Since the COVID shock in 2020, one of the main economic questions has been when and which countries recovered their pre-pandemic GDP (Gross Domestic Product) level. That is, when and by whom activity returned to normal in aggregate terms. In this race, there has been little attention to whether this recovery was distributed equally between the richest and the poorest or whether it damaged the environment more or less.
It’s not a surprise. The dominant analysis of economic growth has never stopped at these questions. As the report ‘Beyond GDP: Who grows and at what price?’, published by Future Policy Lab and the Spanish Institute of Analysts, concludes, “GDP growth does not necessarily translate into an improvement in the well-being of the majority of the population. population, but with it inequality, poverty and environmental degradation can coexist, […] which is especially relevant in the context of the climate crisis.”
In the capitalist system, the economy grows in cycles: it experiences periods of progress and suffers contractions as a consequence of the excesses and imbalances of those same periods of expansion (such as the real estate bubble) or unexpected shocks (such as the pandemic). The evolution of GDP confirms this. Every quarter, international and national statistical institutions update the calculations of this yardstick (the main and most standardized one). Recurrently, experts analyze the figures and the media disseminate them.
In parallel, governments make their decisions to stimulate activity and, ultimately and more specifically, the GDP (with respect to which the countries’ capacity to finance themselves, the fiscal pressure or comparisons are established), despite the almost blind, or with much later knowledge, about whether their behavior is distributed equally between the richest and the poorest or whether it irremediably damages the environment. Under the same conditions, companies or families make their decisions.
The study signed by economists Javier Soria, Enrique Chueca and Berna León focuses on the case of Spain. In our country, “during the last four decades the majority of the population has experienced economic growth very similar to the average.” In other words, growth has been distributed, although with one major exception: “The wealth of the most economically privileged groups, such as the richest 0.01%, has grown substantially in this same period of time, almost tripling economic growth.” experienced by the majority of society,” emphasize the experts from the Future Policy Lab.
“Thus, while in the last decades of the 20th century all percentiles of the distribution enjoyed positive average growth, from the lowest percentiles to the richest 0.001%, in the first two decades of the 21st century the Spanish economy has evolved towards a new paradigm of unequally distributed growth,” they continue.
The ‘Beyond GDP’ report includes some compelling data, such as those extracted from the work of Javier Soria (Intergenerational Mobility, Gender Differences and the Role of Out-Migration: New Evidence from Spain (Soria, 2022). PSE Working Paper), seen in the previous graph.
These figures indicate that “among the children who manage to reach the richest 1%, only 3.77% of them come from families in the lowest income decile.” [del 10% de hogares más pobres]”. This percentage should be exactly 10% in an egalitarian society. On the other hand, among the children who manage to reach the richest 1%, 40% come from parents from the highest income decile. “This percentage should be only 10% in an egalitarian society,” Soria repeats.
“The original purpose of GDP was not to measure inequality, but to serve as a measurement tool for the economic output of the United States. At the time of its proposal, economic growth was equally distributed, so that GDP was a good measure of the economic well-being of the majority of society. However, since the 1980s, GDP growth has become increasingly uneven. Therefore, it is necessary to complement GDP with indicators that measure the distribution of income and wealth, as well as economic well-being in terms of health, education, security and happiness. In the case of Spain, the study of how inequality has evolved in the country is essential to be able to propose measures to tackle it,” explain the three economists.
“Measuring unequal economic growth is crucial, since the lack of information on the distribution of income and wealth over time limits the ability of policymakers to design effective measures and help the most vulnerable income groups. Currently, macroeconomic statistics are not broken down by income level and the most precise and frequent data are published annually, which makes real-time monitoring and analysis of inequality difficult,” the report states.
The last recovery
In these last 3 years a paradox has occurred. While the central issue has indeed been to complete the reconstruction, it is also true that to do so the different central banks and governments of the developed world allowed and executed unprecedented countercyclical policies (especially because of their intensity, not because they were unknown).
Expansive policies that have allowed public spending and debt to increase. In the specific case of Spain, a social shield has been deployed that has protected the income of families and measures that have safeguarded the profits of companies (the creation of the Minimum Vital Income, the financing of ERTE, cheap loans and, later , the increase in pensions according to the CPI, among other decisions).
This extraordinary response has produced two results. The first, a quick recovery, as was sought. The second, a more distributed reconstruction. The authors of the report from the Future Policy Lab and the Spanish Institute of Analysts present it with the data collected by the ‘Real-Time Inequality’ indicator by economists Gabriel Zucman, Emmanuel Sáez and Thomas Blanchet to United States, whose background can be extended to the rest of the developed countries.
“Overall, the data shows us that the recovery from the COVID-19 crisis was much faster than the recovery from the Great Recession [de 2008] (1 and a half years vs. 4 years, respectively). However, the statistics of this methodology in real time allow us to go beyond the aggregate indices,” the report observes.
After the financial crisis, “the income of the poorest 50% [de la población en edad de trabajar] It took almost twice as long (96 months) to recover the pre-crisis level as the general income of adults. However, regarding the COVID-19 crisis, the incomes of these two groups recovered their pre-crisis levels much faster and the time difference in recovery between both groups was just a few months,” he continues.
For the authors, this level of growth evaluation serves to expose “the importance of this new methodology when analyzing the (uneven) evolution of the economy, which could serve to act in time and try to mitigate the negative effects of crises. on inequality and social mobility.”
“A more complete set of economic indicators is needed that capture these social facets, in order to measure progress accurately and be able to guide political decisions,” he concludes. In addition to citing ‘Real-Time Inequality’, the report suggests using the Human Development Index (HDI) to evaluate the impact of economic growth on the well-being of the population, as well as the Genuine Progress Index (GPI), which measures broader aspects of human well-being such as health, education, social equality and environmental sustainability.