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Wars, toxic waste, energy, global warming, the water crisis, food shortages, depletion of natural resources, and economic collapse dominate public discourse, yet the most fundamental problem underlying all these perils is rarely discussed nor fully understood. Our hedonistic, Epicurean lifestyle derives from a grievous structural flaw in the economic philosophy of industrialized and developing nations alike, namely, the imperative of ever-increasing consumption which is the predominant force in the zeitgeist of the period since World War II This principal of ever-increasing growth to achieve the meretricious utilitarian aim of promoting the greatest good for the greatest number is so deeply rooted in the structure of our economic system and in the psyches of our economic, business, and political leaders that it has become apotheosized.
To say that growth is unsustainable is a tautology. Current growth rates in industrialized countries compounded by the frenzied pace of growth in other countries which are desperate to achieve the standard of living of the industrialized world, China and India in particular, are exacerbating all the crises plaguing the planet today.
Surprisingly, the crisis of growth was recognized in 1972 by a group of scientists who formed an organization called “The Club of Rome”. Phase One of the project was conducted at MIT which “examined the five basic factors that determine, and therefore, ultimately limit growth on this planet-population, agriculture, natural resources, industrial production, and pollution…Our conclusion from these extrapolations is ...that the short doubling times [of exponential growth] of many of man’s activities …will bring us closer to the limits of growth of these activities surprisingly soon…The crux of the matter is not only whether the human species will survive, but even more whether it can survive without falling into a state of worthless existence.”
Historically, it is no accident that excessive consumption has profoundly permeated our culture. Gross Domestic Product (GDP), developed by Simon Kuznets in 1941 and the leading economic indicator for measuring the health and prosperity of national economies, is virtually useless in achieving its putative objective. Defined as “the total market value of all final goods and services produced within a given country in a given period of time”, GDP results in economic policies that are formulated to ensure the maximum growth of GDP from year to year. To reduce the concept of GDP to its simplest terms, an economy is defined as healthy only if people consume more.
Forming the basis for many other economic measurements, it weakens their usefulness. For example, when comparing national debt or tax revenue to previous time periods or to other countries, the methodology requires using the ratio of these amounts to GDP because total tax revenues and debt are meaningless without comparing them to the wealth of a country.
Alarmingly, the rate of growth as measured by the GDP has risen by 261% since 1972 based on the current value of the American dollar. The implications for pollution waste, global warming, water, energy are directly related to the growth in consumption.
By only measuring consumption, GDP is rife with flaws that completely undermine its value as a measurement of human well-being financially or otherwise. Consider the Exxon Valdez disaster of 1989 in Prince William Sound where ten million gallons of crude oil were spilt. Estimated total costs of recovery from this disaster were US$7 billion and included cleanup costs, loss of vessel, loss of cargo, salvage costs, fines, penalties, insurance payouts and legal costs. In addition, it is impossible to measure the loss of 33,126 birds, 3,000 sea otters, and the impact on bears, whales, sea lions, salmon and a myriad of other animals.
Every single dollar spent on the Exxon Valdez disaster would have contributed to the GDP as every expense reflected the consumption of a good or service. In other words, US$7 billion was part of the” total market value of all final goods and services produced within a given country [U.S.].” The GDP was boosted by the disaster but there were no benefits to a single citizen of the U.S. (unless you want to count the employment of people in the industries which were part of the recovery in which case you would have to define the US$3 trillion spent on the war and occupation of Iraq as a benefit to society). Referred to as negative counting which includes divorce, cigarettes, alcohol, and automobile accidents, it artificially boosts the value of the GDP without providing any benefits.
As well, GDP fails to reflect the distribution of income in society or who is doing the consuming. Despite the fact that the GDP has been continuously rising over the previous decade, the gap between the rich and poor has widened. In fact, Simon Kuznets predicted income equality for both poor and rich countries with his inverted U-shaped curve. His explanation for the growing inequality in countries with increasing wealth resulted from a shift from agricultural to industrial sectors.
One of the measurements used to calculate the distribution of income is the Gini Coefficient which ranges from zero (perfect equality) to one (all wealth is concentrated in one person). In 1967, the Gini Coefficient was .394 in the U.S. whereas in 2001, it was .466. To emphasize the inefficacy of the GDP, it must be noted that although the United States has the highest GDP among all nations, the United States has the highest Gini Coefficient among thirty of the wealthiest countries.
Using linear regression least-squares analysis comparing the Gini Coefficient to GDP, the regression coefficient for the years between 1992 and 2001 is .679 which shows a fairly strong linear relationship. In other words, as the GDP increased, the gap between the rich and poor increased.
A very significant deficiency in the GDP is the failure to incorporate externalities into its calculation. Externalities are costs that are excluded from the price but paid for either by society or people who suffered as a result of production. Externalities include damage to the environment, health costs borne by those who suffer from the lack of health and safety measures in the workplace or toxic substances used in production or that result from production and depletion of natural resources.
Development of alternatives to the GDP began in 1989 but have been routinely ignored by political leaders and captains of industry inasmuch as GDP does not measure pollution, depletion of resources, or inequitable distribution of income. Recognition of these flaws would pressure the government to adopt policies that actually benefited all members of society and respected the environment.
One of these alternatives is the Genuine Progress Indicator (GPI) which incorporates the following factors: income distribution index, value of household work and parenting, value of higher education, value of volunteer work, cost of crime, loss of leisure time, cost of underemployment, cost of household pollution abatement, cost of automobile accidents, cost of water pollution, cost of air pollution, loss of wetlands, loss of farmland, loss of primary forests, depletion of nonrenewable energy resources, carbon dioxide emissions damage, and costs of ozone depletion.
Comparing the variations in the GDP to GPI from 1982 to 2004 reveals the extent to which incorporating factors related to the quality of life for everyone varies the outcome.
Year GDP GPI Year GDP GPI
1982 +4% +1.2% 1994 +6.2% +.33%
1983 +8.7% +4.2% 1995 +4.6% +3.8%
1984 +11.2% -1.2% 1996 +5.7% +1.9%
1985 +7.3% +2.3% 1997 +6.2% +.52%
1986 +5.7% +.85% 1998 +5.3% +2.2%
1987 +6.2% -1.9% 1999 +6.0% +5.4%
1988 +7.7% +.6% 2000 +5.9% +1.0%
1989 +7.5% +1.3% 2001 +3.2% -3.9%
1990 +5.8% +.62% 2002 +3.4% +3.5%
1991 +3.3% -.82% 2003 +4.7% +1.3%
1992 +5.7% -.27% 2004 +6.6% +2.5%
1993 +5.0% +1.3%
Average +5.9% +1.13%
An average growth rate of 5.9 in the GDP would be considered a healthy expansion of the economy while a growth rate of 1.13% in the GPI would be considered very poor. In fact, a recession is considered to be two consecutive quarters of negative growth and there were five years of negative growth in the GPI. Business and political leaders would be confronted with a formidable challenge if they were forced to explain the contrast in these two measurements and why they have not implemented policies to correct the problems exposed by the GPI. A genuine answer would divulge the synergistic relationship between big business and government.
Since the 1950s, growth became so deeply axiomatic in the minds of our leaders that it was well beyond questioning. Every State of the Union Address to Congress reflected this economic imperative so ostensibly essential to employment and prosperity. Consider the following excerpts from State of the Union Addresses:
Dwight Eisenhower (1958): “There are solid grounds for confidence that economic growth will be resumed without an extended interruption.”
Dwight Eisenhower (1959): “The material foundation of our national safety is a strong and expanding economy.”
John F. Kennedy (1963): “While programs for full utilization of existing resources are the indispensable first step in a positive policy for faster growth, it is not too soon to move ahead on other programs to strengthen the underlying sources of the Nation’s capacity to grow.”
Lyndon Johnson (1965): “Our basic task is threefold: First to keep our economy growing.”
Lyndon Johnson (1967): “We shall continue our sensible course of fiscal and budgetary policy that we believe will keep our economy growing.”
Lyndon Johnson (1968): “If we act together as I hope we can, I believe we can continue our economic expansion which has already broken all past records.”
Richard Nixon (1970): “Our gross domestic product will increase $500 billion in the next years.”
Jimmy Carter (1978): “First, the economy must keep on expanding to produce new jobs and better income, which our people need.”
Ronald Reagan (1984): “The key to a dynamic decade is vigorous economic growth, our first great goal.”
George H. W. Bush (1991): "We will get on our way to a new record of expansion and achieve the competitive strength that will carry us into the next American century.”
Bill Clinton (1997): “Over the last 4 years, we have brought new economic growth.”
George W. Bush (2002): “The way out of this recession, the way to create jobs, is to grow the economy.”
With such a parochial, reflexive attitude towards economic problems, political and economic leaders foreclosed any consideration of socially just, environment-friendly or egalitarian alternatives and any prescience of the possible consequences of their policies. In addition, political parties and their leaders are almost entirely fixated on serving the interests of their corporate benefactors which demands the pursuit of dystopic, promiscuous growth.
Furthermore, economic pundits, academics, and presidential advisors were responsible for hatching, incubating, and nurturing the concept of economic growth as the foremost purpose of governmental economic policies.
President Eisenhower’s Council of Economic Advisors (CEA) postulated that “The American economy’s ultimate purpose is to produce more consumer goods.” President Kennedy’s chief economic advisor, Walter Heller, added a new dimension to Keynesianism, which was originally intended to minimize the effects of a downturn in the economy, but became the underpinning of an ever-expanding economy. According to Heller “Faster economic growth in the United States requires, above all, an expansion of demand.” Between 1961 and 1962, James Tobin was also a member of Kennedy’s CEA and also served on the Board of Governors of Federal Reserve System Academic Consultants and as a consultant for the Treasury Board. In 1964, he gave a paper at Yale University, titled Economic Growth as an Objective of Government Policy. In that paper he recommended that “At least in professional economic discussion, we need to give a definite and distinctive meaning to growth as a policy objective.”
The CEA has been preparing an annual report transmitted to Congress reviewing economic conditions over the previous year, evaluating the state of the economy, and proposing recommendations. Each of these reports presupposes the primacy of economic growth as a solution to unemployment, prosperity and the well-being of all citizens although they did mention growth-related concerns such as inflation, interest rates, and trade. Consider the following statements in CEA reports:
President Johnson (1966): “This rapid growth in the United States exceeds the target rate for the 1960’s established collectively by the member countries of the Organization for Economic Cooperation and Development (OECD).”
President Nixon (1970): “The policies of fiscal and monetary restraint…have laid the ground for a return to price stability and sound economic growth.”
President Carter (1979): “Among my first actions in office were steps to strengthen economic growth and speed the return to a high-employment economy.”
President Reagan (1987): “More than 4 years of economic expansion, with the inflation rate near or below 4 percent and interest rates declining to the lowest levels in 9 years, have laid the foundation for sustainable real growth with moderate inflation.”
President H. W. Bush (1992): “As we move into 1992, the fundamental conditions to generate economic growth are falling into place.”
President Clinton (1995): “As 1995 begins, our economy is in many ways as strong as it has been. Growth in 1994 was robust.”
President W. Bush (2005): Our pro-growth policies are taking us in the right direction…I have laid out a comprehensive strategy to sustain growth, create jobs, and confront the challenges of a changing America.”
Since one of the major economic advisory agencies to successive governments treats ever-expanding growth as an axiomatic imperative occasionally with some reservations, corporations in America are guaranteed growing demand and hence growing profits.
Sustaining rapid growth of demand for their goods and services prompted big business and government to develop strategies to convince the public to buy into their agenda. These strategies included increasingly sophisticated advertising, tax cuts, availability of easy credit, planned obsolescence, perceived obsolescence, and convincing the public to define themselves in terms of material possessions and branding.
At the end of World War II, the question arose as to how to maintain post-war capitalistic growth. Clifford Brook Stevens, an industrial designer coined the term “planned obsolescence” and defined it as “Instilling in the buyer the desire to own something a little newer, a little better, a little sooner than necessary.” He also introduced the concept of “perceived obsolescence” when he spoke about planning the creation of something a little more stylish, making the former version look unfashionable although still functional.
Victor Lebow, a retailing analyst, conceived of the proposition that “our enormously productive economy…demands that we make consumption our way of life that we convert the buying and use of goods as rituals, that we seek our spiritual satisfaction, our ego satisfaction, in consumption…We need things consumed, burned up, worn out, replaced, and discarded at an ever-increasing rate.” Lebow articulated the main strategies for sustaining growth: planned obsolescence, perceived obsolescence, the throwaway society, and meeting the spiritual needs of consumers.
According to these theories, buying is not about meeting the needs of consumers but about how to dupe them in to ever-increasing consumption to satisfy the self-serving cravings for ever-expanding profits for big business. Growth became an end in itself rather than a means to improve people’s lives. Government “of the people, by the people, for the people” has become government of the wealthy and big business, for the wealthy and big business.
Reducing taxes thus increasing disposable income is one policy that is frequently implemented to propel growth, despite the fact that the main beneficiaries are the wealthy and large corporations. Corporate taxes as a share of GDP reveal the extent to which corporate taxes declined as a percentage of total government revenue. The distribution of wealth as measured by the Gini Coefficient is also included but caution must be exercised when drawing any conclusions about a correlation between tax revenue and distribution of wealth.
YEAR CORPORATE TAXES GINI COEFFICIENT
(As a percentage of GDP)
1967 4.2% .399
1971 2.5% .396
1976 2.4% .398
1981 2.0% .406
1986 1.4% .425
1991 1.7% .428
1996 2.2% .455
2001 1.5% .466
As for personal income tax, the top U.S. marginal income tax rates have plummeted during the Reagan era again favoring the wealthy and large corporations.
Year TOP MARGINAL TAX RATE GINI COEFFICIENT
1981 69.125% .406
1983 50% .414
1985 50% .419
1987 38.5% .426
1989 28% .431
1991 31% .428
1993 39.6 .454
2001 39.1% .466
Advertising is another major factor in convincing people to remain on the path of ever-growing consumption. It has become increasingly sophisticated targeting niche markets and selling a brand rather than a product. There is a very strong linear correlation between growth in the GDP and growth in spending on advertising. Between 1952 and 1967, the correlation coefficient in a least-squares analysis measuring linearity was .978 which is almost a perfect linear correlation. In other words, as spending on advertising increased, the GDP rose by a corresponding amount. From 1991 to 2005, the coefficient was .989 again indicating an almost perfect linear relationship. Again caution must be exercised in automatically assuming a cause and effect relationship.
Elevating growth to the highest pedestal in economic analysis was not the choice of consumers but of corporations with a voracious, insatiable appetite for profits. Disaster was inevitable as the planet has limited resources and a limited capacity to absorb the shocks resulting from human actions. The only solution is to consume less and lower our expectations about our indulgent lifestyle. Equally imperative is to transform the way we define ourselves. The choice is to voluntarily plan a different future or to be struck by a myriad of disasters jolting us out of denial and avoidance.
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