Our Sham GDP

The suggestion by some European economists that quality of life should be included in GDP as a measure of economic growth may not seem legitimate to our American votaries of Adam Smith, the acknowledged dean of Capitalism; but, then, by the same token,neither does our American version of the GDP.

As defined by Adam Smith in The Wealth of Nations

, wealth-creating productive labor is the kind engaged in the production of capital goods, things like tools and machinery not immediately consumed that can be used and reused for the production of other goods, and supporting service industries, like commercial banks and venture capitalist firms. Labor involved in the production of goods immediately consumed, though they may create employment, contribute nothing to a nation’s real wealth, and is, therefore, to be regarded as “unproductive labor.” No sane creditor Smith, notes, would risk lending to businesses engaged in the manufacture or trade of consumer goods. (Book 2, Chapter. 4)

Consider the preponderance of non-productive goods and services included in our GDP, from the frivolous—cosmetics, high couture, celebrity magazines—to the parasitical—gambling, derivative trading, ambulance-chasing lawsuits. Consider further the trillions borrowed to finance such goods and services. By Adam Smith's lights, then, we really have no valid case against Europeans who seek to include quality of life in their GDP when we bloat ours with non-productive goods and services.

Adam Smith, though, was quick to point out that no nation would want to specialize exclusively on tools and machinery. Life in such a nation would be insufferably dreary. The capacity of the average citizen to purchase consumer goods is the mark of a successful, happy society. All work and no play does make Jack a dull boy. But here’s the rub: the consumerism factor is valid only if consumers pay for their frills with their own money. The modern-day practice of people going into debt to their eyeballs to acquire things they cannot afford, or really need, would cause the dean of Capitalism to writhe in his grave.