Page 493 - The Principle of Economics

CHAPTER 22 MEASURING A NATION’S INCOME 505
IN THE NEWS
GDP Lightens Up
GDP measures the value of the econ- omy’s output of goods and services. What do you think we would learn if, instead, we measured the weight of the economy’s output?
From Greenspan, a (Truly) Weighty Idea
BY DAVID WESSEL
Having weighed the evidence carefully, Federal Reserve Chairman Alan Greenspan wants you to know that the
U.S. economy is getting lighter. Literally.
When he refers to “downsizing” in this instance, Mr. Greenspan means that a dollar’s worth of the goods and ser- vices produced in the mighty U.S. econ- omy weighs a lot less than it used to, even after adjusting for inflation.
A modern 10-story office building, he says, weighs less than a 10-story building erected in the late 19th century.
With synthetic fibers, clothes weigh less. And the electronics revolution has pro- duced televisions so light they can be worn on the wrist.
By conventional measures, the [real] gross domestic product—the value of all goods and services produced in the nation—is five times as great as it was 50 years ago. Yet “the physical weight of our gross domestic product is evi- dently only modestly higher than it was 50 or 100 years ago,” Mr. Greenspan told an audience in Dallas recently.
When you think about it, it’s not so surprising that the economy is getting lighter. An ever-growing proportion of the U.S. GDP consists of things that don’t weigh anything at all—lawyers’ services, psychotherapy, e-mail, online information.
But Mr. Greenspan has a way of making the obvious sound profound. Only “a small fraction” of the nation’s economic growth in the past several decades “represents growth in the ton- nage of physical materials—oil, coal, ores, wood, raw chemicals,” he has observed. “The remainder represents new insights into how to rearrange those physical materials to better serve human needs.” . . .
The incredible shrinking GDP helps explain why American workers can pro- duce more for each hour of work than
ever before. . . . [It] also helps explain why there is so much international trade these days. “The . . . downsizing of out- put,” Mr. Greenspan said recently, “meant that products were easier and hence less costly to move, and most especially across national borders.” . . .
“The world of 1948 was vastly dif- ferent,” Mr. Greenspan observed a few years back. “The quintessential model of industry might in those days was the array of vast, smoke-encased integrated steel mills . . . on the shores of Lake Michigan. Output was things, big physi- cal things.”
Today, one exemplar of U.S. eco- nomic might is Microsoft Corp., with its almost weightless output. “Virtually unimaginable a half-century ago was the extent to which concepts and ideas would substitute for physical resources and human brawn in the production of goods and services,” he has said.
Of course, one thing Made in the U.S. is heavier than it used to be: peo- ple. The National Institutes of Health says 22.3% of Americans are obese, up from 12.8% in the early 1960. But Mr. Greenspan doesn’t talk about that.
SOURCE: The Wall Street Journal, May 20, 1999, p. B1.
Much of what Robert Kennedy said is correct. Why then do we care about GDP? The answer is that a large GDP does in fact help us to lead a good life. GDP does not measure the health of our children, but nations with larger GDP can afford better health care for their children. GDP does not measure the quality of their education, but nations with larger GDP can afford better educational sys- tems. GDP does not measure the beauty of our poetry, but nations with larger GDP can afford to teach more of their citizens to read and to enjoy poetry. GDP does not take account of our intelligence, integrity, courage, wisdom, or devotion to coun- try, but all of these laudable attributes are easier to foster when people are less con- cerned about being able to afford the material necessities of life. In short, GDP does not directly measure those things that make life worthwhile, but it does measure
our ability to obtain the inputs into a worthwhile life.