Friday 8 June 2012

GDP isn't everything...

...but it sure does correlate with a whole big bucket of good stuff. Here's Will Wilkinson from a couple of years ago. And, a few relevant GapMinder links:
Measuring the success of our nation by Gross Domestic Product is a dated and senseless exercise according to speakers, Oxley said.
He said it was time to do away with GDP as it was "not fit for purpose".
"It is not a good single measure of success. GDP is only good for what it was built for: financing World War Two," he said.
Of course GDP isn't a good single measure of success. Things like earthquakes can bump GDP up during reconstruction, but at horrible cost to wealth and life. Broad voluntary shifts from labour to leisure would show up as drops in GDP even if people were happier. A good single measure of success would be some GDP+, incorporating a bunch of other good stuff along with GDP; it would be pretty hard to get agreement on the relative item weightings.

But surely abandoning GDP goes a bit too far.

Update: Les advises by email:

The context was a discussion of sustainability and wellbeing where I had said that if these were the things you were interested in then using GDP alone was not fit for purpose.  I then explained that the original purpose of GDP was to measure a country's output and that this was used in WW2 in part to make a case for the need to  finance the war efforts.  I did say that the original purpose for which GDP was created remains valid, but not as the single and only measure if the debate is broader (i.e.,measures of wellbeing).  I (and Gareth Morgan) then said that GDP might best be considered a constraint not a goal in its own right and setting the goal of catching up to Australian GDP was basically futile unless the NZers were prepared to consider other options to increase GDP, like mining, etc.
I'd go farther and say that, even with mining, I'd be pessimistic about catching Australian per capita GDP. Agglomeration seems likely to work against it. I agree with Les that GDP by itself is a poor measure of wellbeing. It's hard for me to think of a better single one though.

7 comments:

  1. The other thing you have to ask is What do these people plan on replacing it with and how is it that this replacement isn't even more flawed than GDP?

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    1. I suppose the best answer back is that if GDP is just a correlate of a bucket of good stuff, why not look at the good stuff directly? Except that if it's GDP that generally causes the bucket of good stuff, a GDP measure helps us in keeping the eye on the ball.

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  2. Eric, your post is missing a rather important "t". Either that or you linked to the wrong GapMinder graph.

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  3. I'm a bit surprised -- I didn't know that Les had gone down this road. I have some sympathy with the ideas that 'it measures the wrong things' and 'it doesn't measure everything'. But still, like you point out, it works pretty well as an indicator. And, it correlates with the observed behaviour that people _are_ taking productivity gains as higher earnings and consumption, not as greater leisure.

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    1. I think AntiDismal is checking with Les about whether he's been quoted saying something stronger than he'd intended.

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  4. Seems to me that the countries that are most eager to pooh-pooh GDP as a measure of wellbeing are generally the ones failing to grow it.

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