GDP Like You’ve Never Seen Before

Bill Tatro
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Posted: Aug 01, 2013 12:01 AM

As a 17-year-old freshman at George Washington University, I experienced many difficulties adjusting to newfound college life, not the least of which was trying to understand the well-accepted economic principle that productivity is a good thing.  I fully understood that if ten widgets could be produced by only eight people — instead of the customary ten people — it was beneficial for the producer’s bottom line.  Indeed, as my education continued to focus on margins and profits, increased productivity seemed to be an advantageous economic concept.  Every once in a while, however, I allowed a little bit of sentimentality to enter into the equation as I once asked my professor, “What happens to the two widget workers who were no longer needed?”  The response from my instructor — the world renowned John Kenneth Galbraith — was somewhat predictable as he replied, “There will always be another job available, after all, it’s the United States of America.”  Well, that was back in 1964.  Fast-forward to the present day, and now it only takes two people to make ten widgets.  Needless to say, productivity has certainly come a long way.  But what about those eight widget workers who are now out of a job?  

In order to help answer this question, let’s consider what the magnificent Albert Einstein once said, “More and more I come to value charity and love of one’s fellow being above everything else...all our lauded technological progress — our very civilization — is like the axe in the hand of the pathological criminal.”  In addition, let’s also reflect upon the work of American economist Arthur Melvin Okun who once proclaimed that for every 1% increase in the unemployment rate, a country’s GDP will essentially decrease by 2% (Okun’s law.)  Thus,  according to Okun, the eight unemployed workers in our example would definitely have a negative impact on productivity (GDP.)  Nevertheless, while Okun’s law is a common sense idea accepted by most economists, it now seems to be going askew.  With our current unemployment rate supposedly declining, alas and alack, our GDP has also been decreasing.  So, what’s the deal? 

While the good folks at the Bureau of Economic Analysis (BEA) have changed the way that unemployment is computed, they forgot all about the GDP measurement and Okun’s law — until now.  Revising the past 84 years of U.S. GDP calculations in order to adapt to accepted economic principles would seem to be a very big deal, but not according to our current administration.  In other words, with these newly announced methods of GDP measurement in mind, just imagine a persistent reporter asking, “Mr. President, what’s 2+2?”  Obama’s probable reply, “What do you need it to be?”  Indeed, the current White House philosophy has been to champion the birth/death jobs ratio, implement frequent revisions, constantly adjust for seasonality, and now even revise the GDP calculation itself.      

So, what happens to those eight aforementioned unemployed workers?  They usually end up sitting directly behind the president, eventually falling asleep, as the commander-in-chief delivers one of those “we’re doing better” speeches.  

We now have a pretty good idea of who the great Albert Einstein was talking about.