Pretty good so far, what’s next? Jim Kim’s first year at the World Bank

July 3, 2013

Women’s Leadership Groups in Pakistan – some good news and inspiration

July 3, 2013

Oil spills, prisons and the madness of GDP

July 3, 2013
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“Average national income is a notoriously imperfect measure of the average person’s well-being. The 2010 BP oil spill in the Gulf of Mexico – withoil-spill clean-up and damage costs of $90 billion – added about $300 to the average American’s “income.” But it added nothing to our well-being. The world’s most expensive prison system, costing almost $40 billion per year, adds another $125 per person. This doesn’t make us better-off than people living in countries that don’t incarcerate one in every 100 adults.”

James Boyce with a powerful critique of GDP as a measure of progress, and what it implies for discussions on ‘limits to growth’

9 comments

  1. Ugh – here we go again. Just because money spent on bad things is counted in GDP doesn’t mean GDP would go down if money wasn’t spent on those bad things. I discussed this in detail *last time* someone at Oxfam pushed this, which is basically an extension of the broken windows fallacy:

    http://aidthoughts.org/?p=3621

    Furthermore, when did anyone ever decide that GDP was supposed to be a perfect measure of well being? This, last time I checked, was the definition of GDP:

    “Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time.”

    There are lots of reasons why we would want GDP to go up: it is, by definition, also a measure of national income, and allows us to think about how much a country *could* spend on things which enhance welfare.

    Saying “GDP isn’t a good measure of welfare because it might be spent on bad things” is akin to arguing that “household income isn’t a good measure of welfare because households might be spending their cash on bad things.” Technically true, but it seems to miss the spirit of income: it is often a necessary condition for people to maximize their own sense of welfare.

  2. Like Matt, I’ve never gone for the critique of GDP on the basis that it counts ‘bad things’ – it actually doesn’t count bad things, it counts spending on activities to deal with bad things that have happened.

    The source of the problem is that we only have a flow account for the economy (ie GDP) and don’t have commensurate stock accounts, which would register the impact of those bad things (eg oil spills, high prison population) as a major dent in ecological or social capital.

    I don’t think we’ll get a better description of economic progress by tweaking GDP. Instead, we need full accounts. What would that look like? For starters, here are some ideas I put down in a blog post:

    http://www.kateraworth.com/2012/07/01/want-to-know-how-to-get-beyond-gdp-start-here/

  3. Ok, that settles it. If Kate and Matt agree on something, it has to be true, I shall revise my ‘priors’ accordingly……

  4. I think Matt and Kate are missing the point here.

    Granted, there is nothing wrong with GDP as a measurement of expenditure (or production within a given country).

    GDP though, was -and still is- used as a measurement of well being. An equivalent of development, of life standard improvement or even, the perfect proxy to well being. Had this not been the case, then we wouldn’t have the World Bank’s and IMF disasters in Africa, Latin America and Former Soviet Republics. GDP is still the No 1 measurement used in schools, universities and newspapers in order to compare progress among countries.

    Economist might have decided to limit the use of GDP, but the rest of society still echoes such times in all their cultural manifestations.

    That is why GDP has to be sized down to its rightful weight, specially in the non-technical world. And of course, a set of Kate’s full accounts has to be widely used.

  5. Kate says “it actually doesn’t count bad things” – I don’t agree, it can. If a country decides to cut down all its forests and sells the wood, it would raise GDP which economists would think is good, but most normal people think is bad because of the lost ecosystem services that would only be noticed at some time in the future (soil erosion, water supplies etc.).

    Just like a company that runs down its capital assets but keeps its current account solvent. That’s what accountants look for and they blow the whistle, but when it comes to the planet, the politicians don’t.

    What’s wrong with ISEW Index of Sustainable Economic Welfare? The ISEW for UK peaked in the mid 1970s, – seems about right to me since this was just before Thatcher got started

  6. Scott,

    They’ve shown that (sortof) but they’ve also shown that there are strong diminishing returns. Money matters most when you’re poor. Plausibly the planet might one day reach a point where more of it (per capita) does not equal more happiness.

    Terence

  7. This review just published in Nature:

    “Poor Numbers: How We Are Misled by African Development Statistics and What to Do About It
    Morten Jerven Cornell University Press: 2013.

    Increasingly, scientists turn to the large statistical databases of international bodies when testing favoured hypotheses to control for growth and economic development. They might hesitate after reading Poor Numbers.
    Morten Jerven demystifies the production of statistics for gross domestic product (GDP) in developing African nations, and investigates why these statistics are inaccurate and systematically biased. He relates chilling tales of how his attempts to access raw data behind international institutions’ statistics met with evasion, if not outright refusal. He concludes that GDP figures arise from negotiations among national statistical offices, central banks, ministries of finance and donors — all of which agree that measurement takes a back seat.
    This book offers fascinating, disturbing insights for anyone interested in the role of numbers in the social sciences. For those using global economic databases, it should be required reading.”

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