by frog
At the request of French President, Nicholas Sarkozy, Nobel Prize winning economist Joseph Stiglitz has produced a report questioning the adequacy of GDP as a measure of progress. From the report:
Had there been more awareness of the limitations of standard metrics, like GDP, there would have been less euphoria over economic performance in the years prior to the [financial] crisis; metrics which incorporated assessments of sustainability (e.g. increasing indebtedness) would have provided a more cautious view of economic performance. But many countries lack a timely and complete set of wealth accounts— the ‘balance sheets’ of the economy— that could give a comprehensive picture of assets, debts and liabilities of the main actors in the economy.
The report includes key recommendations for fixing the problems with GDP like: ‘look at income and consumption rather than production,’ ‘emphasize the household perspective’ and ‘broaden income measures to non-market activities.’
Another issue the report addresses is GDP’s inability to adequately deal with market failure, especially in relation to environmental and social goods that economists find difficult to measure, so called ‘externalities.’ From the report:
We are also facing a looming environmental crisis, especially associated with global warming. Market prices are distorted by the fact that there is no charge imposed on carbon emissions; and no account is made of the cost of these emissions in standard national income accounts. Clearly, measures of economic performance that reflected these environmental costs might look markedly different from standard measures.
And the report doesn’t overlook the issue of social equity. Income distribution has been identified as a major factor in measuring a society’s overall levels of well-being:
Average income, consumption and wealth are meaningful statistics, but they do not tell the whole story about living standards. For example, a rise in average income could be unequally shared across groups, leaving some households relatively worse-off than others. Thus, average measures of income, consumption and wealth should be accompanied by indicators that reflect their distribution.
President Sarkozy has pledged to incorporate the report’s findings into France’s public accounting systems so that ‘well-being’ will begin to be measured, therefore valued, as at least as important as production.
Published in Economy, Work, & Welfare | Environment & Resource Management | Health & Wellbeing | THE ISSUES by frog on Thu, September 17th, 2009
Tags: GDP, genuine progress, GPI, happiness
on the trolls and those who are unable to keep on topic
Ever since the observation was made, that the destruction of the City of New Orleans ADDED to the GDP of the US, it has been obvious to most sentient beings that the financial sector’s reverence for this sacred measurement was a case of mistaken identity at best.
Unfortunately the intersection of the two sets, financiers and sentient beings, often appears to be sparsely populated.
Personally I suspect that this has to do with the elevation of a particular sort of economics for political reasons, rather than a lack of sentience among all who study the subject, but the one’s who have been raised to prominence are the one’s we see.
BJ
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With the bonuses they are on…
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The benefits of economic growth to humankind is absolutely enormous, but GDP as a measure of that growth, or as a measure of anything else, is seriously flawed: the classic example being that of the man who marries his housekeeper and thereby reduces the national GDP. So there is nothing new in this criticism. GDP is just one economic measurement from among a great many; each of which has its own issues, caveats and problems.
But it would be muddled thinking indeed to suppose that flaws in the measurement of something somehow reflects negatively on the activity being measured.
Incidentally, the recent banking meltdown has caused a significant decrease in inequality, since it affected many very highly-paid people. According to the Greens, this actually means we are better off now than we were a year ago.
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Got some numbers wat, to support that sweeping generalisation that inequality has decreased significantly since the Second Depression started? I’d like to see them. Looks to me like many of the idiots who made this mess have got bonuses while the worker bees just got laid off.
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Income Gap Shrinks in Slump at the Expense of the Wealthy
- ” The deepest downturn in the U.S. economy since the Great Depression may finally shrink the gap between the very best-off Americans and everyone else.
If so, it won’t be by lifting up the bottom. It will be by pulling down the top.”
http://online.wsj.com/article/SB125254156520197777.html#
The full WSJ article appears in a few places, including:
http://finance.yahoo.com/banking-budgeting/article/107702/income-gap-shrinks-in-slump-at-the-expense-of-the-wealthy.html
According to Green policy we’re all supposed to feel much happier now because a bunch of people even wealthier than we are – who we didn’t even know – suddenly have financial issues.
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Stop bullshitting, wat. Financial hardship as a means of reducing the gap between rich and poor is no one’s policy, let alone Green’s.
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Inequality tends to increase, not decrease in a recession, to my understanding, but if you’ve got numbers…
Sure, some CEOs and senior staff have taken paycuts, (others haven’t) but between pay freezes for frontline staff and significant layoffs in almost every sector of the economy, I think the bottom is probably falling out more than the top is falling off.
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Valis,
I’m sorry, all this time the Greens have been trying to gain power by exploiting the politics of envy and bleating about the supposed ills of income distribution, I thought they meant it. How silly of me.
So we won’t hear them trying to profit politically by stirring up jealousy when the spread increases again during the recovery.
That’s good to know. It is, after all, a contemptible, cynical and morally bankrupt philosophy.
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You’re sorry, alright.
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Wat
According to the Greens, this actually means we are better off now than we were a year ago.
No
Lets get this straight.. the article is about the USA. We’re here. Not there. I just want to be clear about that, now we’ll go to the argument.
The effective 16% unemployment in the USA, which has ALSO happened as a result of this economic debacle isn’t lost on Joe Six-Pack,
What you refer to is our emphasis on income inequality as a measure of the quality of life in a country. Which is something we DO emphasize. It is a measure of the fairness of the society… imperfect but reasonably useful. I tend to use the GINI index to look at this aspect. Just ONE aspect, of the health of the economy.
Measuring equality alone is useful IF the total income is stable. Not in a deflationary death spiral as appears to be happening in the USA today. ( If they manage to pull out of it I will be pleasantly surprised. )
HOWEVER, since income inequality is only part of our equation, your statement is false. According to the Greens we are not “better off” because the single measurement of inequality has been reduced. Only according to Wat’s image of the Greens.
We don’t give ANY of the simple wrong answers you constantly ascribe to us Wat… nor is it clear where you are getting them from. However, making sh!t up in order to argue against us is pretty rude behaviour.
BJ
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I would suggest that a ‘fat cat’ who suffers a loss of 20% of their income to end up with $800k instead of 1 mill. suffers little compared to a low paid employee who suffers a cut from $300 a week to $ 240.
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Marilyn Waring wrote some great stuff on the GDP measuring issue, equality etc and alternative measures about 20 years. We’re only just catching up with her now.
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