The writer is professor of political arithmetic at the University of Amsterdam
Now that Covid-19 vaccines have become a reality, policymakers can finally begin to design countermeasures against the pandemic’s economic damage. But how to assess that harm, and where to find guidance for future strategies?
Estimates of 2020 gross domestic product that survey the hit to national production loom large in public debate and in comparisons across national economies. Yet they hide both good and bad news under the rubble of the pandemic and are useless in navigating our economies.
If we ignore trade surpluses or deficits, what a country produces over a year should be mirrored both in what it consumes and what workers and factory owners earn as compensation for the production, and as a means to buy and consume it. Production, consumption and income — the three sides of the GDP coin — conceptually correspond.
In many sectors, such as agriculture, drop-offs in production or sales are easy to track. Yet what has happened to output for the millions of computer-based workers who have relocated to the home office? For some, Covid has torpedoed productive work through home-schooling demands, fatigue, anxiety and monotony; others finally feel freed from tedious commutes. The impact on actual output is anybody’s guess. Yet many such workers have continued to receive wages as before. So GDP calculations tracking the flow of pay cheques register a normalcy at odds with reality.
This dynamic is amplified in the public sector. It is hard to quantify the value of schools or healthcare institutions. Governments therefore take the money spent on them as a proxy for production — substituting input for output. Coronavirus meant teachers suddenly had to engage students through webcams and chat rooms. Workloads increased; many students learnt less. But how does the 2020 output of the education sector compare with 2019?
Health sector figures have the opposite problem. Medical professionals have produced invaluable services, often risking their own health. Statistics that only track operational costs offer a distorted view of output. Billions have been spent financing everything from vaccine research to security guards who enforce social distancing in shops, without making us any better off than in 2019. Do these additional goods and services belong on the positive side of the 2020 GDP ledger?
Things get worse when we compare governments’ economic performances. Claims that country A did so much better than country B in averting economic damage will marshal GDP data as evidence. Such conclusions will be bogus. Some nations have launched unprecedented borrowing sprees — yet netting one-off fiscal stimulus out of GDP data is fiendishly difficult. Public subsidies have delinked pay from production, so each side of the GDP calculation gives a completely different view of economic dynamics.
Consider a final problem: household production, mostly by women — the care of children and parents, meals cooked, houses cleaned and so on. The share of market and non-market production rarely shifts abruptly. Except it did in 2020. Dinners not served in restaurants were cooked at home. Gym memberships were cancelled but people bought running shoes or tuned in to yoga videos on YouTube. Rather than disappearing, service “production” was displaced into households.
The “national” economic malaise that the statistics capture is very unevenly distributed across society. People with steady incomes accumulated savings as shops closed and holidays were cancelled. Others’ economic livelihoods have been devastated by Covid-19. GDP contraction normally suggests a collective societal shrinkage — but lumping together this year’s divergent experiences as an aggregate is meaningless.
GDP data for 2020 is for the dustbin. It tells us little about what has, and has not, been produced. It is a poor guide to understanding the present predicaments and charting a course for the future, now that economic recovery plans can begin to be made in earnest.
So which figures should politicians and policymakers focus on instead? The answer is simple. We should count those things we ultimately care about: the people with too little to eat, the shuttered shops, the students without meaningful schooling, the people who have had mental breakdowns and cannot work, household debts and savings, business activity in specific sectors.
As we navigate the pandemic and decide how public resources should be spent, such figures offer more effective guidance than GDP statistics, which absorb energy and attention without elucidating the true challenges we face.
Source: Economy - ft.com
