Breaking Views

Let's ditch the GDP

A Nobel economist has concluded the measurement is flawed and alternative and other ways to count 'wellbeing' have problems. He should have gone further - the whole measurement effort is pointless.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Edward Hadas, breakingviews.com

(breakingviews.com) -- Take an intellectual crisis in economics, mix in some French philosophy and cook for a year or two in the heated brain of celebrated economist Joseph Stiglitz. The result: a missed philosophical opportunity.

Nicolas Sarkozy, the French president, set up the Commission on the Measurement of Economic Performance and Social Progress in the beginning of 2008. Back then, the world's financial problems seemed mainly Anglo-Saxon. Sarko thought the French could teach the world how to think about economic success.

Stiglitz, an iconoclastic American Nobel laureate, was chairman, and Amartya Sen, the Indian-born Nobel laureate, was chief intellectual advisor. Their seemingly radical conclusion is that GDP (Gross Domestic Product) is a bad measure of an ill understood good.

GDP may measure something, but its problems are almost too numerous to count. The measure adds together and adjusts prices in arbitrary ways. Economists "input" -- make up -- many of them.

GDP ignores housework but treats the costs of commuting, crime and finance as positives. It is a gross measure, ignoring depreciation and environmental damage. It is also a crude measure, ignoring wealth and the distribution of income.

The worst thing about GDP is not how it is counted but how it is commonly used -- as a simple indicator of economic success. You don't need to be Descartes or Derrida to know that more is not always better when it comes to the stuff of this world. Whatever the meaning of life may be, a larger GDP, at least in rich countries, is unlikely to provide more of it.

The Commission explores alternative numerical measures of economic and social success. Some are based on subjective satisfaction and others on measures of "wellbeing" arbitrarily chosen by economists. Stiglitz and Co discuss the weaknesses of these substitutes. But the value of a search for a single guiding number is never really philosophically questioned.

That's a shame. Economic activity can contribute to the human good in many ways: longer lives, better health, more education and a wide array of creature comforts. But like anything close to the human spirit, those supports cannot be measured with precision. Stiglitz would have done the world a service if he had said that there was no point trying. To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.