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www.bea.gov
GDP & Beyond: Measuring Economic
Progress & Sustainability
SGE Annual ConferenceSeptember 21st, 2009
J. Steven Landefeld, Director
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Long Standing Issue
▪ Kuznets original concerns regarding the scope of the original accounts
▪ "Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product, if we should judge America by that, counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors…
Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play…it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans."
-- Robert F. Kennedy Address, University of Kansas,
Lawrence, Kansas, March 18, 1968
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Long Standing Issue
▪ “The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on the ability to extend opportunity to every willing heart -- not out of charity, but because it is the surest route to our common good.”
-- President Barak Obama, Inaugural Address, Washington D.C., January 20, 2009
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Long Standing Issue
▪ “The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens' own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximize it, but citizens also demand that attention be paid to enhancing security, reducing pollution, and so forth - all of which might lower GDP growth.
The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognized. But changes in society and the economy may have heightened the problems, at the same time that advances in economics and statistical techniques may have provided opportunities to improve our metrics.”
-- Joseph Stiglitz, Economist.com, September 10th 2009
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What Can We Do Within The NIPA’s: Economic Progress & Sustainability
▪ Measures of Economic Progress: Households Regions Business
▪ Measures of Sustainability: GDP Investment Asset Prices Leverage
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Real GDP, Real DPI & Real Compensation
2.4
0.4
2.7
0.5
2.1
-1.0-1.5-1.0-0.50.00.51.01.52.02.53.0
Avg. growth, 2000-2007 2008
Perc
ent
Real GDP Real Disposable Personal Income Real Compensation
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Household Income: Alternative Estimates
2.4
0.4
2.7
0.5
1.8
-0.4
1.5
-1.4-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Avg. growth, 2000-2007 2008
Perc
ent
Real GDP Real DPI Real DPI per capita Real DPI less transfers per capita
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Spendable Income: Cash Measures
1.8
-0.4
1.5
-0.5
1.1
-0.7-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Avg. growth, 2000-2007 2008
Perc
ent
Real DPI per capita Real Compensation per worker Real Wages per worker
www.bea.gov
2.4
0.4
1.8
-0.4
1.9
-1.4-2.0-1.5-1.0-0.50.00.51.01.52.02.53.0
Avg. growth, 2000-2007 2008
Perc
ent
Real GDP Real DPI per capita Real discretionary income per capita
Household Income: Cash Income*
* Cash income refers to income generated from the economy available for discretionary spending by households. This measure of Income excludes spending on such basics as food, shelter, clothing, child care, utilities, out of pocket medical care expenses, transportation and interest payments on consumer debt. Source: BEA NIPA data, deflated using PCE less food and energy price index.
** The slightly higher average annual growth rate in real DPI versus real discretionary income reflects the different deflators used to deflate each measure. The total PCE price index (used to deflate DPI) increased 2.3% from 2000-2002 and the PCE less food and energy price index (used to deflate discretionary income) increased 2.0%. Nominal DPI and discretionary income over the same time period increased 5.1% and 4.9%, respectively.
**
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Regional Household Income
Source: BEA Regional data.
Adjusting for regional price differences
7,423
-7,403-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
West Virginia New York
$ D
iffer
ence
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Regional Household Income
Source: BEA Regional data.
Impact of classifying retirement income in state of residence
12.5
-4.7-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Florida Maryland
$ Di
ffer
ence
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Sustainability
▪ Measuring Sustainability: Long-Term Examples from Recent Experience
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Business Income: Real GDI & NDI
Source: BEA NIPA data
2.2
-0.4
2.0
-0.9-1.5
-1.0-0.5
0.00.5
1.0
1.52.0
2.5
Avg. growth, 2000-2007 2008
Perc
ent
Real GDI Real NDI
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Business Income: Real Gross & Net Domestic Investment
Source: BEA NIPA data
1.5
-5.5
-1.9
-21.9-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
Avg. growth, 2000-2007 2008
Perc
ent
Real Gross Domestic Invest. Real Net Domestic Invest.
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Housing & Personal Income
Source: BEA NIPA data & Federal Reserve Board Flow of Funds data
Ratio of Residential Fixed Investment to Personal Income
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
19701972
19741976
19781980
19821984
19861988
19901992
19941996
19982000
20022004
20062008
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Equity prices, NIPA profits & GDP
0
10
20
30
40
50
60
70
80
90
100
1 949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004
19
49
=1
Nom inal GDP "S&P clos ing prices" Domestic Profits from Curre nt Pdn.
Source: BEA NIPA data, Standard and Poor’s data
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Household asset values & savings
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
55000
60000
65000
80Q
1
81Q1
82Q
1
83Q1
84Q1
85Q1
86Q
187
Q188
Q189
Q190
Q191
Q192
Q193
Q194
Q195
Q196
Q197
Q198
Q199
Q100
Q101
Q102
Q103
Q104
Q105
Q106
Q107
Q108
Q1
Bill
ion
s o
f d
olla
rs
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Ind
ex, 8
0Q1:
1.00
Net worth Personal savings rate Net worth as % of DPI
Source: BEA NIPA data & Federal Reserve Board Flow of Funds data
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Business Sector Leveraging
Source: BEA/FRB Integrated U.S. Macroeconomic accounts
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Financial Business TL / TA
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Missing the Mark
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What Else Should We Highlight?
▪ The thrust of the Economist cover story (and others like it) is that economists failed to adequately incorporate risk and the financial sector into their models of the real economy
▪ We need to provide them with the toolkit to help do that.