Macroeconomic

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Seyand Grcss framestic Praduct with the encourbgement of the French president, some economists wonder whether we need better measutes of economic well'being'

GDP Seen as Inadequate Measure of Economic Health Bv Dnuo Jot-r.v

pARlS-President Nicolas Sarkozy told

I- the French national statistics agency Monday to take greater account of factors

like qnrality 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 fis-

cal well-being: gross domestic product'

The panel. chaired bytwo Nobel econ'

omists, Joseph E. Stiglitz of Columbia University and Amattya Sen of Harvard University, concluded that GDP was insuf'

ficient and that measures of sustain' ability and human well-being should be

included,

An "excessive focus on GDP rmtrics' also contributed to the onset of the cunent

financial crisis, according to the report. Policy

maken cheered rising economic growth

vuhile other data, like those that showed the

increasing and unsustainabie indebtednes of

households and busineses, were overlooked,

the repod found.

"The main mestage is to get awaY from GDP fetishism and lo understand the

limits to it," Mr. Stigliu said in an interviev 'There are many aspects of our society lhi

are not covered by GDP.' . . .

GDP is the measur€ of tl$ ma*et vali of all the goods and selkes produced in tl economy. lts development in fie t930s, whe the U.5. govunment was looking fur netv too

to measure national income and ouput mot

acorately, tras been des{ibed as one of tl'

most important a&ances in macroe$ncBnk

However. there har long been criticisr

thai, while it accutately captures the growt

or contraction ol the overall economy, it

a crude tool for describing social health.

The United Statet for example. wit the world's largest ercnomy, naturally top

GDP rankingq but it ranks lower by otht

rneasures. the United Nations Development

Program's human development index, which

incorporates GDP as only one of a number

ol ciiteria, ranked lceland. Norway and Canada the top three spots in 2008, with

the United States a distant I 5th' The human

development indexes also seek to incorpo-

rate the value of a long and healthy lile,

accest to knowledge and a decent standard

of living.

As an alternative 1o the develoPed

world's putsuit of GDP, the Himalayan kingdom of Bhutan has chosen to focus on

'gioss national happiness," complete with

the 4 pillars, the 9 domains and the 72

indicators of haPPiness"..

The Stiglitz commission report, knorn

formally as 'The Measurement of Economic

Perfornunce and Social Progress Revisited'"

said that one of the most glaring problems with

i *nn economic grcxrth as a prory for well- E Wng was *re fxt that it exduded the

damage

i to society and ultimately to the economy of ! environmentally non-sustainable activities' i fot instance, "devetoping countries 5 may be encouraged to allow a foreign

Source: Ne.? York Tiner., September 15' 2C09'

mining company to develop a mine, even

though the counlry receives low royaltiel

even though the environment maY be

degraded, and even thouqh miners may

be exposed to heahh hazards," the report

says, "because by doing so GDP will be

increased."

They also identi{y another problem with

the reliance on GDP and othet "standard"

measures: the gaP between what the

numbers say and what people are actually

experiencing. Over the course o{ recent

decades, they note, GDP was rising in most

of the world, even as the median disposable

income*the income of the "tepresentative

individual"-was falling in many countties,

meaning that a large share of the gains

from economic growth ended up in the

hands of the wealthy at the expense 0f

the rest.

The specific recommendations include

ensuring that 6DP itself is measuted the

same in evely country, as statistical agen-

cies calculate it differently from one country

to the next, leading in some caset to large

variations in the way government seruices

are valued. That has the potential to lead tt

policy mistakes, theY warned.' "'Wtlat we measure affects what we do

and if our measutements are flawed, deci

sions may be distorted," they wrote' "Policie

should be aimed at increasing socieial wd

fare, not GDP."

Economist loe Sti1litz