GDP Undervalues the Impact of the Family
January 13, 2014 - 4:32pm CST
A strict free-market reading of economic growth would support the view that any monetary generating activity is of equal value to society. But is that really the case? For example, if I spend $1,000 on an abortion or $1,000 on a life-saving procedure, are the two activities really of the same value? If $15 million is spent to build a casino or a manufacturing facility, will they both produce the same economic results to the surrounding community?
In truth, abortions feed economic inequality since abortions are most prevalent among poor women (with an abortion rate of 53 per 1,000 women, representing 40 percent of all abortions). At the same time, well-heeled doctors and the health system pocket the abortion money, oftentimes including government-funded Medicaid dollars (17 states provide state Medicaid dollars for abortion under most circumstances, and most other states allow Medicaid coverage for abortion in the case of rape and incest). The doctors’ and health systems’ revenue increases the Gross Domestic Product (GDP).
And what about that $15 million casino? Studies have shown that casinos and other gambling venues are an economic black hole for the communities in which they are located. The revenue generated from mostly local customers is whisked away, never to return. Yet, economic theory says that this economic activity is just as valuable as any other.
According to government economists, revenues from abortions and the $15 million casino would go into our GDP, and America’s income goes up. If we suddenly decided to abort every baby in America, GDP would zoom, but within a few years it would become painfully obvious that a 100 percent abortion rate is also bad economics.
As economist Scott Moody and I have previously pointed out in these pages, the number of babies born is in freefall in one-third of all U.S. counties. These counties (including 27 of Oklahoma’s 77) are experiencing demographic winter—i.e., there are more deaths than births. Every state except New Jersey and Utah has at least one county that is dying.
Renowned financial analysts Rob Arnott and Denis Chaves were able to estimate how demographic winter will affect future growth in GDP. They found that over the past 60 years, demographics added about 1 percentage point to America’s GDP growth. So if 3 percent GDP growth is considered normal, the reality is that 2 percent was productivity growth (producing more with less) while 1 percent was demographic growth.
With demographic winter, they estimate that the plus 1 percent due to demographics becomes a negative 1 percent (a 2 percentage point swing). The “new normal” for economic growth in America becomes 1 percent to 2 percent productivity growth with a demographic drag of -1 percent. This is indeed bad economic news.
The fact that 33 percent of all U.S. counties are dying points to the unpleasant reality that the traditional American family is in decline. Let’s examine another major flaw of GDP: the failure to account for household production. According to Salary.com, the work of a stay-at-home mother is worth $97,530. Following are the components used to calculate the value: housekeeper, cook, daycare center teacher, facilities manager, computer operator, van driver, psychologist, laundry machine operator, and CEO. There are also many job titles that were left out (nurse, event planner, nutritionist, logistics analyst, interior designer, bookkeeper, administrative assistant, plumber, general maintenance worker, and groundskeeper).
Let’s not even discuss if the mom homeschools, as then we have teacher, curriculum development professional, guidance counselor, vice principal, and principal to add to her compensation matrix.
And, what about dad’s contribution? What if he helps provide a portion of the utilities by splitting wood and takes care of home expenses by acting as the house painter and plumber?
If the traditional family is a cornerstone of civil society, then the measurement of U.S. economic growth should encompass family production. Robert W. Patterson, former editor of the public-policy journal The Family in America, observes:
The growth that the typical American family wants to see is the kind that gives the economy a human or family purpose. It is the kind of growth that allows a breadwinner to earn a “family wage” sufficiently high enough to support and provide benefits for a spouse and children. But as currently constituted, measurements of GDP tell us nothing about the presence or absence of such an economy. As currently constituted, the GDP captures a rather limited range of activities, counting only financial transactions in the “public” and “private” sectors of society, regardless of their impact on the family. Moreover, the GDP only adds things up—it never subtracts—meaning that all monetary exchanges in these two sectors of society are treated the same whether or not they actually build a healthy economy or serve the family. What’s considered important or valuable is the fact that money changes hands, not what the exchange represents.
Moreover, parasitic undertakings of the private sector—such as gambling and pornography interests—which corrode the social fabric, are considered “pluses” for the GDP.
Many industries have originated with the increasing presence of mom in the workforce. The most obvious is daycare. While GDP may increase as mom goes to work and her kids go to daycare, we aren’t realizing an increase in economic growth. Instead, we see merely a substitution effect of an activity that has always been performed in the home but is now brought into the marketplace and counted in GDP. There are many other activities like this.
Clearly, maximizing GDP isn’t the same as maximizing economic well-being. The family plays a crucial role in a country’s determinant of economic well-being, and the family is grossly misrepresented in official U.S. economic statistics.
OCPA research fellow Wendy P. Warcholik (Ph.D., George Mason University) formerly served as an economist at the U.S. Department of Commerce’s Bureau of Economic Analysis, and was the chief forecasting economist for the Commonwealth of Virginia’s Department of Medical Assistance Services. She is a co-creator (with J. Scott Moody) of the Tax Foundation’s popular “State Business Tax Climate Index.”