Real World Economics: Reflections on cancer and GDP’s limitations

Edward Lotterman

Twelve years ago today my ENT called saying a pathologist confirmed I had a squamous cell carcinoma. Days later my oncologist gave me a 45% chance of surviving five years.

And yet I am still here, writing this.

Reflecting on this can bring a flood of thoughts and emotions. But as an economist, I can’t help but see a lesson here: the value of things we value, such as life and good health, and the factors that go into making them so, often can’t be measured in terms of dollars and cents.

Being diagnosed with cancer, and surviving, for example, illustrates one limitation of gross domestic product as an indicator of the performance of an economy vis-à-vis how it impacts our well-being as individuals or a society.

GDP is frustrating to econ profs. It is a crucial indicator subject to wide misunderstanding.

Intro students must learn it is “the total market value of all final goods and services produced in an economy.” But then may of them forget the details.

We teach that output is an important indicator. In a 19th century phrase, “the objective of production is consumption.” People cannot have goods and services to meet their needs or wants unless someone produces them. All else being equal, it’s assumed the greater the value of output, the more it is possible that a population can be better off. But there are numerous caveats.

Professors spend hours explaining the limitations of GDP as an indicator: What it doesn’t tell us about an economy? What can it measure and what shouldn’t we assume it tells us? Students dutifully write litany on exams.

Unfortunately, journalists, politicians and sundry pundits don’t take our courses or have forgotten this section. So one reads assertions like “economists agree that GDP is by far the best measure of how an economy is performing.” No, we don’t agree on that. In 45 years I have never heard any economist say that.

GDP is a measure very useful when taken in context with other indicators, and when one is mindful of what is not being measured.

For example, the adjective “final” in the above GDP definition means no double counting. The hamburger we buy at the drive-up window is counted, but not the wheat and flour that went into the bun, nor the cattle feed and the steer that formed the ground beef. We count the whole F-150 truck, but not iron ore, steel, glass, plastic and rubber.

“Gross” in the definition means the value of all the new final goods produced in a nation. There’s no deduction for past production that wore out or was discarded. New cars, appliances and computers are added up. Ones crushed for scrap are not subtracted. Do that and you have “net national product;” important, but seldom cited.

Nor are adjustments made for resources used up in the production process. We have produced much grain, but there is less water in the Ogallala aquifer. We produced millions of tons of steel but have deleted Minnesota’s high-grade iron ore. Housing production is up, but thousands of square miles of white pine are gone.

Also of critical importance, the final figure makes no adjustment for external costs in producing the goods. Consider biologically dead streams downhill from old copper mines; poor children growing up near petrochemical plants with shamefully high rates of serious health problems; fewer and poorer shellfish in Chesapeake Bay and Louisiana bayous; cities choked with smog.

Moreover, “market value” is not “well-being.” A tycoon buying a $50 million yacht counts the same in GDP as $50 million spent on sewers in rural Mississippi. Millions spent lavishly furnishing a 30,000-square-foot Manhattan apartment adds the same to GDP as equal amounts upgrading nursing homes.

And sometimes rising GDP can indicate we are worse off: If we all boozed it up and caused fatal DUI crashes, output from towing services, ambulances, body shops, orthopedic surgeons and morticians would rise, and so would GDP.

Does all this mean GDP is a terrible measure? No. It remains highly useful — as long as one uses it in context.

Now, what about my carcinoma? This falls in the category of the positive things GDP fails to catch — such as ever-lowering costs for maintaining and even bettering the public good.

Consider that a heart attack killed my dad weeks after my conception. Dr. Van Solkema came by twice but could do nothing. Today a high tech ambulance would have whisked dad downtown, CPR performed along the way, stents or a pacemaker would have been put in, and he would have been alive to dandle me on his knee. My uncle went blind and died young from diabetes just like his mother. For grandma, getting an insulin shot meant a trip in the Model A to the county seat. Her son could inject himself, but without guidance from quick, cheap glucose meters. And he had an immune reaction to most animal-derived insulin.

A geezer like me can recount how people hobbled in pain before artificial knees and hips, how millions of people were near blind in their 60s because cataract operations were difficult, of limited effectiveness and expensive.

The point with regard to GDP is that only the dollar cost of stents, pacemakers, advanced insulins, glucose meters, titanium knee joints, vitrectomies and radiation machines that can focus on tumors to a millimeter in size are booked at their market price, with no consideration for ways such advances reduce tragedies — and costs — and improve millions of lives.

Other improvements in quality at lower costs also don’t get factored in. In 1965, our mechanic amazed other coffee drinkers at the Leader Café relating that factory tires on the Lotterman kids’ Volkswagen had gone 22,000 miles. The average for tires on an Impala or Galaxie might have been 15,000. The new tires cost $21 then, equivalent to $193 today, but modern tires can go 70,000 miles.

Mom bought a used 19-inch black-and-white TV in 1959 for $110. It needed a service call every year or so, The image was often snowy. That price equals $1,100 today. A high-definition one five feet across just cost us about $650, and we expect it to last for years, service free.

In myriad industries and markets, capabilities have multiplied while prices have plummeted.

So while Gross Domestic Product does not reflect many negatives, it also misses true values to us of increases in health and longevity, safety and convenience.

So when we read about GDP growth or contraction as a measure of an economy’s health, understand that all economic indicators must be taken in context with other related ones.

St. Paul economist and writer Edward Lotterman can be reached at

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