Teaching Comparative Government and Politics

Friday, September 18, 2009

Reminder: Gross Domestic Product (GDP)

We often use GDP and GDP per capita as measures of economic status, often within comparative studies. This is good reminder that GDP measures only the market value of what is produced. There are many things it does not measure.



You might ask your students to look through existing measurements of economic and social health and discuss which ones should be included in a standard, comparative measure? Human rights? Health and welfare? Peace and stability? Democracy and rule of law?

G.D.P. Seen as Inadequate Measure of Economic Health
President Nicolas Sarkozy told the French national statistics agency Monday to take greater account of factors like quality of life and the environment when measuring the country’s economic health.

Mr. Sarkozy made the request after accepting a report from a panel of top economists he had charged with reviewing the adequacy of the current standard of fiscal well-being: gross domestic product.

The panel, chaired by two Nobel economists, Joseph E. Stiglitz of Columbia University and Amartya Sen of Harvard University, concluded that G.D.P. was insufficient and that measures of sustainability and human well-being should be included...

G.D.P. is the measure of the market value of all the goods and services produced in the economy. Its development in the 1930s, when the U.S. government was looking for new tools to measure national income and output more accurately, has been described as one of the most important advances in macroeconomics.

However, there has long been criticism that, while it accurately captures the growth or contraction of the overall economy, it is a crude tool for describing social health...

The United Nations Development Program’s human development index... incorporates G.D.P. as only one of a number of criteria... The human development indexes also seek to incorporate the value of a long and healthy life, access to knowledge and a decent standard of living.

As an alternative to the developed world’s pursuit of G.D.P., the Himalayan kingdom of Bhutan has chosen to focus on “gross national happiness,” complete with the 4 pillars, the 9 domains and the 72 indicators of happiness...

Yet for all the enthusiasm... at the conference, Mr. Stiglitz, a former adviser to President Bill Clinton, said “putting together the new indicators is not going to happen overnight,” because of the need to gather and test the data.

The Stiglitz commission report, known formally as “The Measurement of Economic Performance and Social Progress Revisited,” said that one of the most glaring problems with using economic growth as a proxy for well-being was the fact that it excluded the damage to society and ultimately to the economy of environmentally non-sustainable activities...


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1 Comments:

At 11:05 AM, Blogger Ken Wedding said...

Joseph E. Stiglitz, University Professor at Columbia University and winner of the 2001 Nobel Memorial Prize (Economics), asks questions about how we best measure the economy and life and why measurement is important.

GDP Fetishism
"Striving to revive the world economy while simultaneously responding to the global climate crisis has raised a knotty question: are statistics giving us the right “signals” about what to do? In our performance-oriented world, measurement issues have taken on increased importance: what we measure affects what we do.

"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..."

 

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