GDP as a measure of Economic Health

Amidst a dearth of work in the office, my coworkers and I began to engage in an office taboo: discussing politics in the workplace. One made an excellent point about the state of financial affairs in our country, GDP is the commonly accepted measure for economic health, but she felt it was too simple a measure of economic reality.

Afterall, GDP only considers production as a determinate of economic health. A developed economy like the United States doesn't have the need for tremendous levels of production like a developing country such as Brazil, India or China. So why are developed countries with high standards of living attempting to operate at growth of GDP levels equivalent to the developing world? The standard of living in developing countries is much lower, and the need for basic goods and services much greater in these countries. Their GDP levels are much lower than developed countries. Basically, if incomes in a developed country are already higher, then why is it even important to have high GDP growth if we're already adjusting for inflation?

What exactly does GDP factor in?

1. Wages, Salaries, Income
2. Corporate Profits
3. Interest on Investments
4. Farmer's Income
5. Income from non-farm unincorporated businesses (small business)

Then we subtract income taxes from all of these profits and adjust for inflation. This, in a nutshell, provides a GDP value for an entire country. Is there money that GDP not measure?

1. Savings (ie, investments) - if you have money in a bank account, it's technically not money your earning, only the interest is income which is why that is included in the above and not the investment itself.
2. International products owned by the country's company - GDP only reflects domestic products. If China is producing your country's goods, then that's not a domestically produced product. However, the corporation is likely reaping profit and that would be reflected in the GDP? (I dunno)

What my coworker pointed out that's so astute is this: GDP growth is the single most widely recognized value for determining the economic health of countries, but countries like the United States are inundated with products and a majority of the people in the country already have basic ammenities. We assume that countries need to see yearly gains in their productivity despite already being highly productive (US has far and away the highest GDP in the world) and possessing extremely high quality products compared to the rest of the world.

Really, the United States has an EXTREMELY healthy economy. So does most of Europe (EU has the #2 largest GDP). What worries economists is not that their GDP might be shrinking, but that it is increasing at a much lower rate than it used to. Is this actually a cause for concern? Per capita, the US is still one of the most affluent countries in the world. The countries with higher per capita incomes all have extremely small populations and half are oil exporters. A lot of those countries may have high per capita incomes but their income disparity is even higher than the US' (which is already high).

US citizens do not need to worry about their economy as a whole, it's already producing an enormous amount every year! So what's the deal, why are Americans not happy if their economy is actually doing really well? As far as I can tell, the reason Americans continue to hurt despite a vibrant economy is that the dividends of production are being felt increasingly by an upper class minority rather than a broader middle class. Put another way, the rich are getting richer, the poor are increasing in number, and the middle is shrinking. As the middle shrinks, the number of families with less money to spend in our economy grows, and they become more dependent on government aid (the government has to spend more).

People spend money in an economy because they have to, the market is our capitalistic means of handling the self-interest of an entire nation's worth of people. The premise of such a system is that people are receiving money for services/goods that they provide, which they can then exchange for the goods/services that they desire. If people are receiving less money for the services they provide, they have less money to spend on all that they desire. And if you're not able to get much of anything that you need to survive, you're going to be unhappy.

Polls claim that Americans are most concerned about the job situation, companies are claiming that Americans aren't spending enough to warrant job creation. Other people claim that the government taxes too much, and that's stopping job creation. Let's remember that we have a booming economy, the biggest in the world by far. Even though it's not growing at the rate it used to, it's still massive and corporations are reaping huge profits. High unemployment exists because corporations, the biggest employers in our country, eek out higher rates of production from fewer employees. Even as employees are working harder than ever, it's the management and executives who are reaping most of the benefits. Our economy is FINE, it's the balancing act that redistributes wealth to lower income earners that is suffering.

One of these balancing acts is the minimum wage. People long ago realized that living in a city like New York would be impossible even with the minimum wage laws Congress has passed. Cities in similar situations have passed living wage ordinances. Here's a cool website that tracks the minimum living wage estimate for any particular geographic region of our country, compared to the actual minimum wage of that State. Our extremely low minimum wage compared to our extremely high per capita income compounded by the fact that almost half of our country is barely earning a living wage means that those lucky few who consider themselves upper income earners are in vastly better shape than the majority!

What has happened here? We are the wealthiest country on Earth. Our economy is booming, don't let any analyst or pundit fool you. Just look at our GDP for crying out loud. GDP doesn't need to grow for it to still be HUGE. And yet, our country has returned to the dark days of the depression and industrial revolution! We are not in the midst of an economic recession. We are in the midst of economic robbery.