Better national accounting would help to explain why voters feel discontented. With the private sector generating millions of jobs and GDP growth, the Biden administration is frustrated that citizens do not recognize how good things are. Many attribute this disconnect between voters and the White House to higher inflation and interest rates, but more important is the historic and ongoing human-capital crisis. Given that about 70 percent of national income is paying for human capital, no true recovery will take place without a solution.
To echo an earlier sentiment of Lord Kelvin, when the Biden administration does not measure, its knowledge is meager and unsatisfactory. Payroll employment is a particularly incomplete metric right now because it excludes worker productivity and what is happening in the nonmarket sector — where children, students, and retirees are particularly active. Real GDP captures market productivity and market transactions but excludes nonmarket activity. Contrary to these metrics, and more consistent with most Americans' sour opinions, we find that evidence suggests that living standards have fallen a cumulative $12 trillion from the start of 2020 to the end of 2022.
Broader measures of well-being incorporate aspects not captured by GDP, in particular the most valued of all, health and longevity. To augment official GDP accounts, we monetized reductions in longevity using the methodologies of U.S. federal agencies. For example, in 2021 the CDC reported 530,876 excess deaths, which when valued at $9.5 million per death, the average statistical value of life used across federal agencies, amounts to a loss of about $5 trillion.
The losses from excess deaths remained high even in 2022. Expressed as a monetized cost, we find more than $3 trillion. To make up for that loss, real measured GDP needed to grow 16 percent, which of course it did not.
These large losses stem mainly from life expectancy falling almost three years during this period after rising for most of the last century. We find 1.8 years of that can be attributed to Covid deaths, but another 1.1 years come from non-Covid causes, such as extraordinarily high mortality from heart disease, diabetes, drug overdoses, traffic accidents, homicides, alcohol, and other causes. In 2022, some of these non-Covid causes receded a bit from their 2021 highs, but excess deaths from cancer and diabetes increased at alarming rates.
Traditional measures of economic well-being, such as GDP, treat such great losses in life as inconsequential or valueless. But we should pay attention to fuller measures of well-being that adjust GDP for improved health and other nonpecuniary factors. There was an attempt by Congress in 2012 to form the Key Indicator Commission, to which one of us was appointed, to develop measures of economic performance that better include the value of such nonmarket aspects.
In addition to health, there are other nonpecuniary growth effects not recorded in GDP accounts, such as when policies affect the value of leisure time. The value of one's time not working is a large component of overall well-being but is not captured by GDP measures. One dimension affecting that value concerns the costs associated with crime, not from the redistribution from victims to criminals, but through the costly activities people undertake to avoid being victims. The increase in crime makes outside activities less desirable and thus lowers the value of leisure time.
This ongoing human-capital crisis is also reflected in falling real wages. Public schools ruled by teacher unions are failing to teach productive skills valued by the market, that is, other citizens. Covid lockdowns that restricted school attendance are estimated to lead to a future average loss of 6 percent in future earnings for affected cohorts. Remote work initiated by the government lockdowns is harming productivity, and some CEOs are demanding that workers come back to the office in person. Despite these productivity declines, the White House holds up the labor market as a bright spot in the economy, even though participation is below pre-Covid trends and workers are poorer in real terms.
The lack of skills that drive low productivity affects many areas outside work as well. Patients cannot manage their health as well as they used to. Companies and government agencies are reaching new lows of management competence.
None of these downward trends uses an unattainable utopia as the benchmark to strive for — just the recent past, which the American people have not forgotten. The important goal of improving national accounts should be to better incorporate nonpecuniary dimensions that affect overall economic well-being. Until then, expect polling of Americans to better reflect the human-capital crisis than the official economic statistics.
Casey Mulligan is a professor of economics at the University of Chicago and a senior fellow at the Committee to Unleash Prosperity. He served as the chief economist at the White House Council of Economic Advisers, 2018–19. Tomas J. Philipson is an economist at the University of Chicago and served as a member and acting chairman of the President's Council of Economic Advisers, 2017–20.