International Policy Digest

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U.S. News /20 Jan 2020

The Mismeasurement of the American Main Street

It’s the best of times in America today. And the worst of times…at the same time. For years, the standard cocktail of macroeconomic metrics–GDP, U-3 unemployment, and inflation as gauged by the Consumer Price Index (CPI)–has painted a picture of seemingly unprecedented prosperity. Yet for the 99%, the reports on the ground tell a starkly different tale of crisis, despair, and malaise, a story far more reminiscent of 1990s Russia in the wake of the USSR’s collapse. American life expectancy is falling while birth rates are plunging to historic lows. More businesses are perishing than being born, trust in U.S. institutions and even basic patriotic sentiment are at historic lows. Moreover, contrary to the reassuring portrait offered by headline-grabbing unemployment and inflation statistics, the share of working-age Americans at work has plummeted while the costs of living squeeze the country from coast to coast. An economy ultimately serves its people, not the other way around, and the tale told by the traditional metrics has become woefully inadequate in describing the real economy of the American Main Street today.

In 2017, the most recent year for which full CDC figures are available, the United States suffered its third consecutive year of falling life expectancy, a trend not seen in the rest of the developed world. The grim reckoning marked the first such year-on-year decline for the United States in a century, dating back to the First World War coupled with the horrific toll of the Spanish influenza pandemic. Quite unlike the underlying factors in 1914-1918, however, today’s American life expectancy drop is a consequence largely of “deaths of despair,” as economists Angus Deaton and Anne Case have dubbed the phenomenon. Alongside the downward spiral of the opioid crisis and other forms of substance abuse, the U.S. is in the vise grip of an ever-worsening suicide epidemic which has become a scourge across diverse American demographics, from rural small towns to populated urban centers, grizzled Iraq War veterans to preteen girls.

Rising mortality rates are not the only harbinger of this (seemingly) paradoxical American malaise. Birth rates in the U.S. have dwindled down to record lows since the Great Recession, so much so that total births have dropped to figures not seen since 1986–when the country had far fewer women of childbearing age. Research from Gallup and other polling organizations has likewise revealed several discomfiting trends in parallel. These range from a nadir in American entrepreneurialism–with U.S. startup rates lately in freefall–to a collapse in basic patriotic sentiment and faith in U.S. institutions, particularly among younger Americans.

The U.S. is drowning in debt, both publicly held and in private hands, with household debt skyrocketing to a record $14 trillion in late 2019. Ballooning credit, in effect, has taken the place of the income gains and savings that would undergird a healthier and more broadly shared species of economic boom. Credit card obligations, increasingly accrued for necessities (such as medical bills and even food) instead of luxuries, races ever higher, while the auto loan market more and more is resembling the out-of-control character of subprime mortgages on the eve of the 2008 financial crisis. An entire generation of American youth and their parents are being economically strangled by $1.6 trillion in student loans. The U.S. may even be in the first throes of an unprecedented brain drain with a surge in net and total migration since the Great Recession, becoming the third-largest source of immigrants to Denmark, for example, and a growing origin point to a variety of other countries.

The traditional macroeconomic metrics are not wrong per se, but the picture they paint is increasingly incomplete, misleading, of dubious relevance, and divorced from the financial realities of the vast majority of the American population. Like other summary statistics, they provide useful information to help make sense of an otherwise unwieldy, complex ecosystem–in this case, the economic ferment and activity of a vast and diverse nation. Nevertheless, a summary statistic is useful only insofar as it accurately summarizes what it purports to represent, and the problem goes far beyond mere shifts in the way such metrics have been computed over the years. The rise of the gig economy, financialization and the derivatives market, and yawning inequality in America have together given rise to secular, structural changes that make the traditional metrics a poor barometer of the true economic health for most Americans.

The advent of the gig economy, in particular, has wrought havoc on the classic Bureau of Labor Statistics criterion of employment, which can be fulfilled by working merely a single hour on average within a week in any given month. The ascendancy of ridesharing companies, online freelancing, and other gig-type jobs, alongside the growing prevalence of temping and contract work, has thereby forged a grossly misleading picture by distorting unemployment numbers downward. Uber and Lyft drivers logging merely a few hours in an average month are left off the unemployment rolls. Similarly, job creation numbers are skewed by the sheer proliferation of gig and freelancing sites which can arbitrarily “create” a plethora of short-term, low-paying stints without providing a living wage.

Even more comprehensive metrics (such as U-6 unemployment) are blind to distortions from the masses of Americans who, for various reasons, have dropped out of the labor force. Tens of millions of discouraged workers have simply given up, while millions of others are on permanent disability or disappeared from the labor market’s radar for a host of other reasons, including imprisonment–a tangible contributor to the winnowing of eligible American workers given the dubious honor of our world-leading incarceration rate. Such factors help to explain a seemingly paradoxical, bewildering finding. Despite low unemployment, America has a dismally low labor force participation rate and employment-to-population ratio among prime working-age adults. The former has contracted while even France, Spain, and other European countries, all supposedly grappling with higher unemployment, have witnessed sustained gains in this crucial barometer, a more empirical and less subjective metric than U-3 and U-6 stats. Increasingly, the latter figures no longer accurately capture the gig-driven, hollowed-out labor market, much less the actual financial health of working Americans.

Meanwhile, the basket of goods to tally inflation via the CPI is heavily weighted toward direct purchases of disposable consumer goods, while undervaluing essential fixed costs–especially for skyrocketing healthcare, housing, and educational expenses–that have burdened American households. GDP has, for its part, been increasingly decoupled from the transactions that signify actual exchange of goods and services between real individuals, inflated by massive asset bubbles, toxic securities, and markedly elevated levels of private debt. The stock market itself is propped up by mass buybacks and other juicing that fails to reflect actual sales or profitability, and even the real value of wages is at best stagnant or unclear amid varying and often staggering increases in costs of living.

The bottom line is that an alarming disconnect has emerged between the macroeconomic metrics long used to measure the economy, and how it is actually experienced by Americans as a whole. The unprecedented public health crisis now gripping the U.S. is the most poignant testament to this gulf between the cheery figures and the warning signs they conceal. This is even more so given that America’s unrelenting fall in life expectancy is so integrally connected to massive inequality and mounting despair, an unsettling phenomenon that a truly functioning economy should not have on display. Economies, as noted, are the products of and supposed to benefit the people within them, not vice versa; buoyant numbers are merely arbitrary, empty figures if the people themselves are literally dying from disillusionment and despair.

What’s missing is a metric that captures the real economy on the ground, as the American 99% actually experience it day-to-day, month-to-month. In reckoning their real economic health, American households, by and large, apply some form of a straightforward calculation: taking their total assets and savings into consideration, then making a rough accounting of how far they can stretch their finances without taking on debt. Yet amid all the sophisticated number-crunching of commonly reported economic stats, there is virtually nothing to approximate this simple, intuitive, yet highly meaningful reckoning of Americans’ real-world financial state. Specifically, what is needed is a measure of households’ median non-debt discretionary purchasing power (NDDPP), which could be gleaned from household surveys much as many standard metrics are ascertained today. A figure like NDDPP would correct for the vast discrepancies in the cost of living across the country, while also shining a light on real disposable income. The first phase in tackling the economic and public health crises afflicting the American 99%, after all, is to glimpse the economy as they genuinely feel it. For all the talk of policymakers curing what ills America, it will be difficult to prescribe the right remedies without even diagnosing what truly ails us.