Econintersect: James Boyce of the University of Massachusetts Amherst maintains that there are many problems with trying to use GDP as a measure of economic growth and the well being of society. One example he gives is the $90 billion added to GDP for the BP oil spill in the Gulf of Mexico. Obviously that clean-up cost added no value to the economy. Things that are omitted in the current definition of GDP are unmeasured factors such as unpaid service work and open source software. Prof. Boyce summarizes his thoughts in a 9 minute interview which follows the Read more >> jump.
Prof. Boyce refers to a 2009 report of a commission chaired by Joseph E. Stiglitz. That report describes its main messages and recommendations (emphasis added by Econintersect):
The report distinguishes between an assessment of current well-being and an assessment of sustainability, whether this can last over time. Current well-being has to do with both economic resources, such as income, and with non-economic aspects of peoples’ life (what they do and what they can do, how they feel, and the natural environment they live in). Whether these levels of well-being can be sustained over time depends on whether stocks of capital that matter for our lives (natural, physical, human, social) are passed on to future generations.
Another factor that Prof. Boyce says is improperly measuring economic well being is the counting of each dollar of income the same regardless of the distribution. He proposes that income should be counted proportionately: A 1% increase in the income of $3 million ($30,000) should add as much to the economic measure as 1% added to the income 0f $30,000 ($300). By Boyce’s proposal an increase in income of $60,000 going to 200 each with incomes of $30,000 adds 150 times as much to economic well being compared to the same amount being split between two with incomes of $3 million each. Boyce says that such measures should be combined with total income changes that are currently used in GDP calculations.
Prof. Stiglitz wrote an Op Ed after the report was published. In The Guardian he titled the essay “The great GDP swindle“. He suggested the report could guide the creation of a broader set of indicators that
“more accurately capture both well-being and sustainability; and it should provide impetus for improving the ability of GDP and related statistics to assess the performance of the economy and society.”
Stiglitz also wrote:
If we have poor measures, what we strive to do (say, increase GDP) may actually contribute to a worsening of living standards. We may also be confronted with false choices, seeing trade-offs between output and environmental protection that don’t exist. By contrast, a better measure of economic performance might show that steps taken to improve the environment are good for the economy.
In a recent post at Triple Crisis, Prof. Boyce discussed the components of GDP very generally. In that article he provided the following conceptual diagram:
Hat tip to Triple Crisis.
Sources:
- Report by the Commission on the Measurement of Economic Performance and Social Progress (Joseph E. Stiglitz, Amartya Sen and Jean-Paul Fitoussi, 2009)
- The great GDP swindle (Joseph Stiglitz, The Guardian, 13 September 2009)
- Limits to Growth- of What? (James K. Boyce, Triple Crisis, 27 June 2013)