Joseph Stiglitz says we need better measures of economic performance:
Rethink GDP fetish, by Joseph E. Stiglitz, Commentary, Project Syndicate: ...Eighteen months ago, French President Nicolas Sarkozy established an international Commission on the Measurement of Economic Performance and Social Progress, owing to his dissatisfaction - and that of many others - with the current state of statistical information about the economy... On Sept. 14, the commission will issue its long-awaited report.
The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens' own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximize it, but citizens also demand that attention be paid to enhancing security, reducing pollution, and so forth - all of which might lower GDP growth.
The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognized. But changes in society and the economy may have heightened the problems...
For example,... in one key sector - government - we ... often measure the output simply by the inputs. If government spends more - even if inefficiently - output goes up. In the last 60 years, the share of government output in GDP has increased [substantially]... So what was a relatively minor problem has now become a major one.
Likewise, quality improvements ... account for much of the increase in GDP nowadays. But assessing quality improvements is difficult. ...
Another marked change in most societies is an increase in inequality. ... If a few bankers get much richer, average income can go up, even as most individuals' incomes are declining. So GDP per person statistics may not reflect what is happening to most citizens.
We use market prices to value goods and services. But ... the ... pre-crisis profits of banks - one-third of all corporate profits - appear to have been a mirage.
This realization casts a new light not only on our measures of performance, but also on the inferences we make. Before the crisis, when U.S. growth ... seemed so much stronger than that of Europe, many Europeans argued that Europe should adopt U.S.-style capitalism. Of course, anyone who wanted to could have seen American households' growing indebtedness, which would have gone a long way toward correcting the false impression of success given by the GDP statistic.
Recent methodological advances have enabled us to assess better what contributes to citizens' sense of well-being... These studies, for instance, verify and quantify what should be obvious: the loss of a job has a greater impact than can be accounted for just by the loss of income. They also demonstrate the importance of social connectedness.
Any good measure of how well we are doing must also take account of sustainability..., our national accounts need to reflect the depletion of natural resources and the degradation of our environment.
Statistical frameworks are intended to summarize what is going on in our complex society in a few easily interpretable numbers. It should have been obvious that one couldn't reduce everything to a single number, GDP. The report by the Commission on the Measurement of Economic Performance and Social Progress ... should ... provide guidance for creating a broader set of indicators that more accurately capture both well-being and sustainability...