Sorry for light posting- I just started work yesterday, so I’ve been a little busy. Convienently, Mark Thoma posts this article from Joseph Stiglitz, Nobel Laureate, who argues well for reconsidering GDP as the measure of economic well-being. I’m going to shamelessly repost Thoma’s block quoting of Stiglitz:
…Eighteen months ago, French President Nicolas Sarkozy established an international Commission on the Measurement of Economic Performance and Social Progress, owing to his dissatisfaction – and that of many others – with the current state of statistical information about the economy… On Sept. 14, the commission will issue its long-awaited report.
The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens’ own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximize it, but citizens also demand that attention be paid to enhancing security, reducing pollution, and so forth – all of which might lower GDP growth.
The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognized. But changes in society and the economy may have heightened the problems…
For example,… in one key sector – government – we … often measure the output simply by the inputs. If government spends more – even if inefficiently – output goes up. In the last 60 years, the share of government output in GDP has increased [substantially]… So what was a relatively minor problem has now become a major one.
Likewise, quality improvements … account for much of the increase in GDP nowadays. But assessing quality improvements is difficult. …
Another marked change in most societies is an increase in inequality. … If a few bankers get much richer, average income can go up, even as most individuals’ incomes are declining. So GDP per person statistics may not reflect what is happening to most citizens.
We use market prices to value goods and services. But … the … pre-crisis profits of banks – one-third of all corporate profits – appear to have been a mirage.
This realization casts a new light not only on our measures of performance, but also on the inferences we make. Before the crisis, when U.S. growth … seemed so much stronger than that of Europe, many Europeans argued that Europe should adopt U.S.-style capitalism. Of course, anyone who wanted to could have seen American households’ growing indebtedness, which would have gone a long way toward correcting the false impression of success given by the GDP statistic.
Recent methodological advances have enabled us to assess better what contributes to citizens’ sense of well-being… These studies, for instance, verify and quantify what should be obvious: the loss of a job has a greater impact than can be accounted for just by the loss of income. They also demonstrate the importance of social connectedness.
Any good measure of how well we are doing must also take account of sustainability…, our national accounts need to reflect the depletion of natural resources and the degradation of our environment.
Statistical frameworks are intended to summarize what is going on in our complex society in a few easily interpretable numbers. It should have been obvious that one couldn’t reduce everything to a single number, GDP. The report by the Commission on the Measurement of Economic Performance and Social Progress … should … provide guidance for creating a broader set of indicators that more accurately capture both well-being and sustainability…
Woohoo- anxiously awaiting that report. Perhaps others will follow France’s leadership? Speaking of GDP, here’s Nancy Folbre, whose articles in Economix we’ve posted before, discussing what we’ve learned about our “non-market” economy:
We still talk about the market as though it is the economy, and about the economy as if it is a market. This talk misleads us, for three big reasons.
First, a large share of our economic output is now produced by large companies whose sales exceed the gross domestic product of many countries of the world. The vertically integrated supply chains of these large, often bureaucratic institutions seldom involve markets…
Second, market output represents a subset of total economic output. Most of us devote substantial time and energy to caring for ourselves, our families and our friends. We regularly engage in activities that improve our own living standards and contribute to the development of human capabilities. Yet the value of this work is not included in our measures of gross domestic product, because it goes unpaid…
Gross domestic product includes the value of purchased inputs into these “quasi-market” services. But it is difficult to assign a market value to the final output — like the value of improved life expectancy or enhanced human capabilities. As a result, we underestimate the contribution that investments in health and education make to our living standards.
Third, the present and future costs of environmental degradation are on the rise. While estimates of the costs of global warming vary widely, they demonstrate that our market economy is a relatively small, if potentially disruptive, element of our global ecosystem.
Let the chorus grow.