Michael J. Hicks

Michael J. Hicks

In times like these, economists and many others watch the employment and economic growth numbers. The latter of these is typically the annualized change in Gross Domestic Product over the last quarter. Not surprisingly, these most recent data were ugly, reporting that GDP dropped by 4.8% at an annualized rate. That means the measured economy in March was about 1.2% lower than in December after adjusting for seasonal differences.

But what does this tell us about what is happening in our economy?

The answer is less than we should hope for. Our GDP fails to count most of those things we do at home, for which money is not transacted. As we grow more affluent and can better exploit the division of labor, GDP naturally rises. A century ago, when a much larger share of Americans grew or raised their own food and cooked it, cut one another’s hair and made their own clothes, measured GDP per person was much lower.

Even accounting for inflation, we have a higher GDP today than a century ago, simply because we count more types of exchange.

Obviously, the division of labor gives us better quality in some aspects of our lives. Barbering is better now than a century ago, as are options for lawn care, medicine or transportation. As Adam Smith explained in 1775, this simple act of getting really good at one task is productivity improving. It grows GDP, not just because we count it, but because we are better at it.

Still, we do much at home that is not measured as part of our economy, but failing to measure it does not mean it doesn’t happen. Recent events give us just such an example.

There are roughly 330 million Americans who eat three or so meals per day. I have two teenage boys at home, so we average roughly four meals per day. On average, close to one million meals are consumed by Americans each day, with about 20% consumed at restaurants. The restaurant industry is about $800 billion in sales, or roughly $200 per month for the average American.

Over the past month and a half, most U.S. restaurants have closed, or serve only carry out. I don’t know how many meals are still consumed each week from carry out. Still, it is safe to say that American families are making well over 100 million more meals at home each day than they were two months ago.

This has a big impact on measured GDP. We continue to count the value of the groceries that goes into these meals, but that is a small share of it total value. We fail to count the value of the meal preparation in our official statistics.

The COVID-19 crisis causes a small but not trivial share of measured GDP to disappear as it is done at home. Meal preparation is the obvious example, but all kinds of other personal services from personal trainers, home cleaning, laundry services, dog walkers, haircuts and the like simply disappear from the official measures. This is not because the services aren’t being performed, but because they aren’t measured.

Perhaps we should measure these activities better, but I’m not sure how important that really is. The purpose of measuring economic activity is to inform responsive economic policy. We have a pretty good idea of damages right now without measuring the value of home production. Moreover, it is hard enough to make a good accounting of how much I spend at restaurants and personal services. Imagine the difficulty of placing a dollar value on me walking my own dog?

What we are more likely to do during this crisis and in the years ahead is to re-evaluate how we individually value these unmeasured parts of GDP. I suspect this will cause us to change how and where we consume goods, not just during this crisis, but long afterwards.

One early indicator of that will be meals eaten at home in the months after this crisis recedes. Of course there’ll be a big spike in restaurant sales as Americans head to their favorite watering holes and diners. But, after a few weeks, we might see a return to home cooked meals.

Large consumption changes such as this have consequences. Obviously, this would be unwelcome news for restaurants, as well as the local governments who rely on food and beverage taxes. This would also affect grocery stores, and the types of food they buy. Restaurants are better consumers of locally produced food than many groceries, so these changes affect farms and produce providers as well.

These changes also affect families. Meals consumed at home provide more intense family time than many other settings. Some families will find this beneficial, and continue the ritual for that purpose as well. Eating at home is less expensive in measured dollars, but requires labor inputs not measured.

I write about these matters in the shadow of Mother’s Day. That is appropriate, because a disproportionate share of unmeasured work falls to women, particularly those who happen to have kids.

Maybe this crisis will cause some adjustments in homebound economics. Perhaps we’ll have kids who learn to cook or assist at meals, and maybe gain a more enduring appreciation for those skills. Maybe we will see a shift in the gendered division of labor at home. It is likely that more men can work from home than women, which could jump start some equalization of tasks performed at home.

All of these will be interesting develops to watch for and talk about at those meals we spend together. In a generation, when children who are not yet born hear about these times, they will doubtless ask questions about these issues.

We will face the same sorts of questions those who lived through the Great Depression or World War II were asked.

Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. He can be reached at mhicks@bsu.edu.

(0) entries

Sign the guestbook.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.