As anyone watching the markets can tell you, the economy isn’t exactly thriving. Even when one looks a little deeper – using things like annual GDP growth, inflation, etc. – the global economic system does not look very good. Larry Summers, a famous economist at Harvard who used to work in the Clinton Administration, recently noted that the global economy faces “secular stagnation,” and the IMF has said that global economic growth remains “elusive.” This is not an American problem; this is a global problem.
As my title suggests, however, I am going to take a contrarian view. The economy is certainly not performing as efficiently as I would hope, but it also isn’t as stagnant as many seem to believe. First, it’s important to look at the cost of living. While slow GDP growth is assuredly unfortunate, decreasing costs of living mean that real spending power is actually increasing. Indeed, costs for almost all consumer goods are way down, and inflation is almost non-existent. To quote Zachary Karabell:
Consider some of a family’s most important expenses: food, energy, and housing. In 1950, the average U.S. household spent 30 percent of its income on food. By the turn of the century, the figure had fallen to 13 percent, and in 2013, it stood at just ten percent. (Not surprisingly, that share is much higher for the poor, but food stamps and other government programs offset their expenses.) Housing in major cities accounts for a larger percentage of income than it did in the mid-twentieth century, but housing in general does not. And energy expenditures have tumbled, thanks to much greater energy efficiency in automobiles, better insulation for homes, and, recently, cheap oil and gas.
Thus, while wages are mostly stagnant, so are the costs of most goods and services. Instead of focusing exclusively on the income side, it is also crucial to examine costs. Historically the costs of goods and services rose as fast (or even faster) than wages. Therefore, it is not at all clear that current wage stagnation coupled with decreasing consumer prices is any worse than the period of rapid wage and price growth of the 1950s and 1960s.
Second, I’m unconvinced GDP growth is as slow as many seem to believe. GDP is an antiquated indicator for economic growth, and it is ill-suited to measure the strength of a modern economy. For example, consider all the information on Wikipedia and Youtube. Once one has a computer and an internet subscription, accessing all this information is free. That doesn’t mean that this information has no economic value, however. The internet provides citizens with near limitless information that enhances human capital by teaching new skills and revealing novel information. Consider, also, gains in efficiency. Solar power generators are expensive to install, but they generate large amounts of highly efficient “free” energy over many years. Instead of rewarding this efficiency, GDP calculations consider it a drain on the economy because it decreases coal and oil companies’ revenue. This is like saying that the early industrial revolution was a net drain on the economy because the increased factory efficiency was displacing traditional guilds.
Third, Japan seems to disprove the naysayers. They have been experiencing low growth, deflation, and a debt-to-GDP ratio of around 250% for over a decade. Nevertheless, Japan is one of the most affluent and stable countries in the world today. It has an incredibly high life expectancy, its education and healthcare services are top-notch, and almost every index of well-being consistently ranks them highly. If Japan can continue to prosper with so many things “wrong” with its economy, I think it is safe to say that the traditional measures of economic prosperity are no longer adequate.
Growth is not the only tool to increase economic prosperity. Economists and policymakers should focus on utilizing all the tools available to increase human development and stop blindly following the Cult of Growth.