A trio of economists have come up with a new way to evaluate the health of an economy
GDP has declined for a second quarter in a row — a common definition of a recession. But a group of economists are asking, why rely on that single number to determine the health of the economy?
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GDP - that's gross domestic product - sums up the size of our economy in a single number. And when the GDP declines two quarters in a row like it did in the first half of this year, that meets the common definition of a recession. But now a group of economists have come up with a different way to evaluate the health of an economy. As Greg Rosalsky and Adrian Ma from our daily economics podcast The Indicator explain, you can think of it as GDP, the remix.
ADRIAN MA, BYLINE: Gabriel Zucman is part of a trio of economists trying to revolutionize GDP, along with Thomas Blanchet and Emmanuel Saez.
GABRIEL ZUCMAN: The big problem is that GDP data doesn't tell you who is benefiting from economic growth.
MA: They offer a new GDP prototype - you know, the remix.
GREG ROSALSKY, BYLINE: This prototype breaks down data and economic growth and sees where the gains from that growth are going. They publish it all on a website called realtimeinequality.org.
MA: Now, here in the U.S., of course, we already have a ton of data on inequality. The problem, Gabriel says, is that it usually takes a year or two for this data to be updated.
ZUCMAN: Part of the motivation for this project was the COVID-19 pandemic, where you have this dramatic crisis and economic shock. And policymakers are in the dark, you know, to some extent. Like, you know, is it enough?
MA: So to follow where all these slices of economic pie are going, Gabriel and his colleagues have pioneered a method to compute how different income groups are doing economically way quicker than has been done before. This prototype can already tell us some really important things about the recent past.
ZUCMAN: One very striking illustration is what happened after the Great Recession of 2008, 2009. GDP recovered in about four years, but it took more than 10 years for the bottom 50% to recover its pre-Great Recession income level. So you had a massive disconnect between, you know, how GDP was growing and how income was growing for most of the population.
ROSALSKY: But over the last year or so, it's been the poorer half of America for once that has been improving their position. Surging incomes have helped push them closer to the richer half of Americans. And part of that was because a lot of people were getting pandemic benefits from the government.
MA: But even after those were rolled back, a super-tight labor market has been helping to push their incomes up. Meanwhile, Gabriel's tracker shows the rich have been seeing their incomes decline, largely because the stock market has tanked. But there's also the other side of the coin of these wage increases for low-income Americans. Evidence suggests it's one reason why inflation has been surging. Macroeconomic theory has long said there's a trade-off between a super-tight labor market - you know, where wages are surging - and inflation.
ZUCMAN: I think the tool that we're trying to develop is precisely what will make it possible to have an informed debate about those trade-offs.
ROSALSKY: And this tool already appears to be part of the debate. When Gabriel and his colleagues first released it earlier this year, the Biden White House jumped at the chance to highlight the gains it shows for working-class Americans. It was sort of a proof of concept.
MA: And that's a big deal - right? - because for Gabriel and his trio, it wasn't just enough to make the remix. The hope was that people would actually listen.
ROSALSKY: Greg Rosalsky.
MA: Adrian Ma, NPR News. Transcript provided by NPR, Copyright NPR.