READINGS

[Essay]

OUR PHONYECONOMY

By Jonathan Rowe, from testimony delivered March12 before the Senate Committee on Commerce, Sci-ence, and Transportation, Subcommittee on InterstateCommerce. Rowe is codirector of West Marin Com-mons, a community-organizing group, in California.

Suppose that the head of a federal agencycame before this committee and reported withpride that agency employees had burned 10 per-cent more calories at work last year than they didthe year before. Not only that-they had spent 10percent more money too. I have a feeling youwould want to know more. What were these em-ployees doing when they burned those calories?What did they spend that money on? Most im-portant, what were the results? Expenditure is ameans, not an end, and to assess the health of anagency, or system, you need to know what it hasaccomplished, not just how much motion it hasgenerated and money it has spent. The pointseems obvious, yet Congress ignores it every daywhen it talks about "the economy." The admin-istration and the media do it, too. Every time yousay that "the economy" is up, or that you want to"stimulate" it, you are urging more expenditure andmotion without regard to what that expenditureis and what it might accomplish, and without re-gard to what it might crowd out or displace inthe process.

That term "the economy": what it means, inpractice, is the Gross Domestic Product-a big sta-tistical pot that includes all the money spent in agiven period of time. If the pot is bigger than it wasthe previous quarter, or year, then you cheer. If itisn't bigger, or bigger enough, then you call FederalReserve Chairman Ben Bernanke up here andask him to do some explaining. The what of theeconomy makes no difference in these councils.It never seems to come up. The money in the bigpot could be going to cancer treatments or casi-nos, violent video games or usurious credit-cardrates. It could go toward the $9 billion or so thatAmericans spend on gas they burn while they sitin traffic, or the billion plus that goes to suchdrugs as Ritalin and Prozac that schools are stuff-ing into kids to keep them quiet in class. The mon-ey could be the $20 billion or so that Americansspend on divorce lawyers each year, or the $41 bil-lion on pets, or the $5 billion on identity theft, orthe billions more spent to repair property damagecaused by environmental pollution. The money inthe pot could betoken social and environmentalbreakdown-misery and distress of all kinds. Itmakes no difference. You don't ask. All you wantto know is the total amount, which is the GDP.So long as it is growing then everything is fine.

I am not talking about an obscure technicalmeasure. This is not stuff for the folks in the backroom. I am talking about what you mean when youuse that term "the economy." Few words inducesuch a reverential hush in these halls. Few wordsare so laden with authority and portent. When yousay "the economy" is up, no news is better. Whenyou argue that a proposal will help the economyor hurt it, then you have played the ultimate

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trump card in your polemical deck, bin Ladenpossibly excepted.

This, by the way, is not an argument againstgrowth. To be reflexively against growth is asnumb-minded as to be reflexively for it. Those aretheological positions. I am arguing for an empiricalone. Find out what is growing and the effects. Tellus what this growth is, in concrete terms. Then wecan begin to say whether it has been good.

The failure to do this is insane. It is an insani-ty that is embedded in the political debate and inmedia reportage, and it leads to fallacy in many di-

[Patricide]

GENERATION WHY?

From a police report filed this winter on the arrestof Hughs tan Schlicker, fifteen, of Mesa, Arizona.

On February 6, at approximately 2:10 P.M.,Mesa police were dispatched to 125 South 56thStreet, apartment 127, after Hughstan Schlickercalled 911 claiming to have "shot his dad andkilled him." I was at the complex within twominutes. A deceased male was found lying onthe floor. He was later identified as TheodoreSchlicker III. Hughstan surrendered without in-cident. He was wearing a black T-shirt, jeans,and white socks with red stains (no shoes).

While I was standing next to Hughstan, hestarted to cry. "Why did I do it?" he said, shak-ing his head back and forth. "Am I going tojail?" A few moments later, Hughstan overheardsome officers talking about an investigation andsaid, "Dad came home. I shot him. What inves-tigation? All I want to do is call my friends."Then he almost laughed and said, "Along withmurder, you can put down truancy. I ditched to-day." Then he said, "Can we clean this up be-fore my mom gets home? I don't want her tocome home and see my dad dead."

A few more moments went by with Hughstanjust sitting there, then he said, "I messed up, butmy dad was being a dick and wouldn't let me onthe Internet." As neighbors came out to observethe commotion, Hughstan looked around andsaid, "I wonder what everyone is thinking rightnow." As he was placed into the back of my pa-

. trol vehicle, Hughstan asked, "Do I have any redon me?" As I shut the door, Hughstan startedcrying again. "I would take it back if I could," hesaid. "I guess I'll never be an Eagle Scout now."

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rections. We hear, for example, that efforts to ad-dress climate change will hurt "the economy." Doesthat mean that ifwe clean up the air we will spendless money treating asthma in young kids?The at-mosphere is part of the economy, too-the realeconomy, that is, though not the artificial con-struct portrayed in the GOP. It does real work, aswe would discover quickly if it were to collapse.Yet the GOP does not include this work. If weburn more gas, the expenditure gets added to theGOP. But there is no corresponding subtractionfor the toll this burning takes on the thermosta-tic and buffering functions that the atmosphereprovides. (Nor is there a subtraction for the oil wetake out of the ground.) Yet if we burn lessgas, andthus maintain the crucial functions of the at-mosphere, we say "the economy" has suffered,even though the real economy has been enhanced.

With families the logic is the same. By thestandard of the GOP, the worst families in Amer-ica are those that actually function as families-that cook their own meals, take walks after din-ner, and talk together instead of just farming thekids out to the commercial culture. Cooking athome, talking with kids, walking instead of driving,involve less expenditure of money than do theircommercial counterparts. Solid marriages involveless expenditure for counseling and divorce. Thusthey are threats to the economy as portrayed in theGOP. By that standard, the best kids are the oneswho eat the most junk food and exercise the least,because they will run up the biggest medical billsfor obesity and diabetes.

This assumption has been guiding our eco-nomic policies for the past sixty years at least. Isit surprising that the family structure is shaky,real community is in decline, and children havebecome petri dishes of market-related dysfunc-tion and disease? The nation conceives of suchthings as growth and therefore good. It is not ac-cidental that the two major protest movements ofrecent decades-environmentalist and pro-family-both deal with parts of the real economythat the GOP leaves out and that the commercialculture that embodies the GOP tends to erode.How did we get to this strange pass, where up isdown and down is up? How did it happen that thenation's economic hero is a terminal-cancer pa-tient going through a costly divorce? How is it thatCongress talks about stimulating "the economy"when much that will actually be stimulated is thedestruction of things it says it cares about on oth-

er days? How did the notion of econo-rJ"' my become so totally uneconomic?

he story begins in Ireland in the 1650s. Britishtroops had just repressed another uprising there,and the Cromwell government had devised a fi-nal solution to put its Irish problem to rest. Thegovernment would remove a significant portion of

Management, by James Rieck, was on display this spring at Lyons Wier Ortt Gallery, in New Yark City.

the populace---Catholics in particular-to remoteparts of the island. Then it would redistributetheir lands to British troops, thus providing com-pensation to them and establishing an occupa-tional presence for the benefit of the governmentin London. The task of creating an inventory ofthe lands went to an army physician by the nameof William Petty, a quick study and a man with aneye for the main chance. He classified much landas marginal that actually was quite good. Then hegot himself appointed to the panel that made thedistributions and bestowed much of that landupon himself. Petty's survey was the first knownattempt in Western history to create a total in-ventory of a nation's wealth. It was not done forthe well-being of the Irish people but rather to taketheir land away from them. It was an instrumentof government policy, and this has been true fromthat time to the present. Governments havesought to catalogue the national wealth for pur-poses of taxation, confiscation, planning, and mo-bilization in times of war. They have not designedthese catalogues to be measures of national well-being or of quality of life. Yet that is how the na-tional wealth inventories have come to be used,especially the GDP. Somehow the tool has becomethe task. This part of the story begins with theGreat Depression.

In the early 1930s, as the United States sankdeeper into an economic slough, Congress facedan absence of data to help guide the way out. Itdidn't know exactly what was happening and

where. There were no systematic figures on un-employment or production. President HerbertHoover had dispatched six employees from theCommerce Department to travel around thecountry and file reports. These were anecdotaland tended to support Hoover's view that re-covery was just around the corner. Members ofCongress wanted more. Senator Robert M. LaFollette [r., a Republican of Wisconsin, intro-duced a resolution to require the Commerce De-partment to develop a spreadsheet-as we wouldcall it todav-i-of the economy with its componentparts. La Follette was a Progressive in the origi-nal sense. He believed in "scientific manage-ment and planning," and the resolution was toproduce a tool to that end. It passed in 1932, andthe work fell to one Simon Kuzners, a professorwho was working at the National Bureau of Eco-nomic Research in New York. Kuznets knewthat he was producing a policy tool and not ameasure of living standards or well-being. As heput it later in his clinical prose, the goal was tohelp understand the "relations and relative im-portance of various parts of the productive sys-tem and their responsiveness to various types ofstimulae as shown by their changes in the past."Kuznets had a tiny staff and virtually no bud-get. Data sources Were fragmentary. But about ayear and a half later, Kuznets, with brevity andcandor that are rare today, laid out for Congressthe limitations of the accounts he had con-structed. He took particular pains to tell you

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why you should not use these accounts the wayyou-and the press-have come to use them.For one thing, the national accounts leave

out a crucial dimension of the economy-thepart that exists outside the realm of monetary

[Scheme]THE STONEDLEADING THE BLIND

From an email sent in 2005 by Jason Cossman, ownerof Pacific Health, Inc., a dietary-supplement compa-ny, to his uncle Steven Warshak, owner of BerkeleyPremium Nutraceuticals. In February, Warshak wasconvicted of fraud, money laundering, and conspira-cy in connection with the sale of EnzYte, which was mar-keted as a male-sexual-enhancement pill. The email,which Warshak forwarded to employees, was introducedby the prosecution as evidence in the trial.

SUBJEcr: OUR OUTBOUND STRATEGYWe have two eye products that are the same,more or less,with different brand names, Clarox-an and Amercil. Claroxan people are on auto-continuity at $84.50 a month (we just jacked upthe price), but pretty much everyone cancels af-ter two months. Our outbound lists are just thelists of people who canceled Claroxan.We call them and tell them we are a compa-

ny contracted by a hospital to do health surveys.Our rep begins by asking eyesight questions, andthe customer inevitably tells our rep they tookClaroxan but it was too expensive. Our rep thentells them about Amercil, an eyesight tablet thehospital is promoting, which works like Clarox-an but has a higher-quality formula, at a frac-tion of the price. Just 'cuz they decided the$84.50 was a rip-off doesn't mean they won'tcough up more lootl!l!The poor customer bites, thinking he's get-

ting a deal, even though he's actually gettingtaken by my company for the second timearound!!!! That's it. No advertising! No web-site even! Pretty much pure profit.The scheme is beautiful. Dreamed it up after

many a bong hit one night. These customersare fish in a barrel, man. Exploit the shit out ofthem. If you outbounded all your Enzyte peopleand told them Ogoplex (or any sex product youcould dream up) worked better and was muchcheaper, I think enough'd bite on it to makeyour media dollars work harder for you. Butthen again-what the fuck do I know?

20 HARPER'SMAGAZINE I JUNE 2008

exchange. This segment includes both theecosystem and the social system-the life-supporting functions of the oceans and atmos-phere, for example, and work within familiesand communities that is not done for money.So when the monetized economy displacesthese elements-as when both parents have towork, or when forest clearing eliminates thecleansing function of trees-the losses are notsubtracted against the market gain. Kuznets wasunder no such illusion. "The volume of servicesrendered by housewives and other members ofthe household toward the satisfaction of wantsmust be imposing indeed," he wrote. There isalso the question of what he called "odd jobs,"or what we would call the "underground econo-my." He knew these played a large role in theeconomy. He also grasped, more broadly, thatthe quality and importance of a function do notdepend upon the amount of money paid for it-or whether any money was paid at all. The careof a mother and father is not inferior to that ofa day-care worker just because they do notcharge a price for their services. This recogni-tion undercuts a basic assumption behind theGOP-namely, that the. contribution of an ac-tivity can be gauged solely by its market price.But there is a practical problem, Kuznets ob-served. Accounts require data, and there is bydefinition little data on the underground econ-omy and on nonmarket exchange. As a result,the national accounts include only the slice ofeconomic reality that falls within the bandwidth

that economists are able to grasp-~ recorded expenditures of money.

.then there is the thorny question of con-structive versus destructive activities within therealm of monetized exchange. Once you havedecided to count only that which is transactedthrough money, do you make the further as-sumption that everything transacted for moneycounts on the plus side of the ledger? The men-tality that lies behind the GOP assumes thatyou do. We all are "rational," so any choice wemake in the market is by definition one thatmakes our lives better. Kuznets focused on oneobvious exception: activities that are generallyillegal, such as gambling and selling drugs. Toassume that such expenditures add to the na-tional well-being would undercut the rationalefor making them illegal in the first place. TheGOP is an instrument of the state, after all, soKuznets drew the line there. He was aware ofhow arbitrary this line is from an economicstandpoint. Why exactly does legal gamblingadd to well-being if the illegal kind does not?Or what about alcohol? Given the assumptionthat legality confers benediction, the economyreceived a huge boost at the end of Prohibition,

SweepingThrough, by Yoon Lee, was on view this spring at Pierogi, in Brooklyn, New York.

simply because the drinking that formerly wasillegal now was deemed permissible. But boozestill was booze. If the government can increasethe growth rate by jiggering the metrics in thisway, that does not increase confidence in thevalidity of measure. But legality is the easy part.Just beneath it lies a deeper issue-the assump-tion that every purchase is beneficial simply be-cause someone has paid the purchase price. Theexclusion of illegal activities, Kuznets said,"does not imply ... that all lawful pursuits arenecessarily serviceable from the social view-point." He left the question there, a chasm thathonest inquiry has to plumb.

There are so many examples of expendituresthat go into the GDP that have a questionableclaim to the stature of growth and good, evenfrom the standpoint of those who make them.For example, much consumption is compulso-ry, in that buyers have little choice. There isfraud, such as the way seniors are cheated inreverse-mortgage scams. There are also prod-ucts that are designed to lock buyers into anendless stream of high-priced replacements,such as inkjet-printer cartridges that are de-signed to resist refilling. There are car bumpersthat are designed not to bump, so that a mildfender bender turns into a $5,000 repair bill.There are the usurious charges and fees builtinto credit cards. Not all Americans confront-ed with these expenditures regard them as"consumption choices" that propel them fur-ther up a happy mountain of more.

The toughest case for the economic mind isaddiction. The GDP assumes, as most econo-mists do, that people are inherently "rational."

22 HARPER'S MAGAZINE / JUNE 2008

What they buy is exactly what they want, andso their purchases must make them happy inexact proportion to the prices paid. Yet addic-tion has become pervasive. It has metastasizedfar beyond the usual suspects-gambling, to-bacco, alcohol, and drugs-and spread to suchthings as eating, credit cards, and shopping it-self. Also neglected is what economists call"distribution." The GDP makes no distinctionbetween a $500 dinner in Manhattan and thehundreds of more humble meals that could beprovided for the same amount. A socialite whobuys a pair of $800 pumps from Manolo Blah-nik appears to contribute forty times more tothe national well-being than does the motherwho buys a pair of $20 sneakers for her son atPay less. "Economic welfare," Kuznets wrote,"cannot be adequately measured unless thepersonal distribution of income is known." Asincluded in the national accounts, an accre-tion of luxury buying at the top covers up alack of necessary buying at the bottom. As theincome scale becomes more skewed, the cover-up becomes even greater. In this respect theGDP serves as a statistical laundry operationthat hides the suffering at the bottom. Anoth-er problem has to do with work and the toll ittakes on those who do it. Kuznets called thisthe "reverse side of income, that is, the inten-sity and unpleasantness of effort going into theearning of income." That earning comes at acost of wear and tear upon the body and psy-che. If the GDP subtracts depreciation onbuildings and equipment, should there not bea corresponding subtraction for the wearingout of people?

What about the loss in the value of theirskills as one technology displaces another? Inthe current accounting, this toll often getsadded to the GDP rather than subtracted, inthe form of medications, expenditures for re-training, and day care for children as parentswork longer hours. Most workers would regardsuch outlays as costs, not gains. Had Kuznetsbeenwritlng today, moreover, he probablywould have added another kind of depletion-that of natural resources. It sounds incredible,but when this nation drills its oil and mines itscoal, the national accounts treat this as an addi-tion to the national wealth rather than a sub-traction from it. The result is like a car with agas gauge that goes up as the fuel tank empties.The national accounts portray a nation gettingricher when it is in fact draining itself dry.Kuznets concluded his report with words thatought to be inscribed on the wall of every officeon Capitol Hill and over every computer screenwithin a twenty-mile radius: "The welfare of anation can, therefore, scarcely be inferred

from a measurement of national in-

C come as defined above."

ongress and everybody else have done ex-actly what Kuznets urged us not to do. The mal-practice began with the gradual seep of the newaccounts into the political arena. In his 1936 re-election campaign, Franklin Roosevelt notedthat the economy-as defined by the nationalaccounts-had increased under his watch. It wasa number: who could resist? The likely sourcewas FDR's close adviser Harry Hopkins, whoseoffice was a hub for the young economists whocame to Washington to join the New Deal. Butin the passage across 15th Street from the Com-merce Department to the White House,Kuznets's numbers were turning into preciselywhat he said they should not be. Then cameWorld War II, when the national accountsplayed a central role in the mobilization effort.A bitter debate erupted in Washington over thenation's production goals. Corporate leaders in-sisted that the mobilization must come out ofthe existing level of production. They did notwant to be stuck with excess capacity when thewar was over. Kuznets and others argued to thecontrary that the United States had vast trovesof untapped capacity; they used the national ac-counts to prove it. FDR sided with the "all-outers," as this group was called. They appealedto his belief in the energizing effects of chal-lenges; Roosevelt took their high estimates andmade them even higher, the better to make hispoint. (The planners then had to shift gears toargue the case for system limits, which the na-tional accounts also helped them do.) Then theaccounts helped to coordinate the war produc-

tion so as to prevent bottlenecks. By 1944 warproduction goals alone had surpassed the na-tion's entire output just ten years earlier.

It was as close as the nation has ever cometo pure economic planning, and though muchreviled, it helped to win the war. Postwar sur-veys revealed that Germany had no suchplanning tool, and Hitler's production pro-gram had been greatly hindered as a result.America had become the "arsenal for democ-racy" in part through a top-down approachmade possible by the national accounts. Asthe war was winding down, the accountsserved again to guide the economy back topeacetime without relapse into the dreadedDepression. Consumption was essential; theCold War, with its Pentagon spending, wasnot yet in prospect. As war production dimin-ished, shoppers would have to pick up theslack. The national accounts showed exactlyhow it could be done. As John Kenneth Gal-

[Lament]

DEATH BENOT GREEN

Lyrics to "The Hybrid Car Song," by Mary EllenGabias, published in March in Braille Monitor,the newsletter of the National Federation of theBlind. A recording of the song, which is sung to thetune of "The Surrey with the Fringe on Top," isavailable on the NFB website.

Kids and dogs won't know when to scurry.Silent death arrives in a hurry.All who walk have reason to worry'Bout the hybrid car.We all want to stop the polluting,Save a lot of gas while commuting.If they made sound there'd be no disputingWith the hybrid car.Saving the planet we all hold dear,Nobody wants to destroy it.Please make cars pedestrians can hear'Cause we want to be 'round to enjoy it.We don't need a noisy vrum-vrumming,Just a simple audible humming,So that we can know when you're comingIn a hybrid car.Then we all can walk with safety on the streetWithout fear that we will accidentally meetA hybrid car.

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[Counsel]

TRAILER OF TEARS

From a December 16, 1976, management bulletin byL. S. Shoen, founder of U-Haul and company chair-man from 1945 to 1986. The document was obtainedby the Los Angeles Times, which last year publisheda series of articles that found that U-Haul had lost, re-paired, or discarded truck and trailer parts sought byinjured customers pursuing claims of negligence.

Most of us are at some time compelled to.testify by giving a deposition. We are requiredby law to tell the truth, the whole truth, andnothing but the truth. We are not, however, re-quired to be blabbermouths. Here is what Ilearned during a recent deposition:-That I was in fact a "dumb shit." By this I mean

ignorant as to the accurate answers to most ofthe questions. After forty-eight hours the mem-ory drops off to approximately 10 percent ofwhat we originally saw or heard. So the firstrule is to realize that you are a dumb shit and beglad that you are.

-The truth is that you are ignorant. Don't beembarrassed about this. Most of us know onlya few things very well and on all other matterswe are uninformed. Admit you are ignorantand join the club.

-Answer the question asked, not the one theopposition's "hired gun" attorney should haveasked. If he asks a stupid question, answer thestupid question.

-Never tell the hired gun that someone else hasa bulletin, letter, memorandum, or document ofany kind. You cannot possibly know this to betrue, because the other person may have thrownit out since you last saw it. If you never saw it,then you did not know of its existence and can-not testify about your own knowledge. Don'tever talk about a document unless you havethe document in front of your eyes.

-Never forget that the opposing attorney is ahired gun. His smiles and good manners are amask to cover his brutal and vicious goal ofyour destruction. He is paid to destroy you.Never relax in his presence. View him as themercenary assassin that he is.

-Tell the truth. Be serious and sincere, and aboveall be truthful, Here is the rub: we normallyblabber about subjects that we truly do notknow about. Your careless statements are thebuckshot that the hired gun will later use togutshoot you at the trial.

24 HARPER'S MAGAZINE / JUNE 2008

braith put it in Fortune, "One good reason forexpecting prosperity after the war is the factthat we can lay down its specifications."

The new Keynesian economists such as Gal-braith were now the Merlins of prosperity, andthe national accounts were their magic wand.Consumption itself was taking on a heroicstature; the returning troops were handing offthe mantle of national purpose to the shopperswho would replace them in keeping the indus-trial machinery in motion. (The heroic imagerypersists in the press today, as when we read thatconsumers will provide the "engine" for recov-ery, or that they will "pull" the nation out of itsrecession.) In this atmosphere, it was perhapsinevitable that the map of the nation's capacitywould become a totem to its economic success.Simon Kuznets watched it happen with increas-ing dismay. (Galbraith came to have secondthoughts as well.) Kuznets was a quiet academicwho was loath to mount a soapbox. But he as-serted over and over that those who had seizedupon his handiwork had missed the point. In1962 he wrote in The New Republic that in eval-uating growth "distinctions must be kept inmind between quantity and quality of growth,between its costs and return, and between theshort and the long run .... Goals for 'more'growth should specify more growth of what andfor what." If you are going to "stimulate" theeconomy, in other words, could we at least

have a little debate over what exactlyrJ"" you are going to stimulate?

.1.he purpose of an economy is to meet hu-man needs in such a way that life becomes insome respect richer and better in the process. Itis not simply to produce a lot of stuff. Stuff is ameans, not an end. Yet current modes of eco-nomic measurement focus almost entirely onmeans. For example, an automobile is produc-tive if it produces transportation. But today welook only at the cars produced per hour worked.More cars can mean more traffic and therefore atransportation system that is less productive.The medical system is the same. The aimshould be healthy people, not the sale of moremedical services and drugs. Now, however, weassess the economic contribution of the medicalsystem on the basis of treatments rather thanresults. Economists see nothing wrong withthis. They see no problem that the medical sys-tem is expected to produce 30 to 40 percent ofnew jobs over the next thirty years. "We haveto spend our money on something," shrugged aStanford economist to the New York Times.This is more insanity. Next we will be hearingabout "disease-led recovery." To stimulate theeconomy we will have to encourage people tobe sick so that the economy can be well.