Beyond GDP and the Stock Market
Understanding the true purpose of an economy
Western media fundamentally misrepresents what an economy is, leading to a severe misunderstanding of societal well-being in our collective consciousness. So, let's clarify this foundational concept.
At its core, an economy is a model for allocating labor and resources within a society in a way that effectively meets the needs of its people. The original argument for capitalism, for instance, was that a market economy with private ownership over the means of production offered the most effective means to allocate these crucial elements, ultimately benefiting the working majority. This idea, famously articulated by Adam Smith as the "invisible hand," posited that individuals pursuing their self-interest in a free market would inadvertently contribute to the greater good of society. It proved to be a powerful narrative promising widespread prosperity.
Measures such as the stock market and Gross Domestic Product (GDP) were introduced as proxies intended to measure how well the economy was achieving its stated purpose: to improve the standard of living for all. GDP, for instance, was developed during the Great Depression and World War II to gauge national production and mobilize resources. It was a wartime accounting tool, never designed to be a holistic measure of societal well-being. Similarly, the stock market, while reflecting corporate profitability and investor confidence, was never meant to be the sole barometer of a nation's economic health, especially concerning the lives of ordinary citizens. These are valuable tools for understanding certain aspects of economic activity, not ends in themselves.
However, collective understanding that these metrics are simply proxies has been lost today. Instead, they've been tragically turned into ends rather than means. The media relentlessly focuses on these figures, while political discourse often equates a rising stock market or growing GDP with unqualified success. As a result, people have started treating the stock market and GDP as the economy, rather than narrow indicators of its performance. This is precisely why our analysis must shift from abstract measures to concrete material conditions. What ultimately matters is the tangible standard of living experienced by the working majority, not the soaring numbers on a trading screen.
The misguided focus on these metrics is precisely why we're seeing an increasing disconnect between the economy people are experiencing in their daily lives and the often-rosy news reporting on how the economy is supposedly doing. For example, while headlines might trumpet record-high stock market indices or robust GDP growth, many households grapple with the grim realities of stagnant wages that haven't kept pace with inflation, making daily life an increasingly difficult struggle. The cost of essential goods — from groceries to gasoline — continues to climb, eroding purchasing power. The dream of homeownership remains out of reach for vast swathes of the population due to soaring housing costs, while rent consumes an ever-larger portion of monthly incomes. Even basic necessities like childcare and healthcare are becoming luxury items for many.
The phenomenon of "jobless recoveries" or "wage-less growth" illustrates the problem perfectly: GDP might tick up, but if those gains aren't translating into better-paying, secure jobs or more disposable income for the average person, what does that growth truly signify? We see corporate profits soaring, often fueled by layoffs or automation, while the broader workforce sees little benefit. Such metrics-driven narrative creates a deeply unsettling paradox where official statistics paint a picture of economic vitality, yet individuals and families feel increasingly squeezed. This leads to absurdities, such as articles that argue the recession people are experiencing isn't real, like the recent Wall Street Journal piece titled "It Won’t Be a Recession—It Will Just Feel Like One." Such reporting, while technically accurate using cherry-picked metrics, alienates the public by denying their lived reality and highlights the need to redefine the meaning of economic success.
Indeed, a far more nuanced picture of societal well-being emerges when we focus on material conditions, using measures that directly assess the quality of life for the average person. Tools like the Physical Quality of Life Index (PQLI), which considers infant mortality, life expectancy, and literacy rates, provide a far more accurate reflection of how well an economy is meeting fundamental human needs than mere monetary aggregates. When we turn our gaze to such indicators, the narrative often shifts dramatically.
Consider, for instance, the historical record. A seminal study by Professor of Economic History, Robert C. Allen, posits that the 1917 Russian Revolution was directly responsible for a rapid economic and social growth that led to significant improvements in material conditions. It's a finding that highlights how an economic model focused on improving material conditions can achieve remarkable strides in human development. Further research reinforces this, demonstrating a steady increase in the quality of life during the Soviet period, with Soviet life expectancy growing faster than any other nation recorded at the time. These achievements provide direct evidence of an economic system prioritizing basic needs.
Moving beyond specific historical cases, broader comparative analyses reveal compelling insights. A large study utilizing World Bank data, for example, found overwhelming evidence that at similar levels of development, socialist countries often brought about a better quality of life than their capitalist counterparts. Another independent study comparing capitalist and socialist countries on measures of PQL, while accounting for economic development levels, reached similar conclusions. These studies suggest that a different organizational approach to allocating resources can indeed lead to superior outcomes in areas directly affecting human well-being, such as health and education.
The human cost of neglecting these material conditions is clearly illustrated by the post-transition period in Eastern Europe. Following the collapse of socialist systems, an unprecedented mortality crisis struck the region during the 1990s, causing around 7 million excess deaths. This devastating period, which saw rapid deindustrialization and the widespread adoption of market-oriented reforms, serves as a grim reminder of what happens when economic policies prioritize abstract metrics like GDP growth and rapid privatization over the stability and well-being of the population. The first quantitative analysis of the association between deindustrialization and mortality in Eastern Europe explicitly links these economic shifts to the tragic rise in mortality, underscoring the critical importance of ensuring that economic transitions serve the people, not merely the market.
Ultimately, the widely reported metrics of GDP and the stock market are often utterly divorced from the material reality experienced by the working majority. While they offer insights into certain aspects of financial activity or aggregate production, they tell us little about the actual welfare, security, or opportunity available to most citizens. It is precisely because of this fundamental misalignment that we must demand a more comprehensive assessment. Measures like PQLI and similar human-centric indicators tell a far more nuanced and truthful story that better represents the lived reality people experience. We have a responsibility to critically examine economic news reporting, asking ourselves not just 'Is GDP up?' or 'Is the stock market gaining?', but more fundamentally, 'Is the economy truly serving the needs of the people?' After all, the real purpose of the economy is to provide for our collective well-being and to improve tangible material conditions.