Sunday, June 08, 2008

Testimony of Jonathan Rowe: "Our Phony Economy"

The text of Jonathan Rowe's testimony of March 12, 2008 before the United States Senate Committee on Commerce, Science and Transportation, Subcomittee on Interstate Commerce is reproduced in Harper's Magazine, June 2008. The author explains why Gross Domestic Product is an inadequate measure of the nation's economic strength. Katharine G. Abraham, Professor of Survey Methodology, University of Maryland, also testified at this hearing.

Thanks to my cousin Wael Fadel for pointing me towards this topic!


Dave Danger said...

I am not sure what motivated the subtitle "Our Phoney Economy." If it's so phoney, then please do leave for a "real economy."

I would recommend reading the testimony of Katharine Abraham (thanks for posting this). She is careful to praise the NIPA system, while offering constructive criticism. At the end of the day, we are talking about measuring the economic activity of a highly complex system. It is easy to criticize; it is much more difficult to offer concrete solutions.

Ayman H Fadel said...

The subtitle, "Our Phoney Economy", is the title of the article Johnathan Rowe wrote for Harper's Magazine. I should have made that more clear, since it that phrase does not appear in the congressional testimony.

I freely admit that I'm no economist. I will say that the most intriguing economic discussion I've ever read comes from Kim Stanley Robinson's Mars trilogy. The economic system the Martians adopt combines elements of free enterprise and private property with restrictions on capital investment. And yes, that is science fiction!

Are there statistics which can show growth in the consumption of healthy goods and services? Listen to this NPR segment where porn companies say the stimulus checks have given them a summer boost.

I think another important point from the testimony was that environmental damage is not factored into GDP growth. So China's GDP may be growing quickly, but the unmeasured services provided by its forests and rivers are decreasing.

Thank you for your comment.

Ayman H Fadel said...

Link to NPR segment mentioned in previous comment

Ayman H Fadel said...

One other concept I think we'd need in our economic discussions is depreciation of infrastructure. If our water treatment facilities, bridges, train tracks and levees are not maintained, it would be good if that "depreciation" would be reflected in a statistic like GDP.

Dave Danger said...

Like I said, if Rowe believes that he is living in a "phoney" economy, then he is free to leave for a "real" one. At least his economy allows for the free movement of people.

His point that the GDP does not include environmental degradation is well taken, but it is also something that is well known among macroeconomists. The "G" in GDP stands for "Gross" -- as in not including the depreciation of capital (be it physical or environmental).

Planned economies like the old Soviet Union and China are notorious for their lack of respect of the environment. Market economies try to offer solutions, like green technologies.

As for people spending their money on porn, it is a fact that in a free society, people are free to spend their money on whatever they like. The fact that someone downloads porn does not harm me, however distasteful I might find their activity. The alternative would be to legislate morality on people -- and I find this much more reprehensible.