Stay Informed
Sign up to receive our latest research on the forces shaping global economies and markets.
Almost There!
We'd like to know you a bit better!
You're almost finished.
To complete your registration, click the confirmation link in the email we just sent you.
Sorry, there has been an error. Please start over and try again.

Disclaimer & Agreement


Bridgewater Associates, LP is a global investment management firm. Bridgewater Associates, LP advises certain private investment funds and institutional clients, and is not available to provide investment advisory or similar services to most other investors. This website is a resource for audiences other than investors such as potential employees, researchers, students, counterparties and industry participants. Bridgewater Associates, LP believes it is useful for such persons to have an accurate source of relevant information. Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of any offer to purchase, any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Offering materials relating to investments in entities managed by Bridgewater Associates, LP are not available to the general public.

To view this content, you must agree to the following terms, in addition to and supplementing the Bridgewater Terms of Use and Privacy Policy:

I confirm to Bridgewater Associates, LP and agree that:
  • I am entering this website only to obtain general information regarding Bridgewater Associates, LP and not for any other purpose.
  • I understand that investments managed by Bridgewater Associates, LP are not available to the general public.
  • I understand that this website does not contain the information I would need to consider for an investment, and that such information is only available to a limited group of persons and institutions meeting specified criteria.
  • I understand that this website has not been reviewed or approved by, filed with, or otherwise furnished to any governmental or similar authority, and is intended only to provide limited information to members of the public who have a legitimate interest in that information for reasons unrelated to making investments.
  • I understand that when Bridgewater Associates, LP makes third party information available, Bridgewater generally will not have verified statements made by the third party, and the presentation of information may omit important information.
  • I understand that third party materials such as live interviews made available by Bridgewater Associates, LP generally will not have been edited by Bridgewater and statements in those materials by individuals associated with Bridgewater should be understood in the conversational context in which they were made, which may include providing historical background.
  • The content constitutes the proprietary intellectual property of Bridgewater or its licensors and that I will not directly or indirectly copy, modify, recast, create derivative works, post, publish, display, redistribute, disclose, or make available the content, in whole or in part, to any third parties, or assist others to do the same, or otherwise make any commercial use of the content without the prior written consent of Bridgewater.

By registering my information below and clicking "Agree," I certify that I have read, understand and agree to the foregoing Disclaimer, Terms of Use and Privacy Policy.
This website uses cookies. Click here for additional details. By continuing to use this website, you consent to the use of cookies.
Wire_social-outcomes-kkt.jpg
Research & Insights

Social Outcomes Have Diverged from Traditional Economic Measures

Policy makers have traditionally relied on broad, macroeconomic measures of how the economy is performing, such as GDP growth, the unemployment rate, and inflation. These measures are enshrined in most central bank mandates, for example. Over time, consistent economic growth with stable inflation led to rising prosperity, so these indicators were a pretty good proxy of what policy makers should pay attention to. But in recent years, social outcomes have increasingly diverged from traditional macroeconomic measures.

In the US, traditional macroeconomic measures have significantly improved over the decade-long expansion, while social outcomes have rapidly deteriorated. The US is the only developed country where life expectancy is falling; it has the highest homicide rate, the most inequality, and some of the worst educational outcomes of the major developed countries. In contrast, the macroeconomic environments in Japan and Switzerland remain challenging even as social outcomes are strong and improving. Below, we share a measure of social conditions across the developed world that we have created, comprised of seven sub-gauges: employment, inequality, infrastructure, safety, health, education, and the social fabric. In recent years, differences in social conditions across the developed world have been much more predictive of the rise of populism than traditional macroeconomic measures, reflective of public opinion and new leaders creating pressure to shift policies in order to address these issues. Given the increasing importance of social conditions as a driver of policy, and of policy as a driver of economies and markets, we will be stress testing and refining these measures going forward.

The chart and table below compare our measure of social conditions to traditional macroeconomic measures, including the GDP gap, unemployment rate, and inflation level. Across the developed world today, those with stronger macroeconomic conditions, such as the US, generally have weaker social conditions, and vice versa.

Social Outcomes Have Diverged from Traditional Economic Measures_chart01_fo.svg

Below, we break out our aggregate social conditions measure into its seven sub-gauges for each country. In the appendix, we include the specific indicators captured in each gauge (e.g., for inequality, we measure the Gini coefficient and the ratio of median to mean household wealth). No individual statistic is especially valuable, but collectively the indicators are helpful in tracking the broader social dynamics. Our goal was to address the inadequacy of traditional macroeconomic measures, as conveyed by Simon Kuznets, the economist who developed the first GDP measures, in his first report to the US Congress in 1934:

“Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.”

Social Outcomes Have Diverged from Traditional Economic Measures_table01_fo.svg

Looking at these measures over time, while the US recovered from the financial crisis by any traditional macroeconomic measure, strong aggregate growth did not translate to prosperity for much of the country, and social outcomes slid to new lows. For example, while the unemployment rate fell to historic lows, the share of working-age population in gainful employment fell. Relatedly, inequality rose, measured either by the Gini coefficient or by more qualitative measures such as falling satisfaction with housing affordability. In Japan, the macroeconomic picture remains challenging, with decades of slow growth and deflation, but social conditions are strong and have improved in recent years. Unlike in the US, Japan has historically high employment as a percentage of its working-age population, which itself is shrinking. It also has low crime rates, high life expectancy, strong education outcomes (e.g., test scores), affordable housing, and one of the lowest Gini coefficients in the developed world.

Social Outcomes Have Diverged from Traditional Economic Measures_chart02_vB_fo.svg

Similar dichotomies can be seen in Europe as well. Growth has recovered in France, but policy dissatisfaction remains pervasive, which makes sense in the context of weak levels of employment, bad infrastructure, and lagging education levels. Germany, in contrast, measures much more positively than France in infrastructure, housing affordability, suicide rates, and perceptions of domestic security and the degree to which other citizens can be trusted.

Social Outcomes Have Diverged from Traditional Economic Measures_chart03_vB_fo.svg

In recent years, social conditions have actually been a much better predictor of the rise in populism than traditional macroeconomic measures. As we’ve written about in past Observations, we have created an index of the share of votes received by populist/anti-establishment parties or candidates in national elections, shown below for the developed world as a whole. This populism index is currently at secular highs not seen since the Great Depression.

Social Outcomes Have Diverged from Traditional Economic Measures_chart04_vB_fo.svg

When we compare each country’s social conditions to the degree of populism we’ve experienced in recent years, the relationship is strong. This is the case both for our aggregate measure of social conditions and for individual gauges within it, such as inequality, employment, and safety.

Social Outcomes Have Diverged from Traditional Economic Measures_chart05_fo.svg

In contrast, there is virtually no relationship between the rise of populism and the progress countries have made in recent years in producing aggregate GDP growth and reducing unemployment rates.

Social Outcomes Have Diverged from Traditional Economic Measures_chart06_fo.svg

The rise in populism is a means through which pressure is being created to produce different policy outcomes from those you’d expect given traditional measures of macroeconomic performance alone. We’ve started to see policy diverge from classic macroeconomic measures: the US is coming off of the largest fiscal stimulation package during an economic expansion in decades, while Japan and Switzerland, both with much weaker aggregate economic conditions, have run much more complacent policy. As we’ve discussed in previous Observations, the outcomes of populism from the left (which tends to be pro-labor) are different from the outcomes of populism from the right (which tends to be pro-corporate), which are different from the outcomes of continued political division and stalemate. To us, this all points to approaching the next decade with humility and caution: not extrapolating the environment of the past decade, recognizing the wide range of potential paths from here, and taking steps to ensure acceptable outcomes across all of them.

Appendix: Individual Indicators in Our Measure of Social Conditions

Employment

  • Employment as % of working-age population

Inequality

  • Gini coefficient
  • Household median-to-mean net wealth ratio

Infrastructure

  • World Bank infrastructure metric: an index of the quality of ports, railroads, roads, and information technology
  • Housing affordability: % of people who are satisfied with their housing costs

Safety

  • Homicide rate
  • Rule of law: World Bank indicator about the perception of fairness of law enforcement, upholding of contracts/property rights, and general law-following among people
  • Perceived criminality: an assessment of the level of domestic security and the degree to which other citizens can be trusted

Health

  • Premature death rate: the rate of adult deaths before 54 years old
  • Life expectancy

Education

  • Average # of years in education
  • Average standardized test scores: relative measure of test scores of 15-year-old students from all over the world in reading, mathematics, and science

Social Fabric

  • Suicide rate
  • Social welfare spending as % of GDP: the social policy areas are old age, survivors, incapacity-related benefits, health, family, active labor market programs, unemployment, housing, and other social policy areas
  • United Nations life satisfaction survey: % of people who answer that they are either satisfied or very satisfied with their lives

This research paper is prepared by and is the property of Bridgewater Associates, LP and is circulated for informational and educational purposes only. There is no consideration given to the specific investment needs, objectives or tolerances of any of the recipients. Additionally, Bridgewater’s actual investment positions may, and often will, vary from its conclusions discussed herein based on any number of factors, such as client investment restrictions, portfolio rebalancing and transactions costs, among others. Recipients should consult their own advisors, including tax advisors, before making any investment decision. This report is not an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned.

Bridgewater research utilizes data and information from public, private and internal sources, including data from actual Bridgewater trades. Sources include the Australian Bureau of Statistics, Barclays Capital Inc., Bloomberg Finance L.P., CBRE, Inc., CEIC Data Company Ltd., Consensus Economics Inc., Corelogic, Inc., CoStar Realty Information, Inc., CreditSights, Inc., Credit Market Analysis Ltd., Dealogic LLC, DTCC Data Repository (U.S.), LLC, Ecoanalitica, EPFR Global, Eurasia Group Ltd., European Money Markets Institute – EMMI, Factset Research Systems, Inc., The Financial Times Limited, GaveKal Research Ltd., Global Financial Data, Inc., Haver Analytics, Inc., The Investment Funds Institute of Canada, Intercontinental Exchange (ICE), International Energy Agency, Lombard Street Research, Markit Economics Limited, Mergent, Inc., Metals Focus Ltd, Moody’s Analytics, Inc., MSCI, Inc., National Bureau of Economic Research, Organisation for Economic Cooperation and Development, Pensions & Investments Research Center, Renwood Realtytrac, LLC RP Data Ltd, Rystad Energy, Inc., S&P Global Market Intelligence Inc., Sentix Gmbh, Spears & Associates, Inc., State Street Bank and Trust Company, Sun Hung Kai Financial (UK), Refinitiv, Tokyo Stock Exchange, United Nations, US Department of Commerce, Wind Information (Shanghai) Co Ltd, Wood Mackenzie Limited, World Bureau of Metal Statistics, and World Economic Forum. While we consider information from external sources to be reliable, we do not assume responsibility for its accuracy.

The views expressed herein are solely those of Bridgewater as of the date of this report and are subject to change without notice. Bridgewater may have a significant financial interest in one or more of the positions and/or securities or derivatives discussed. Those responsible for preparing this report receive compensation based upon various factors, including, among other things, the quality of their work and firm revenues.

Stay Informed
Sign up to receive our latest research on the forces shaping global economies and markets.
You're almost finished.
You will receive an email confirmation shortly.
There's been an error. Please start over and try again.