Is Our Economic Growth Fake?

Karl Marx’s account of economics hews in many ways more closely to the classical economics of Adam Smith and David Ricardo than does the modern mainstream. In part as a result, you sometimes see left-right convergence in dissents from the mainstream. Thus one way of thinking about Duncan Foley’s paper “The Political Economy of U.S. Output and Employment 2001–2010” is as a left-wing version of Tyler Cowen’s Great Stagnation argument and, indeed, Foley makes the link to Marxist and classical accounts explicit. Here’s the core of his argument:

Service industries such as Finance, Insurance, and Real Estate, Education and Health Services, and Professional and Business Services, for which value added is imputed from incomes, are included in Gross Domestic Product, distorting measures of recession and recovery. An alternative index, Narrow Measured Value Added, which excludes all services, has similar historic correlations with employment to GDP, and tracks employment in recent business cycles better. The U.S. economy as measured by NMVA has a lower long-term real rate of growth. Long-term macroeconomic policy requires attention to some version of the productive-unproductive labor distinction of the classical political economists.

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To the extent that you focus on finance as a source of phantom GDP, this will read as a left-wing argument. To the extent that you focus on health care and education as a source of phantom GDP, it will read as a right-wing argument. My view is that this style of argumentation went out in favor of accepting market prices at face value for some pretty good reasons. Does the superior aesthetic design of a Mac laptop “really” make it more valuable than a PC laptop with similar tech specs? I don’t know how we would know except with reference to the fact that consumers seem to be willing to pay more.