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COPYRIGHT 2006 National Council for the Social Studies
Ordinary citizens, politicians, and economists alike regularly ask the question, "How is the economy doing?" With a highly polarized electorate and media to match, it has become harder to get an honest answer. Social educators should understand the complexity of the question--and the subtlety of the answers--as they approach the topic themselves.
The economy is doing quite well by most measures. The Gross Domestic Product (GDP), our best overall indicator of economic activity, has been growing smartly since its last downturn in 2001.
GDP measures the market value of all final goods and services produced in a year's time. According to a widely quoted approximation, Okun's Law, about three percent real growth is necessary to keep employment constant. (1) Since the 2001 recession ended, the U.S. economy has been consistently beating that threshold and its own long-term averages. Over that period real GDP growth has averaged 3.7 percent, well above the 20-year average of about 3.2 percent. (2) Growth is even stronger for the past two years, sufficient to allow for substantial growth in overall jobs and incomes.
Some believe that the unemployment rate is more important than GDP, but also here the news is good. The unemployment rate stood at 5 percent near the end of 2005, below the 20-year average of 5.7 percent and far below recession levels. (3)
It quickly becomes clear that no one figure can fully capture the complexity of a $12 trillion-plus economy. The most commonly used measure that combines two figures is the "misery index," attributed to economist Robert Barro. This index is the simple sum of the inflation...
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