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CES Visiting Scholar Éloi Laurent publishes article on the great recession

December 11, 2013

The disconnect between policy-makers and their constituents on the state of the economy is close to the point where there seems to be two parallel universes: one where the “great” recession of 2009 has given way to a solid and shared recovery that all should rejoice over; the other where the recovery in question is so weak and unequal that it deserves to be called not only “small”, but dismal.

The story is somewhat different for the European Union and the US. In America, production (measured by GDP), that fell sharply during the great recession, started to recover earlier and stronger and regained by mid-2011 the ground lost in 2008 and 2009. But average household income has not followed suit and income capture by the wealthiest under the current inequality regime leaves the immense majority of Americans with little more than crumbles of recovery. Yet, political leaders of different persuasion go on repeating that the economic crisis belongs in the past. It does not, when properly measured.

In Europe – and especially in the euro area – production took a longer time to recover only to fall back in recession in 2011 due to ill-timed fiscal austerity and has since then only been a quarter in positive territory. But this has not stopped European officials and national leaders from claiming that the worse was now over, at the very moment unemployment reaches an all times high and continues to grow in most of the continent.

This gap between political discourse and citizens’ daily experience is of serious consequence for democracy on each side of the Atlantic. It means that misunderstanding and distrust are growing between constituents and their elected leaders on what the economic and social reality is. It reflects a disagreement on facts, not ideas or opinions, which can’t be resolved by trading reasonable arguments. It suggests that beyond the very real economic stagnation and social regression in Europe and the US, a democratic depression is silently under way, which populist spasms are only the surface of.

New indicators of well-being and sustainability that aim at going “beyond GDP” (i.e. beyond standard economic indicators, models and analyses), are sometimes perceived or caricatured as intriguing gimmicks. They are far more than that. Accurate measurement of welfare and sustainability (or dynamic welfare) is a crucial dimension of public debate and should be greatly improved. What is not measured is not only, as the saying goes, ­not managed: it becomes invisible to the public eye. But because we don’t perceive or understand social evolutions does not mean they don’t happen and have consequences. Conversely, measuring is part of governing, another way of saying that indicators determine policies. If the sole endgame of societal success in the US was to be the ever-ending increase of the Dow Jones index, then public policies would aim for that goal only, regardless of adverse social or environmental collateral damage. In the same vein, if public authorities in Europe were to only pay attention to the bottom line of the banking industry, they would direct all of their resources toward this target (this undesirable future is all too real). GDP today is not just an outcome: it is an input that shapes policy.

Complementing production indicators by measures of distribution in our approach to economic and human development and integrating those metrics in budgetary debates in the US and Europe is just the first step toward bridging the gap between citizens and politicians. The next one is to take the full measure of the longer term of democracy, which is the fair distribution of capital among generations and within each of them, whether manufactured, social or natural.

The current economic crisis will not come to an end until it is properly assessed. The alternative for American and European politicians is to continue talking past citizens about social, economic and ecological realities, up to the point where they will simply stop listening.

Full Article on EurActiv »