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Macro Trends: The Great Divergence, or Why the Economy's Gone Haywire

Macro Trends: The Great Divergence, or Why the Economy's Gone Haywire

By now, it’s a genre all its own. If the economy’s roaring, why…insert a range of questions asked by baffled pundits. Why are people turning to demagogues? Why are people so unhappy? Why won’t people just get that things are great already?!

It’s become so predictable that it’s a sign of a macro trend in itself. This particular macro trend I’ll call “The Great Divergence.” What does that mean? I want to explain this strange divergence to you in detail, so that you really grasp what’s going on here.

When we look at economies, as social scientists, we can look at a range of statistics and indicators. We can look at what are called macroeconomic indicators, which include things like GDP and maybe average incomes and unemployment rates and growth. We can look at microeconomic indicators, which include things like inflation, sales, and so forth.

This is the orthodox, traditional way to look at economies. And to do a pretty standard look at an economy in the old way, we’d look cursorily at about 80% macroeconomic indicators, like GDP and growth and unemployment, and maybe 20% microeconomic indicators, usually just one, inflation. And based on those, we’d form our conclusion.

Now. Why am I giving you this econ lecture? To educate you, and we’re only half way there.

As economics evolved—or struggled to—a new set of statistics and indicators were created. Today we group those together under the rubric of “well-being.” They’re very different. They took a more detailed look at people’s lives—their lived experiences. Why?

Because the point of the first two groups of indicators and statistics—macro and microeconomic ones—was welfare. That doesn’t mean the politicized version of the term—“handouts.” It means how well people are actually faring. And what we began to discover several decades ago is that macro and microeconomic indicators could give us false positives.

Things might appear to be doing just fine, if we only looked at them. But in reality, those indicators weren’t translating into gains in actual human welfare. A simpler word for welfare, again, is well-being, which is why this new range of indicators was invented. They included things like people’s social ties, their emotional lives, their sense of stability and security, their abilities to connect and forge lives of meaning and purpose.

And that brings us to today.

What’s the mistake that those who think the economy’s doing just great are making? How has it become a genre of articles, essays, and even books, at this point, on its own—even as people very, very clearly don’t think things are going well at all, so much so that they’re turning their backs on democracy itself, the ultimate indicator of failure and ruin, really?

The mistake is that such commenters perform an orthodox analysis, looking at macro and micro indicators, but don’t look at indicators of well-being. And what they’re getting is a false positive.

Let’s now make all that real. How’s the economy doing? If we just look at macro and micro indicators, things appear to be…pretty good. The economy’s “growing.” Unemlpoyment’s “low.” People’s incomes even appear to have risen. Prices have stabilized. So why are masses upon masses rejecting all that as a good economy? Can these huge numbers of people around the world all really be wrong at once? Is this some kind of delusion?

Only when we look at indicators of well-being, we begin to resolve this perplexing situation. I’ve discussed plenty of those with you over the last few months. 70% of people—an astounding number—feel “financially traumatized.” Exactly the same number say the economy, money, income, is a significant and serious source of stress in their lives, at the top of the list of stressors. Young people say they’re “numb” and “can’t function anymore,” and money is a large reason why.

Those are all well-being indicators. Psychosocial ones, about people’s lived experiences—not just their “feelings,” which minimizes the issue, but how they experience society, the economy, everyday life.

Now. Are those “feelings” real? Or is this is a collective delusion? Let’s keep going, because the more we look at well-being indicators, the more dire the picture gets—and the more complete it does, too, beginning to make much more sense. The majority of Americans are now “cashflow negative.” Hence, life’s become a spiral of perpetual, unpayable debt, that gets much, much worse as you go down the generations. As you go down the generations, upward mobility ceases to exist, and downward mobility becomes the norm. Meanwhile, social bonds have imploded, and just having friends is becoming a luxury. Looking at the Fed’s very own “financial well-being” statistics, we can see now-familiar things like huge numbers of people, the vast majority, live paycheck to paycheck, struggle to pay the bills, couldn’t cope with an emergency.

These are incredibly dire indicators. And they tell us something—even though they’re being ignored, and that’s a fact that you should take away from all this too: commenters who only look at macro and micro indicators, without looking at well-being data, are performing weak analyses. Not in my opinion, but in objective terms—their analyses fail the explanatory test, that is, of being to explain what’s actually going on.

Now. Commenters, especially in America, ignore well-being for a reason: they don’t even know it exists. Maybe they have a bit of training in economics, often not even that—but well-being is at the cutting edge, and most who comment on the economy have no idea about this end of the field whatsoever, and couldn’t tell, for example, Sen’s famous critique of utilitarianism, which laid its foundations, from Mahbub ul-Haq’s pioneering theories, which literally reshaped our world…because they don’t know any of this stuff.

That’s OK, not everyone has to. But in this situation?

Now think about what the data’s telling us. Macro indicators, micro indicators—things are just fine. Well-being—things are crushing, terrible, people are in despair and ruin. This is the Great Divergence in action.

How can this be, though? How can these statistics all disagree? Remember, well-being data was invented because GDP and its ilk faced a powerful critique: they weren’t very good measures of human welfare. I could break your arm, and GDP would go up, because you’d have to pay the doctor. So well-being data were created to reality-check old-school indicators based on orthodox, dated economics. And in this situation, they tell us that the orthodox indicators are giving us major errors—false positives.

Let’s think about just how that can be, in hard terms, now. The economy’s “growing”—but the average person’s “cashflow negative,” barely breaking even if they’re lucky, living hand to mouth. What does that mean? How can that happen? Pretty easily—when all that “growth” goes to the top tiny fraction in a society, who are earning it through predatory means, which is why everyone else can’t make ends meet. This is one of the doomsday scenarios, if you like, that well-being indicators were created to reality-check—only then, it was theory, and today, it’s coming true.

Or let’s take unemployment—that’s the easiest one. It’s hardly just the quantity of employment that matters in a modern society—the quality does, too. And what we know is that underemployment is a major, major problem, especially amongst younger generations, who can get educated to the gills, yet still find themselves working dead-end jobs. Meanwhile, even amongst the educated and accomplished, a “career” has become a thing of desperate precarity—sure, you can have a few good years in a plum “tech” job, but you can also be laid off just like that, the axe falling, and never make such an income again, or at least not for a solid decade. The economy’s creating low-quality jobs—it’s job gains concentrated in “low-wage service work,” and that, too, is a measure of well-being, or in this case, a lack thereof.

It’s not hard to understand just why people so angry, desperate, troubled, and in utter despair these days. But you have to take a complete look at the data, and a sophisticated one, and you have to know what you’re doing. Just as someone who’s not a doctor would probably fail to make sense of a complex test result, or maybe even ignore the crucial indicators altogether, so too many commenters lack the expertise to really understand what’s happening to people and the economy and society today. They take an incomplete look, ignoring well-being data, which they barely know exists, and don’t have any background with theoretically—and conclude everything’s fine.

But well-being data is utterly ruinous. It tells us without a shadow of a doubt that if all we look at are orthodox macro and micro indicators, we will get false positives. Because we are now in exactly the situation well-being data and science was created to guard against—the orthodox indicators aren’t translating into gains in human welfare. Instead, they’re going to a tiny number in society, often in predatory ways. The well-being data show us this absolutely, without the slightest shadow of a doubt. There is no other way you get to “the majority of people are now broke, but the economy’s growing” without just the malfunctions they were created to tell us about actually happening.

So. Our commenters need to get literate with the cutting edge of economics–not its obsolete, blunt back end. GDP? Etcetera? These orthodox indicators were invented a century ago. To solely look at them is to make a mistake, intellectually, theoretically, and analytically. The field has moved on, and to ignore its advances, most of which have to do with well-being, which is itself abut the inadequacies and shortcomings of orthodox economics, is to…fail.

That’s where the bafflement comes in, and how this has all become a genre all its own. Not knowing about well-being, such commenters are left perpetually perplexed, unable to understand, and worse, unable to explain.

But what’s going wrong with the economy, and our societies, is very real. How could it not be? Surely we can see signs all around us of the bleak and bitter struggle life’s become. To ignore all these, my friends, is only to lend strength to those who wish to undo civilization itself, because in the end, we act irrationally ourselves, playing out the pose of “everything’s fine! What’s everyone so worried about?!” What aren’t we worried about these days? Everything’s uncertain, unsure, falling apart, from democracy to ecology to society.

We must begin by understanding it. That much is within our grasp. Our first task in times like these is always wisdom. And if we fail to earn, share, give, even that—what have we really accomplished at all?

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