I’ve been arguing for these many years–going back more than a decade, actually, to my book on the economy–that the Gross Domestic Product (GDP) is misused as a barometer for how the economy is doing. When the GDP is up, talking heads, the press and politicians try to convince us that everything is all rosy in the economy. The problem is that GDP only tell us that stuff is being made–not how the wealth from that production is distributed.

Here and there, the mainstream press sometimes, but rarely, raises the problem. Louis Uchitelle has a short piece in today’s New York Times Business Section that addresses problem:

THE plain fact is that when it comes to measuring how much the American economy produces and who gets what share of the pie, the federal government’s most celebrated statistic — the gross domestic product — leaves something to be desired.

The G.D.P. is useful, as far as it goes. It tells us how much value — often called national income — is generated each year from the production of goods and services in the United States. The G.D.P. also breaks out how much of that income goes into profits and how much into wages and salaries.

This is where the trouble is. The numbers show that the profit portion of the gross domestic product has risen mildly in recent years, while the wage-and-salary share has shrunk slightly. There is evidence, however, that because of the way the G.D.P. is calculated, the actual shift is much more pronounced.

“We know that income inequality is quite substantial,” said Harry J. Holzer, a labor economist at Georgetown University, “and this new evidence suggests that it is worse than we thought.”

There are, as Uchitelle suggested, intangibles that skew the GDP. And, so:

If these intangibles, along with R & D, were incorporated into G.D.P. on the profit side as capital investment, labor’s share of national income would decline from a fairly steady 65 percent in the 1950’s, 60’s and 70’s to less than 60 percent today.

The long decline doesn’t show up in the standard G.D.P. accounts, which ascribe nearly 65 percent of national income to labor. “The hidden earnings from these knowledge investments have not been shared equally with workers,” Mr. Hulten said.

Two reasons seem likely. Some of the profit is probably going to the wealthiest Americans — the upper 1 percent whose incomes have risen sharply, in part from dividends and other forms of corporate earnings.

Then, too, most of the nation’s workers are bereft of bargaining power. Unless that returns, labor’s share of national income seems likely to continue its decline.

Indeed. Read the whole article here.