Manny Monday's - Is the "Toil Index" a Better Measure of Economic Health than GDP?

Morning all! I'm back to reality here in the North Pole, and we're inching towards spring (and I mean INCHING but it was upper 50's today!). One article that caught my eye over the weekend appeared in the NY Times, written by Robert Frank.

In the article, Frank asserts that per capita GDP is not the best way to measure the true economic health of the country from the standpoint of the middle class. He proposes what he believes is a better measure of economic health or real "pain of the middle class" by using something he calls the "Toil Index":

It measures the number of hours that median earners must toil each month to be able to rent a house in a school district of at least average quality. (Could the median earner aspire to any less?) Unlike per capita G.D.P., which, apart from brief recessions, grew at a strong and steady rate from the end of World War II until the recent downturn, the toil index has been much more volatile. Its movements suggest that recent increases in income inequality have imposed substantial economic costs on middle-income families.

Frank notes that from 1950 - 1970, incomes for families at all levels grew quite rapidly together, at about 3%, but around 1970, that began to dramatically change, with lion's share of the country's productivity gains going to the top 1%. He argues that rising inequality over the past 40+ years have "shifted the frame of reference" for those who merely try to keep up largely by working longer hours, hence the term "toil index":

The index rejects the standard economic assumption that well-being depends primarily on absolute consumption. Instead, it assumes that the context of that consumption is often far more important. Context matters because the brain requires a frame of reference to make any evaluative judgment.

For example, is a particular family’s house adequate? The answer invariably depends on the quality and size of other houses in the surrounding area.

Rising inequality has shifted the context that governs housing choices. Higher incomes at the top have led the wealthy to build bigger mansions, shifting the frame of reference that shapes demands for those with slightly smaller incomes, who travel in overlapping social circles. The near-rich respond by building bigger houses as well, shifting the frame of reference for others just below them, and so on, all the way down the income ladder.

Go read the whole article here - Gauging the Pain of the Middle Class. It is truly a must-read.