Let's ditch the GDP

(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.