JD Vance’s new book, Communion, includes a chapter railing against economists. The central thesis of his chapter “A Dismal Science” is that the government has preoccupied itself with GDP maximization at the expense of well-being. Americans only seem so well off, Vance argues, because “we bombard [them] with all manner of creature comforts and add their consumption—price club mega-size junk—to our national GDP.”
The vice president’s criticism is mostly a strawman. I don’t know any economists who advocate GDP maximization. In fact, most economists talk about ill-defined concepts like “social welfare” all the time. The limits of GDP as a proxy for human welfare are emphasized in any 101-level economics course, including this study aid for high schoolers. As my colleague John Cochrane tweeted last month: “GDP answers the question posed to it…. What is the total value of goods and services produced in the market economy…. It is a terrible measure of things it wasn’t designed to measure: consumer surplus, welfare, non-market activity, happiness, etc.”
What economists have emphasized is that GDP is highly correlated with many non-economic outcomes we care about, including life expectancy, literacy, sanitation, and a host of other obviously good things. In other words, GDP is not and doesn’t pretend to be synonymous with human welfare, but formal economic activity appears highly related to that. Anyone proposing policy that crushes output in the name of another objective should therefore be wary of dismissing falling incomes or consumption as mere accounting trivia.
In any case, it’s especially laughable to claim that policymakers prioritize maximizing GDP over all else. A quick review of Congressional Budget Office and Joint Committee on Taxation bill scorings shows that GDP projections have little bearing on whether a bill becomes a law. Of 17 bills scored with respect to GDP since 2000, four passed, one of which was thought to produce a long-term drag on GDP. Of the 13 that failed, nine were projected to boost GDP, including three bills to liberalize immigration. Imagining what America would look like if a true GDP-maximizer had been at the reins drives the point home: Vance’s appraisal of economic policy is off the mark.
The clearest case that politicians prioritize things other than GDP is the tax code. A GDP-obsessed government would fund itself in whatever way did the least damage to output. The evidence here provides a fairly clear ranking, succinctly summed up in this OECD paper. Corporate income taxes do the most damage to growth, followed by personal income taxes, consumption taxes, and finally property taxes. We’d expect to see the government fund itself entirely with a flat, broad consumption tax and recurring taxes on land or immovable property if it were so occupied with GDP, but instead, the majority of government revenue comes from individual income taxes.
It would also spend far less on redistribution and transfer payments, since these don’t increase output. Abolishing them would avoid the distortions that spring from both the taxes that fund transfers and the benefits themselves. Programs like these aim to reduce income and wealth inequality, but those goals mean nothing to GDP. Actual lawmakers from both parties, however, have instead built and defended a vast welfare and entitlement state precisely because they care about things other than GDP.
Trade and procurement rules tell the same story. Buy-American restrictions are a deliberate choice to limit potential suppliers to American companies, strictly raising prices, lowering consumption, or both. Scrapping them could have grown GDP by $22 billion. Eliminating the protectionist Jones Act would likewise raise US GDP by between $19 billion and $64 billion, according to one OECD study.
Likewise, politicians don’t maximize GDP when they preserve national parks or forgo drilling for natural resources on public lands. Evidently, they place a value on wilderness, biodiversity, or scenic views independent of economic output. GDP-maximizers would never countenance something like an environmental review, either. But instead, Congress passed the National Environmental Policy Act in 1969, subjecting projects to years of delay. States have their own energy permitting regimes, too, and the combined effect is that we’ve made parts of the country endure unforced energy scarcity with GDP as collateral damage.
On the topic of permitting, GDP-maximizers would have also ended building permitting and zoning. Cutting land-use rules in America’s most productive cities could raise GDP by around 8 percent. Instead, states and localities nearly doubled the quantity of zoning and land-use regulations between 1980 and 2010. GDP-maximizers would have preempted and ended most occupational licensing, too, instead of allowing it to grow from covering 5 percent of workers in 1950 to 25 percent today.
Lastly, sheer GDP is significantly influenced just by the number of people in an economy. So, liberalized immigration policy would tend to grow GDP if only because it would make for more workers and consumers.
Liberal immigration policies can grow GDP per capita, too, by improving the ratio of working-age to total population and the employment rate. It can also grow GDP by welcoming entrepreneurship, giving talented workers access to capital in a new country, and adding workers with skills complementary to those of existing workers. That’s partly why, of the 17 dynamically scored bills above, the three immigration reforms were all projected to raise GDP. But instead, Washington has resisted immigration reform bills for reasons unrelated to GDP.
Taken together, the proposals drive home how absurd it is to think America has been governed by GDP-maximizers. They wouldn’t fit neatly into either the Republican or Democratic platform; more likely, both parties would reject nearly all of them. And it’s hard to imagine any lawmaker supporting the whole list, let alone any of the presidents of the last fifty years.
Of course, that is because we are not, and have never been, governed by GDP-maximizing robots. Instead, we’ve always been governed by people who prioritize other interests over economic output and who grant special-interest carve-outs whose diffuse costs dwarf their concentrated benefits. None of that has anything to do with GDP as such.
