Economists are trying new ways to breakdown GDP : The Indicator from Planet Money Ah, GDP, the titan of all economic indicators. But are we breaking it down correctly? Today, we're remixing GDP to evaluate the true health of an economy.

It's GDP... the remix!

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SYLVIE DOUGLIS, BYLINE: NPR.

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ADRIAN MA, HOST:

For the second quarter in a row, economic growth in the U.S. has declined. That is according to a preliminary estimate released today by the Bureau of Economic Analysis. It says gross domestic product, GDP, declined by an annualized rate of 0.9%.

GREG ROSALSKY, BYLINE: At the center of this debate is this indicator, this number - good old-fashioned GDP, gross domestic product.

MA: But there's also a problem with GDP. It's just one number - a single number that tells us the total size of the economy. And that number misses a lot - like, for instance, how different income groups are doing.

ROSALSKY: This is THE INDICATOR FROM PLANET MONEY. I'm Greg Rosalsky.

MA: And I'm Adriana Ma. Today on the show, a team of economists wants to revolutionize the way the government measures the economy.

ROSALSKY: They imagine a new kind of GDP - one that isn't merely a single number telling us about total economic growth, but a collection of numbers telling us where the gains from that growth are flowing. And pretty cool - they already have a working prototype.

MA: And to put it in terms that translate to audio, you can think of classic GDP as a simple melody - one note at a time.

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MA: And by contrast, you can think of the new GDP prototype as something like a chord progression.

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ROSALSKY: It's GDP, the remix.

MA: Remix.

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ROSALSKY: In the early 1930s, the U.S. economy was still facing this nightmare known as the Great Depression.

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UNIDENTIFIED PERSON: Millions of Americans, men, women and children, wait in the cold on bread lines, in soup kitchens.

ROSALSKY: The federal government enlisted a young economist named Simon Kuznets to figure out just how bad the damage was.

MA: Back then, the government did not monitor the economy in a super rigorous way. And in fact, for a long time, the very concept of this single nationwide entity known as the economy was sort of an alien concept to a lot of people, at least in the modern sense that we talk about it.

ROSALSKY: So Simon Kuznets and a team of nerds - they get to work. And I got to say, like, especially in the time before computers, this work must have been excruciatingly boring. We're talking, like, sifting through papers, counting things in the economy, compiling statistics - like, pretty dry stuff.

MA: Their abacuses were probably, like, smoking. But finally, in 1934, after months and months of heroic nerdery, Kuznets delivered a report to Congress, and it was titled "National Income, 1929-1932." And what it did was provide the federal government with the first comprehensive accounting system to measure the economy.

ROSALSKY: The report introduced America to a new concept - that you can size up the nation's entire economy with a single number. Back then, Kuznets called it national income, but it was a forerunner to a concept that today we call GDP. Kuznets' number became sort of a sensation. His boring report became a bestseller. The first 4,500 copies sold out, and it had to be reprinted - seriously.

MA: All of a sudden, the country had a more scientific way to estimate economic growth, to judge leaders and policies on their economic performance, and to decide whether they should change course. And before too long, the number was adopted by basically every nation on earth.

ROSALSKY: But in the very report to Congress in which Kuznets pioneered the measurement of GDP, he also cautioned against putting too much stock in it. As he said, this single metric only estimates the size of the economy, not the well-being of society. To get at that, we need to know much more, especially who is benefiting or not benefiting from economic growth.

MA: And despite that and a whole long line of economists saying, listen, GDP is not the end-all, be-all of the economic conversation, that indicator, GDP, still continues to dominate the conversation. And that is why a team of economists at UC Berkeley is trying to change that.

GABRIEL ZUCMAN: The big problem is that GDP data doesn't tell you who is benefiting from economic growth.

MA: Gabriel Zucman is part of a trio of economists trying to revolutionize GDP, along with Thomas Blanchet and Emmanuel Saez. They offer a new GDP prototype - you know, the remix.

ROSALSKY: 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, and that is just way too slow for a fast-moving world.

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 to create all these new transfers (inaudible), or is it not enough?

MA: So to follow where all these slices of economic pie are going, Gabriel and his colleagues have cobbled together data from a whole variety of official sources and pioneered a method to compute how different income groups are doing economically way quicker than has been done before. So they hope the government will follow suit.

ZUCMAN: So we want to be able to produce numbers about how income is growing for each social group at the exact time when the Bureau of Economic Analysis releases its official GDP growth numbers.

ROSALSKY: So the prototype is not that fast yet. GDP for the second quarter, after all, just came out today, and the prototype has not been updated yet. They just have numbers for the first quarter. Have a little patience, people.

MA: But, you know, this prototype can already tell some really important things about the recent past. Gabriel and his colleagues have used it to look back in history and see how different income groups have fared during past recessions and recoveries.

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: Compare that to the pandemic recession and recovery. According to their prototype, it took 20 months for the bottom 50% to recover to their pre-crisis income level. That was about twice as long as it took for the top 50% to recover.

MA: 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.

ROSALSKY: 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.

MA: It's a pretty extraordinary change from the past 40 years where the bottom has seen very little income growth and the top has seen massive gains.

ROSALSKY: 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: Look. Like everybody, I dislike inflation. But it's a price to pay for gains for groups that have been excluded from growth. Let's discuss. 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.

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MA: This episode of THE INDICATOR was produced by Jamila Huxtable with engineering from Robert Rodriguez. It was fact-checked by Kathryn Yang. Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.

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