Prof. Sam Lehman-Wilzig – ISRAEL: GNP? That Can Mean Gross National Prevarications
The economic news in Israel, the U.S., and elsewhere is befuddling. Unemployment is relatively high, but employers can’t find workers to fill their job openings. Economic macro-economic data (e.g., growth rates) are showing great numbers, but a large proportion of the population is suffering economically. Explanation? Either we have upended the laws of economics, or something is amiss with the data being compiled. I bet on the latter.
To see one major problem with contemporary economic statistics, it’s enough to look at the hallowed, almost one-century old indicator called the GNP: Gross National Product (there’s also the GDP, Gross Domestic Product, without income from overseas, but the problem is the same). There are several types of mismeasurements that distort the GNP:
1) Free labor: With increasing lifespans and earlier retirement, volunteer work has skyrocketed – a clear societal benefit. But for the GNP, it’s literally “off the charts” because volunteers are not paid. Paradoxically, the government does recognize this massive Third Sector (philanthropies, NGOs, etc.) in its tax code (for those making a money contribution), but not in its GNP data. Go figure.
There are many other types of “free labor” that aren’t usually considered “volunteering”. Imagine you’re living alone and hire a cleaning person who costs you 250 shekels for the one day a week job. That goes into the GNP data. Then you fall in love with that helper and get married. The same person will now do exactly the same work of cleaning the place, but the GNP just lost 250 shekels weekly! Indeed, if this example seems to be rare, then consider this: why shouldn’t the housework of all wives and husbands be considered a part of the GNP? And what about child-rearing? That’s perhaps the most egregious example of this issue: if a nanny is hired, then that’s GNP measurable; if you stay at home and bring up your child, isn’t that the same service? Of course it is – GNP has “Product,” not “Income” in its name! The GNP, though, doesn’t measure that. Which brings us to the next type of problem…
2) Hidden benefits: Back to the nanny (or kindergarten) vs. the stay-at-home parent. Who will do a better job of parenting? Which child will grow up more emotionally balanced? The answer is clear. But when the “nanny” kid grows up and functions less well, we have a situation where the GNP increased with nanny payments but then later on decreased due to the now-adult doing a worse job in whatever their profession. Again, if that example is not to your liking, try this: instead of buying fruits and vegetables that have been grown by farmers, then shipped by truck to supermarkets, and sold there – with everyone along the way receiving income but (at least) the shipping causing environmental damage (not to mention your drive back and forth to the store) – what if you grow your veggies in your backyard or hydroponically on the veranda/mirpeset? The GNP goes down (no one earns any income) but the environment is better off – something the GNP also does not take into account! Which leads to the next issue…
3) The cost of “free”: The best things in life are free, except that they aren’t! Our forests, clean lakes etc., are natural resources, but performing “productive” economic activity on them (mining, damming, forestry) can cause serious environmental damage. Yet here too, GNP measures the economic activity but not its cost. The same holds in many other areas of life, occasionally reaching truly absurd measurement proportions: selling cigarettes (GNP income) leads to lung cancer and hospitalization (more GNP income from the health system) – but if everyone stopped smoking, then GNP would decline even though everyone’s health would be better off!
Indeed, the latest example coming out of Israel is instructive: one of the government’s major sources of rebenue is through people buying new cars. A few years ago, in order to decrease pollution the Transportation and Finance Ministries significantly lowered the car tax on hybrid and especially electric cars. The problem? With many more Israelis buying electric cars, the tax revenues are going down so the policy has now been altered: starting from 2023 the electric car tax will steadily increase annually! That, of course, could depress electric car sales – leading (temporarily) to higher taxes on gas-guzzlers but also to more environmental damage, not registered in the GNP numbers – until we have to pay cleanup crews…
4) Productivity/efficiency: In the 1990s you would pay about $1500 for the average laptop, with little internal RAM memory and very limited, external floppy disk memory. Today, the average laptop costs far less (especially inflation-adjusted), with vastly more memory and computing speed. But as far as the GNP is concerned, such fantastically increasing laptop efficiency is a GNP dampener, with its far lower sales price! Now add to this lower-priced 60” HDTV sets compared to the old “Boob TUBE”, free streaming music (no more CDs), and so on; the GNP takes massive hits from greatly increased efficiency, a function of far higher productivity. Indeed, over the long term a robot on the assembly line is far cheaper than a blue-collar worker – leading to greater productivity but another “blow” to the GNP as the robot earns no salary, with the only GNP-measured item being the one-time sale of the robot to the factory…
5) Information barter: Thousands of years ago most economies were barter: I gave you a goat for the sandals you made for me. Unbeknownst to most of us, we have returned to such a huge barter economy, in different guise. Every time you do a Google Search, write a Facebook post, put up a TikTok video clip, you are handing over valuable information to these companies – while they are providing you with a platform to “do your thing” that provides others with a free “product” (your cat video). Has any money changed hands here? Nope. So it doesn’t register in the GNP. Indeed, we are deeply into the “Information Economy,” but the government’s economists don’t know how to deal with much of this, as no money changes hands.
6) Virtual economics: The “Black” (Underground) Economy has been around for centuries i.e., transactions that are not reported to the authorities. That’s a significant part of any modern economy not included in the GNP, a distortion in itself. However, lately a new economic phenomenon has begun to gather steam: virtual worlds (e.g., Second Life), where players purchase or sell “virtual artifacts” for “virtual money” that can be translated into real money in the “real world”. So, if my avatar sells her house to your avatar and receives 100,000 “virtual dollars,” is that taxable, or even “reportable”? (Lately it was reproted that top fashion designers are designing virtual clothing for these avatars!) And if we use cybercurrency for the exchange, who will know? Bad enough, but the future holds an even nastier surprise for GNP measurement…
7) The future is DIY: For GNP measurement, things will only get worse in the future – just as the economy gets better for the rest of us. Here’s one scenario among many others. Imagine it’s 2050 and every home has a nano-Fabricator: a machine that basically 3D prints almost anything imaginable. You only pay for the program and the basic materials for such home manufacturing (at some far future point, nanotech will enable us to use sand or water, and the machine will “alchemically” transmute it into any chemical material needed). At that point, what has traditionally been the bulwark of modern economies – manufacturing – virtually disappears from the economy and GNP measurement, even though it will be a manufacturing utopia.
Mark Twain was supposed to have quoted British Prime Minister Benjamin Disraeli: “There are three kinds of lies: Lies, Damned Lies, and Statistics.” Ironically and fittingly, there is no record of Disraeli ever having said this! In any case, the next time your government issues some economic statistic – especially how well or badly the GNP is doing – know this: they aren’t lying or, damn it, trying to mislead you. But even so, the numbers probably don’t represent the economy’s true state of affairs.
