Cleaning Up the Gulf

The costs of cleaning up the gulf are included in GDP, and the inclusion of cleanup costs does make GDP a better measure of welfare. To clean up means to produce a cleaner environment from a dirty environment, which increases economic welfare. The problem is the failure to include the original environmental damage, not the inclusion of the cleanup costs. Finally, real GDP is an aggregate measure. It does not reflect the ways in which goods and services are distributed across the many households of an economy. In comparing two economies, we may feel differently about an economy in which resources are distributed relatively equitably compared to one in which some people are very rich and others are very poor, even if overall real GDP per person is the same. Similarly, we may feel quite differently about changes in real GDP depending on who is reaping the benefit of those changes. In summary, real GDP is far from a perfect measure of economic welfare, but then again it is not designed to be. It is designed to measure economic activity, and it is—at best—an imperfect measure of material well-being. Nevertheless, when we want to understand what is happening to overall economic well-being or get an idea of comparative welfare in various countries, we begin with real GDP per person. For all its flaws, it is the best single indicator that we have. Other Indicators of Societal Welfare Because real GDP is an imperfect a measure of well-being, we look at other statistics as well to gauge overall economic welfare. Here are some examples of economic statistics that we also use as indicators of economic welfare. Unemployment The unemployment rate is one of the most frequently cited statistics about the macroeconomy; it is the percentage of people who are not currently employed but are actively seeking a job. It signals the difficulty households face in finding employment. GDP data are reported on a quarterly basis only, but unemployment statistics are reported monthly and so contain more up-to-date information than GDP. [2] Figure 3.15 “The Unemployment Rate in the United States” shows the unemployment rate in the United States from 1940 to 2010. On average, the rate of unemployment over this period was 6.0 percent. The unemployment rate was at its highest—14.6 percent—in 1940 and its lowest—1.2 percent—in 1944. The low unemployment in 1944 was largely due to World War II (and is an indication that low unemployment is not always a sign that all is well in an economy). From 1995 to 2008, the unemployment rate was never above 6 percent, but it jumped to 9.3 percent in the major recession of 2008 and by mid-2011 had still not fallen back below 9 percent.