on the front page of today's new york times there is an article about the increase by 1.7 million households of the number of americans living in poverty during 2002 and the decline in median household income during that same year. the article recounts the spin that the white house press secretary, scott mcclellan, put on the story:
At his daily press briefing Mr. McClellan, rather than focusing on the census data, pointed instead to newly released figures from the Commerce Department that showed a larger-than-expected rise in the gross domestic product.
A 3.3 percent increase in the G.D.P. in the second quarter of this year, Mr. McClellan suggested, indicates that the economy is moving in a positive direction.
i probably should not be commenting on economic issues, others are far more qualified to do that than me, but when i read the above quote it occurred to me that the white house had it backwards.
g.d.p., as i understand it, measures the overall growth of the economy. it is measured by looking at the economic output of businesses in this country. why do we care about how much economic growth there is? because there is an underlying assumption that more growth means that everyone in the economy will be better off. "a rising tide raises all ships" et cetera. because this assumption is required, g.d.p. is an indirect measure of how ordinary people are gaining or losing in this economy. a rise in g.d.p. could mean that the very rich are doing so well that it overwhelms the losses sustained by the majority.
the growth in the number of people who fit the definition of being "in poverty," on the other hand, directly measures the economy's effect on the average person. the poverty rate was created by determining what the cost of food is for a family and comparing that cost with the family's income. if a family (or individual) is "below the poverty line" it will have problems affording enough food to live. similarly, the decline in median household income directly measures how individual households are doing economically. the decline means that on average households in america are earning 1.1% less than they did the year before. unlike the g.d.p. each of these measures the average indivual in the economy and is directly examines any gains or losses in their economic well-being.
in essence, i read mcclellan's statement as an attempt to argue that the increased poverty and decreased average income figures are contradicted by, or at least made less relevant than, the incease in g.d.p. but if you think about it, it's really the opposite. poverty rates and median income directly measure the economic state of the average american. g.d.p. does not. in fact, it only relates to the economic state of the average american if you buy the "rising tide" assumption. rather than contradicting the poverty and income figures, the fact that the g.d.p. can increase when poverty grows and average income falls is evidence that the "rising tide" assumption is wrong. while mcclellan wants to use g.d.p. to discredit the poverty and income figures, instead those figures discredit the relevance of using g.d.p. to measure how well the average american is doing in today's economy.
as least those are my thoughts as a relative novice to economic issues. so if i am mistaken, where did i go wrong?
