the proposed cuts, put it, the plan – which is all but guaranteed to exacerbate inequality – is a “moral abomination.”

Yet recognizing the flaws in current structures is just the beginning. The greater challenge is to create a viable blueprint for an equitable society. (It is the absence of such a blueprint that has led so many well-meaning movements in history to end in failure.) In this case, the focus must be on expanding profit-sharing arrangements, without stifling or centralizing market incentives that are crucial to drive growth.

A first step would be to give all of a country’s residents the right to a certain share of the economy’s profits. This idea has been advanced in various forms by Marty Weitzman, Hillel Steiner, Richard Freeman, and, just last month, Matt Bruenig. But it is particularly vital today, as the share of wages in national income declines, and the share of profits and rents rises – a trend that technological progress is accelerating.

There is another dimension to profit-sharing that has received little attention, related to monopolies and competition. With modern digital technology, the returns to scale are so large that it no longer makes sense to demand that, say, 1,000 firms produce versions of the same good, each meeting one-thousandth of total demand.

A more efficient approach would have 1,000 firms each creating one part of that good. So, when it comes to automobiles, for example, one firm would produce all of the gears, another producing all of the brake pads, and so on.

Traditional antitrust and pro-competition legislation – which began in 1890 with the Sherman Act in the US – prevents such an efficient system from taking hold. But a monopoly of production need not mean a monopoly of income, as long as the shares in each company are widely held. It is thus time for a radical change, one that replaces traditional anti-monopoly laws with legislation mandating a wider dispersal of shareholding within each company.

These ideas are largely untested, so much work would need to be done before they could be made operational. But as the world lurches from one crisis to another, and inequality continues to deepen, we do not have the luxury of sticking to the status quo. Unless we confront the inequality challenge head on, social cohesion and democracy itself will come under growing threat.

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*Kaushik Basu, former Chief Economist of the World Bank, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

Trans-Pacific Partnership (CPTPP): Japan-led Pacific Rim Countries Desperate to appease Trump

March 9, 2018

Trans-Pacific Partnership (CPTPP): Japan-led Pacific Rim Countries Desperate to appease Trump

by Jomo Kwame Sundaram

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Dr. Jomo Kwame Sundaram  seen with Khazanah Nasional Berhad’s Tan Sri Azman Mokhtar

The grandiose sounding Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will be signed in Santiago de Chile today, 8 March. Instead of doing something to advance the condition of women on International Women’s Day, trade representatives from 11 Pacific rim countries will sign the CPTPP, which some critics argue will further set back the progress of humanity, including women who hold up ‘half the sky’.

In fact, the resulting 6500 page agreement has, so far, only been used by Obama’s United States Trade Representative (USTR) to derail the already protracted Doha ‘Development’ Round negotiations under the auspices of the World Trade Organization (WTO), e.g., by ‘lame-duck’ USTR Michael Froman at the WTO ministerial in Nairobi in December 2016.

In January last year, newly elected US President Donald Trump withdrew from TPP, effectively killing the agreement. Since then, Japan has worked hard to keep it alive, with discreet help from Australia and others. Apparently, they hope to draw the US back in order to check China’s growing influence in the region while delaying other regional trade negotiations such as the Regional Comprehensive Economic Partnership (RCEP).

After signing it, at least six countries must ratify the CPTPP for the deal to come into effect. Even before signing, governments have announced plans to drag their feet, indicating they are signing under duress. Incredibly, no details of the new agreement were supposed to be released until after the signing, and few consultations have been held by the signing governments despite promises to do so.

Bad deal not improved by reheating

To make the case for the TPP, its advocates greatly exaggerated its negligible trade benefits. US government studies — by the Department of Agriculture’s Economic Research Service and the International Trade Council — projected very modest gains, even with the US in.

Despite the US absence from the CPTPP, its proponents have not hesitated to make even more exaggerated claims about supposed benefits. With already negligible trade gains from the original TPP, purported gains from the CPTPP without the US are even more paltry. Not surprisingly, the TPP11 have become even more desperate for US participation to maintain their original fictitious claims.

The old claim that trade liberalization lifts all boats is increasingly rejected in favour of more nuanced recognition that its costs may be as much as its benefits, and distributed very unevenly. Such recognition has enabled better understanding of the Brexit referendum outcome and Trump’s election following a campaign in which all major candidates were opposed to the TPP.

CPTPP losses, costs and risks are almost as great as with the TPP while actual gains are even more trivial. Meanwhile, CPTPP citizens must surely wonder why their governments are proceeding so secretively without public consultation or even the fig leaf of credible cost-benefit or other analyses.

Seducing Trump

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Japan’s Prime Minister Abe appeasing US President Donald Trump

Minor amendments have been made to the original TPP agreement, largely drafted by US corporations during the Obama presidency. But the new CPTPP Preamble can only guide its interpretation, and does not replace problematic TPP provisions. Some TPP11 countries have secured ‘side letters’, exempting them from some of its provisions.

Meanwhile, several onerous provisions have been suspended, including some of those extending the scope and duration of pharmaceutical patents. Well over a thousand provisions remain, most not even challenged by the CPTPP negotiators. The 22 suspended provisions can easily be restored if the US chooses to rejoin the TPP.

At his World Economic Forum charm offensive at Davos in January, Trump stated that he “would do TPP if we were able to make a substantially better deal” despite his anti-TPP presidential campaign and post-election rhetoric. No one can be sure what he means anymore, especially following his more recent declarations celebrating trade warfare.

US positions in the ongoing North American Free Trade Area (NAFTA) re-negotiations suggest his administration will demand stronger intellectual property rights, especially pharmaceutical patent protection; this can be easily accommodated by the TPP11 by reinstating suspended TPP provisions.

However, in light of the new USTR’s pronouncements, it is likely that the White House will insist on removing ISDS provisions from the TPP to be consistent with Trump’s ‘sovereigntist’ approach of putting ‘America first’. Or worse, ISDS provisions may not be reciprocal, i.e., US corporations abroad can use ISDS, but TPP11 investors cannot make such claims against the US government.


Post-Davos Depression

February 4, 2018

Post-Davos Depression

by Dr. Joseph E. Stiglitz@www.project-syndicate. org

The CEOs of Davos were euphoric this year about the return to growth, strong profits, and soaring executive compensation. Economists reminded them that this growth is not sustainable, and has never been inclusive; but in a world where greed is always good, such arguments have little impact

..,the lessons of history are clear. Trickle-down economics doesn’t work. And one of the key reasons why our environment is in such a precarious condition is that corporations have not, on their own, lived up to their social responsibilities. Without effective regulations and a real price to pay for polluting, there is no reason whatsoever to believe that they will behave differently than they have..–Joseph E. Stigltz

DAVOS – I’ve been attending the World Economic Forum’s annual conference in Davos, Switzerland – where the so-called global elite convenes to discuss the world’s problems – since 1995. Never have I come away more dispirited than I have this year.

Image result for The Economic Elites at Davos 2018Demonstrators in Zurich this week. While many are poised to recoil at President Trump’s arrival in Davos this week, much of the moneyed elite there are willing to overlook what they portray as the president’s rhetorical foibles in favor of the additional wealth he has delivered to their coffers. Credit Ennio Leanza/European Pressphoto Agency.


The world is plagued by almost intractable problems. Inequality is surging, especially in the advanced economies. The digital revolution, despite its potential, also carries serious risks for privacy, security, jobs, and democracy – challenges that are compounded by the rising monopoly power of a few American and Chinese data giants, including Facebook and Google. Climate change amounts to an existential threat to the entire global economy as we know it.

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Perhaps more disheartening than such problems, however, are the responses. To be sure, here at Davos, CEOs from around the world begin most of their speeches by affirming the importance of values. Their activities, they proclaim, are aimed not just at maximizing profits for shareholders, but also at creating a better future for their workers, the communities in which they work, and the world more generally. They may even pay lip service to the risks posed by climate change and inequality.

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But, by the end of their speeches this year, any remaining illusion about the values motivating Davos CEOs was shattered. The risk that these CEOs seemed most concerned about is the populist backlash against the kind of globalization that they have shaped – and from which they have benefited immensely.

Not surprisingly, these economic elites barely grasp the extent to which this system has failed large swaths of the population in Europe and the United States, leaving most households’ real incomes stagnant and causing labor’s share of income to decline substantially. In the US, life expectancy has declined for the second year in a row; among those with only a high school education, the decline has been underway for much longer.

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Justin Trudeau of Canada and Narendra Modi of India–The Globaists at Davos 2018 who together with Germany’s Angela Merkel, Emmanuel Macton of France and China’s Xi Jinping will make America First’s Donald Trump irrelevant.

Not one of the US CEOs whose speech I heard (or heard about) mentioned the bigotry, misogyny, or racism of US President Donald Trump, who was present at the event. Not one mentioned the relentless stream of ignorant statements, outright lies, and impetuous actions that have eroded the standing of the US president – and thus of the US – in the world. None mentioned the abandonment of systems for ascertaining truth, and of truth itself.

Indeed, none of America’s corporate titans mentioned the administration’s reductions in funding for science, so important for strengthening the US economy’s comparative advantage and supporting gains in Americans’ standard of living. None mentioned the Trump administration’s rejection of international institutions, either, or the attacks on the domestic media and judiciary – which amounts to an assault on the system of checks and balances that underpins US democracy.

No, the CEOs at Davos were licking their lips at the tax legislation that Trump and congressional Republicans recently pushed through, which will deliver hundreds of billions of dollars to large corporations and the wealthy people who own and run them – people like Trump himself. They are unperturbed by the fact that the same legislation will, when it is fully implemented, lead to an increase in taxes for the majority of the middle class – a group whose fortunes have been in decline for the last 30 years or so.

Even in their narrowly materialistic world, where growth matters above all else, the Trump tax legislation should not be celebrated. After all, it lowers taxes on real-estate speculation – an activity that has produced sustainable prosperity nowhere, but has contributed to rising inequality everywhere.

The legislation also imposes a tax on universities like Harvard and Princeton – sources of numerous important ideas and innovations – and will lead to lower local-level public expenditure in parts of the country that have thrived, precisely because they have made public investments in education and infrastructure. The Trump administration is clearly willing to ignore the obvious fact that, in the twenty-first century, success actually demands more investment in education

For the CEOs of Davos, it seems that tax cuts for the rich and their corporations, along with deregulation, is the answer to every country’s problems. Trickle-down economics, they claim, will ensure that, ultimately, the entire population benefits economically. And the CEOs’ good hearts are apparently all that is needed to ensure that the environment is protected, even without relevant regulations.

Yet the lessons of history are clear. Trickle-down economics doesn’t work. And one of the key reasons why our environment is in such a precarious condition is that corporations have not, on their own, lived up to their social responsibilities. Without effective regulations and a real price to pay for polluting, there is no reason whatsoever to believe that they will behave differently than they have.

The Davos CEOs were euphoric about the return to growth, about their soaring profits and compensation. Economists reminded them that this growth is not sustainable, and has never been inclusive. But such arguments have little impact in a world where materialism is king.

So forget the platitudes about values that CEOs recite in the opening paragraphs of their speeches. They may lack the candor of Michael Douglas’s character in the 1987 movie Wall Street, but the message hasn’t changed: “Greed is good.” What depresses me is that, though the message is obviously false, so many in power believe it to be true.

Brexit: Britain’s nervous breakdown, and Theresa May’s Waterloo

February 2, 2018

Opinion Brexit

Brexit:  Britain’s nervous breakdown, and Theresa May’s Waterloo

The country is upending the policies that have set its national course for 50 years

by Philip

Familiarity is a distorting prism. All too easily the extraordinary becomes the unremarkable, the aberrant the commonplace. This is what has happened in Britain following the referendum  decision to leave the EU. The attempt to wrench the nation out of its own continent has triggered a national nervous breakdown. Only the British cannot see it.

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Open plotting against an enfeebled Prime Minister, civil war in the cabinet, a ruling Conservative party riven by faction, a Labour opposition led by a life-long admirer of Fidel Castro, parliament imprisoned by the referendum result, paralysis at the heart of government — all have become the stuff of everyday politics. Britain was once a sturdy, stable democracy. Anger and acrimony are the new normal, as likely to elicit a weary shrug as incredulity.

Historians will scratch their heads in wonder. These are truly extraordinary times. Britain is upending the economic and foreign policies that have set its national course for half a century. Nothing in modern peacetime matches the upheaval. The impact on the nation’s prosperity, security and role in international affairs will be felt for a generation and beyond. Unwrapping decades of integration is a task of huge complexity.

And yet Theresa May, the Prime Minister, dare not set out her preferred course for a post-Brexit settlement lest she be toppled by her own Tory MPs. Instead she pleads with Germany’s Angela Merkel to tell her what Berlin might offer in terms of a future relationship. The humiliation is excruciating.

With each step back from the melee, the picture becomes all the more incredible. Most MPs in the House of Commons consider Brexit an act of folly. They will vote against their judgment because the referendum, with its narrow majority for leave, has been invested with an absurd, almost mystical status. Let no one dare question “the will of the people”. With the odd, honourable exception, Tory and Labour pro-Europeans seem inclined to let Britain sink rather than make common cause across party lines. A nation that calls itself the mother of parliaments has somehow mislaid the meaning of representative democracy.

Brexit is an act of protectionism promulgated by English nationalists who inexplicably style themselves free-marketeers. Every study produced in Whitehall suggests departure from the single market will leave Britain poorer and less able to promote its interests overseas. Throwing up barriers across the Channel will weaken its voice across the Atlantic.

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Michael Gove
“Baffled historians will search in vain to find a single official in the high echelons of Whitehall — from the cabinet stary down — who thinks Brexit is anything less than a catastrophe…[T]he vision amounted to no more than rhetorical flatulence on the part of Boris Johnson…The foreign secretary has no project or purpose in mind. He wants to be prime minister because, well, he wants to be prime minister. Parallels with US president Donald Trump are not far-fetched”.–Philip Stephens


Only this week Mrs May sought unsuccessfully to suppress an official analysis showing the alternatives to EU membership will reduce growth and cut living standards. Tory Brexiters are unmoved. The cabinet Brexiter Michael Gove sets the intellectual tone when he pours scorn on the insights of experts.

Baffled historians But what of “global Britain”, the bold Elizabethan future imagined by the Brexiters? Alas, the historians will discover, the vision amounted to no more than rhetorical flatulence on the part of Boris Johnson, the foreign secretary…Mr Johnson, whose calculated mendacity is matched only by inflated self-regard, is determined Mrs May should be ousted.

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Boris Johnson–What he wouldn’t to be British Prime Minister

Where all this leads, it is impossible to say. Mr Johnson, whose calculated mendacity is matched only by inflated self-regard, is determined Mrs May should be ousted. Personal ambition burns more brightly here than any convictions. The foreign secretary has no project or purpose in mind. He wants to be prime minister because, well, he wants to be prime minister. Parallels with US president Donald Trump are not far-fetched.

Mrs May could survive. But to what end? Without the confidence of her cabinet and deprived of a majority in the House of Commons by an ill-judged general election, Mrs May has neither the wit nor the authority to reach a sensible agreement with the EU27. Most MPs would back a “soft” Brexit, leaving Britain’s economy closely connected to Europe. Mrs May feels threatened by the English nationalists. Her strategy, if you could call it that, is to leave all the serious decisions until after Britain’s departure from the EU in March 2019.

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Labour’s Jeremy Corbyn

Jeremy Corbyn is a 1970s hardline socialist who sees the EU as a capitalist conspiracy. Mr Corbyn may launch opportunistic strikes against the government but shows no enthusiasm for a close relationship with the EU27.

In other circumstances Her Majesty’s loyal opposition might offer a counterpoint of stability. Instead Labour is led by Jeremy Corbyn, a 1970s hardline socialist who sees the EU as a capitalist conspiracy. Mr Corbyn may launch opportunistic strikes against the government but shows no enthusiasm for a close relationship with the EU27.

As for the voters, some may have changed their minds. Polls suggest the 52:48 per cent tally in favour of Leave would be reversed in a second referendum. Maybe. But these numbers are well within the margin for error. Why anyway should people take a different view before they have seen the deal on offer from Britain’s erstwhile partners and, pace Mr Gove, have weighed the evidence as to the likely effect on living standards?

If there is a slim hope that Britain can emerge wounded rather than broken, it lies in the possibility that things will get still worse in the short term. Mendacity, chaos and division could end in complete paralysis — with parliament failing to agree on any form of Brexit. If Britain does remain part of the EU after all this, it will be because, in its present state, it is simply incapable of leaving.



The Economics of Dirty Old Men by Paul Krugman

January 26, 2018

The Economics of Dirty Old Men by Paul Krugman

As a candidate, Donald Trump talked incessantly about international trade and how he was going to make America great again by renegotiating trade agreements, forcing foreigners to stop taking away our jobs. But during his first year in office, he did almost nothing on that front — possibly because corporate America managed to inform him that it has invested a lot of money based on the assumption that we would continue to honor Nafta and other trade agreements, and would lose bigly if he broke them.

This week, however, Trump finally did impose tariffs on washing machines and solar panels. The former tariff was, I think, more about looking tough than about any kind of strategic objective. The latter, however, fits in with an important part of this administration’s general vision. For this is very much an administration of dirty old men.

About washing machines: The legal basis of the new tariff is a finding by the United States International Trade Commission that the industry has been injured by rising imports. The definition of “injury” is a bit peculiar: The commission admitted that the domestic industry “did not suffer a significant idling of productive facilities,” and that “there has been no significant unemployment or underemployment.” Nonetheless, the commission argued that production and employment should have expanded more than it did given the economy’s growth between 2012 and 2016 (you know, the Obama-era boom Trump insisted was fake).

If this seems like a flimsy justification for an action that will significantly raise consumer prices, that’s because it is. But Trump decided to do it anyway.

The solar panel tariff is more interesting, and more disturbing, because it will surely destroy many more jobs than it will create.

The fact is that the U.S. is largely out of the solar panel-producing business, and whatever the reasons for that absence, this policy won’t change it. Like the washing-machine tariff, the solar-panel tariff was imposed using what’s known in trade policy circles as the “escape clause” — rules that allow temporary protection of industries suffering sudden disruption. The operative word here is “temporary”; since we’re not talking about sustained protection, this tariff won’t induce any long-term investments, and therefore won’t bring the U.S. solar panel industry back.

What it will do, however, is put a crimp in one of the U.S. economy’s big success stories, the rapid growth of renewable energy. And here’s the thing: Everything we know about the Trump administration suggests that hurting renewables is actually a good thing from its point of view. As I said, this is an administration of dirty old men.

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House Speaker Paul Ryan

Over the past decade or so there has been a remarkable technological revolution in energy production. Part of that revolution has involved the rise of fracking, which has made natural gas cheap and abundant. But there have also been stunning reductions in the cost of solar and wind power.

Some people still think of these alternative energy sources as hippy-dippy stuff that can’t survive without big government subsidies, but the reality is that they’ve become cost-competitive with conventional energy, and their cost is still falling fast. And they also employ a lot of people: Over all, there are around five times as many people working, in one way or another, for the solar energy sector as there are coal miners.

But solar gets no love from Trump officials, who desperately want the country to stay with dirty old power sources, especially coal. (Wait — when I called them dirty old men, did you think I was talking about payoffs to porn stars? Shame on you.) They’ve even rewritten Energy Department reports in an attempt to make renewable energy look bad.

They’ve tried to turn their preference for dirty energy into concrete policy, too. Last fall, Rick Perry, the energy secretary, tried to impose a rule that would in effect have forced electricity grids to subsidize coal and nuclear plants. The rule was shot down, but it showed what these guys want. From their point of view, destroying solar jobs is probably a good thing.

Why do Trump and company love dirty energy? Partly it’s about the money: what’s good for the Koch brothers may not be good for America (or the world), but it’s good for G.O.P. campaign finance. Partly it’s about blue-collar voters, who still imagine that Trump can bring back coal jobs. (In 2017 the coal industry added 500, that’s right, 500 jobs. That’s 0.0003 percent of total U.S. employment.)

It’s also partly about cultural nostalgia: Trump and others recall the heyday of fossil fuels as a golden age, forgetting how ghastly air and water pollution used to be. But I suspect that it’s also about a kind of machismo, a sense that real men don’t soak up solar energy; they burn stuff instead.

Whatever the specific motivations, the administration’s first significant trade policy move is stunningly boneheaded. You shouldn’t even call it protectionism, since its direct effect will be to destroy far more jobs than it creates. Plus it’s bad for the environment. So much winning!

Image result for The Economics of Dirty Old MenNobel Laureate in Economics–Paul Krugman


A version of this op-ed appears in print on January 26, 2018, on Page A23 of the New York edition with the headline: The Economics Of Dirty Old Men.

GDP Should Be Corrected

January 23, 2018

GDP Should Be Corrected

by Urs

The hazards of relying solely on gross domestic product as a measure of overall economic activity have become obvious over time, especially as corporate profits have outpaced GDP growth in key economies. But none of the flaws in GDP are fatal, and policymakers should focus on fixing them, rather than seeking an entirely new framework.


ZURICH – Respected economists have long pointed out that gross domestic product is an inadequate measure of economic development and social well-being, and thus should not be policymakers’ sole fixation. Yet we have not gotten any closer to finding a feasible alternative to GDP.

One well-known shortcoming of GDP is that it disregards the value of housework, including care for children and elderly family members. More important, assigning a monetary value to such activities would not address a deeper flaw in GDP: its inability to reflect adequately the lived experience of individual members of society. Correcting for housework would inflate GDP, while making no real difference to living standards. And the women who make up a predominant share of people performing housework would continue to be treated as volunteers, rather than as genuine economic contributors.4

Another well-known flaw of GDP is that it does not account for value destruction, such as when countries mismanage their human capital by withholding education from certain demographic groups, or by depleting natural resources for immediate economic benefit. All told, GDP tends to measure assets imprecisely, and liabilities not at all.

Still, while no international consensus on an alternative to GDP has emerged, there has been encouraging progress toward a more considered way of thinking about economic activity. In 1972, Yale University economists William Nordhaus and James Tobin proposed a new framework, the “measure of economic welfare” (MEW), to account for sundry unpaid activities. And, more recently, China established a “green development” index, which considers economic performance alongside various environmental factors.

Moreover, public- and private-sector decision-makers now have far more tools for making sophisticated choices than they did in the past. On the investor side, demand for environmental, social, and governance data is rising steeply. And in the public sector, organizations such as the World Bank have adopted metrics other than GDP to assess quality of life, including life expectancy at birth and access to education.

At the same time, the debate around gross national income has been gaining steam. Though it shares fundamental elements with GDP, GNI is more relevant to our globalized age, because it adjusts for income generated by foreign-owned corporations and foreign residents. Accordingly, in a country where foreign corporations own a significant share of manufacturing and other assets, GDP will be inflated, whereas GNI shows only income the country actually retains (see chart).

Ireland is a prominent example of how GNI has been used to correct for distortions in GDP. In 2015, Ireland’s reported GDP increased by an eye-popping 26.3%. As an October 2016 OECD working paper noted, the episode raised serious questions about the “ability of the conceptual accounting framework used to define GDP to adequately reflect economic reality.”

The OECD paper went on to conclude that GDP is not a reliable indicator of a country’s material well-being. In Ireland’s case, its single year of astonishing GDP growth was due to multinational corporations “relocating” certain economic gains – namely, the returns on intellectual property – in their overall accounting. To address the growing disparity between actual economic development and reported GDP, the Irish Central Statistics Office introduced a modified version of GNI known as GNI*) for 2016.

The gap between GDP and GNI will likely close soon in other jurisdictions, too. In a recent working paper, Urooj Khan of Columbia Business School, Suresh Nallareddy of Duke University, and Ethan Rouen of Harvard Business School highlight a misalignment in “the growth in corporate profits and the overall US economy” between 1975 and 2013. They find that, during that period, average corporate-profit growth outpaced GDP growth whenever the domestic corporate-income-tax rate exceeded that of other OECD countries.

In late December, this disconnect was addressed with the passage of the 2017 Tax Cuts and Jobs Act. By lowering the corporate-tax rate to a globally competitive level and granting better terms for repatriating profits, the tax package is expected to shift corporate earnings back to the United States. As a result, the divergence between GDP and GNI will likely close in both the US and Ireland, where many major US corporations have been holding cash.

Looking ahead, I would suggest that policymakers focus on three points. First, as demonstrated above, the relevant stakeholders are already addressing several of the flaws in GDP, which is encouraging. Second, public- and private-sector decision-makers now have a multitude of instruments available for better assessing the social and environmental ramifications of their actions.

And, third, in business one must not let the perfect become the enemy of the good. We have not solved all of the problems associated with GDP, but we have come a long way in reducing many of its distortions. Instead of seeking a new, disruptive framework to replace current data and analytical techniques, we should focus on making thoughtful, incremental changes to the existing system.