This post started with a seemingly simple question.  Is it possible for an economy to be healthy without growing?

As a starting point, it is important to understand the method presently used for determining our nations economic health.  For 7 decades, we have used Gross Domestic Product (GDP) growth as the primary indicator of health, the rationale being expansion is necessary and thus preferable.  But what, exactly, is GDP measuring?  Simply put, GDP is a mathematical formula, standardized by Simon Kuznets, to calculate the market value of every product and service created in a country over a given period of time.  It’s analagous to measuring your annual household income but ignoring every other aspect; such as expenses, debt, and assets.  It is a measurement that as Robert Kennedy stated “measures everything in short, except that which makes life worth while.”  Interestingly it was also Kuznets who warned “the welfare of a nation can scarcely be inferred from a measure of national income.”

In addition to his work on measuring GDP, Simon Kuznets also proved that John Maynard Keynes’ income assumptions give inaccurate predictions over longer (meaningful) spans of time.  Keynes, not insignificantly,  is the economist whose assumptions form the basis of America’s prevailing economic policy, the essence of which is to use government credit (money printed or borrowed) to artificially stimulate demand in order to increase supply in an attempt to avoid recession.  The result of this erroneous strategy is inflation.  Inflation being that covert consumer of wealth, steadily deteriorating the value of money.  It is why bread and food and houses cost many times what they did for our grandparents.  What is perhaps most disturbing is that the debasement of our currency (knowingly or otherwise) is routinely advocated by politicians and citizens alike who claim to value our democracy but fail to comprehend the consequences of such actions.  Keynes himself wrote in The Economic Consequences of the Peace:

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

To summarize: we have a flawed economic indicator as the basis for inaccurate assumptions used to craft an economic policy that results in destruction of our economic system.

Clearly, an economic policy with an insatiable need for growth does not result in an improved quality of life and once a certain level of economic development is achieved there appears to be a point of diminishing returns which, once passed, further inflation becomes detrimental to personal freedom and happiness.  In addition to the destructive financial effects of achieving our misplaced objectives, we’ve also managed to incur a national debt that probably can’t be repaid honestly, disconnect people from place, strip the land of resources, increased the frequency and magnitude of economic cycles, and the outsourcing of entire industries.   Is it reasonable to conclude that infinite GDP growth is not the optimum way of achieving fiscal health or individual liberty and the habit of measuring it should be abandoned?

One response to the economic malaise has been an international movement to improve the method by which economic health is measured.  The report, “Mis-Measuring Our Lives” by Stiglitz, Sen, and Fitoussi is perhaps the first concerted effort to, as they assert, “align better the metrics of well-being with what actually contributes to the quality of life.” In it, they provide specific recommendations aimed at shifting focus from the measurement of production to individual well being.  It also reveals what I believe to be a primary impediment to recovery, namely, that we are focused on the wrong goals.  If the main idea is to promote “life, liberty, and the pursuit of happiness,” shouldn’t we follow the adage that what gets measured gets improved and start monitoring actions and policy targeting that end?  This point is reinforced by the trio’s conclusion that “in the quest to increase GDP, we may end up with a society in which the citizens are worse off.”

The good news is that we (the citizens) have influence over the economy.  By consciously screening what we buy, where we shop, where and how we work, as well as the representatives we elect, we can regain the economic freedom, prosperity, and liberty our Founding Fathers intended.  While the news is good, the application is not easy.  The discipline to voluntarily (not through regulation or coercion) reduce our consumption of gadgets from China, food from South America, and oil from the Middle East, may be more than most people are willing to undertake.   It is through our own self imposed limits and the cultivation of local economies and community that we’ll be able reclaim the freedoms, both economic and civil, that we once experienced.

The takeaway: We should focus on and measure what we want to achieve: individual freedom and opportunity, rather than fixating on failed economic theory.  In a future post I’ll discuss how present policies have contributed to the very social and economic difficulties they were intended to overcome.

What are your suggestions for improving the health of our communities and country?