More flawed attacks on GDP

In: Uncategorized

28 Jan 2009

Today’s Financial Times has a substantial feature on the debate on the weaknesses of GDP as a measure of human welfare. It has some interesting material although ultimately is a weak piece. It does not appreciate that in many respects GDP underestimates the contribution of growth to human welfare. And it sees the discussion as a technical one rather than as part of a broader attack on economic growth.

Some things to note from the piece: “a 24-member commission of prominent economists led by Joseph Stiglitz and Amartya Sen, both Nobel prize winners, is due to report in April on ways of improving our economic bookkeeping. The aim is to render economic data more comprehensive, more intelligible to the public and more relevant for policymakers by taking into account such factors as environmental degradation and quality of life.”

Also: “This ambitious initiative was launched last year by Nicolas Sarkozy, France’s president, who had grown concerned about popular distrust of economic statistics.”

The initiative is in line with France’s official drive for a more moral capitalism (see post of 11 January 2009). But such moves also have supporters in America: In testimony last year to the US Senate, Jonathan Rowe, a Californian writer, highlighted some of the absurdities of mechanically measuring the economy by counting how much it produces. Measuring healthcare by inputs rather than outputs – the sale of medical services and drugs rather than the number of (healthy) people – can lead to particularly perverse perspectives. In this view, the economic “hero” of GDP statistics would be a terminally ill cancer patient going through expensive medication and a costly divorce.”

An extract of Rowe’s testimony can be read here

A webcast of the Senate committee meeting can be viewed here.

For a more extensive critique by me of the attacks on GDP see the article on “A sneaky attack on prosperity” on the left hand side of the homepage.