GDP: A Nail In The Coffin?

I think I’ve just fallen in love with Nicolas Sarkozy.

I just found out that he commissioned a report that questions the value of using GDP as your primary indicator of national progress.

Mon Dieu!

In the report, the authors state a fundamental truth that we often tend to overlook: “What we measure affects what we do.” Let me tell you, as the parent of an enterprising youngster, this is most certainly true. In the context of economics, and not disciplining young children, the authors intended by this that what we pay attention to influences our decisions, so that if we aren’t paying attention to the right things, we’ll end up making the wrong decisions.

From the report’s executive summary: “The commonly used statistics may not be capturing some phenomena, which have an increasing impact on the well-being of citizens. For example, traffic jams may increase GDP as a result of the increased use of gasoline, but obviously not the quality of life. Moreover, if citizens are concerned about the quality of air, and air pollution is increasing, then statistical measures which ignore air pollution will provide an inaccurate estimate of what is happening to citizens’ well-being. Or a tendency to measure gradual change may be inadequate to capture risks of abrupt alterations in the environment such as climate change.” wrote an excellent, approachable article on the subject. But in it, it unwittingly repeats one of GDP’s flaws. “If as a population we buy more cars and food and computers and beer, we are getting more and more satisfied.” Not necessarily so, if such things are no longer considered luxuries, but are becoming increasingly fundamentals in order to stay afloat in the new knowledge economy. Some things, like food, are a good indicator of wealth – the more food you can buy, and the better quality, the better off you are. Absolutely. Beer is a luxury, sure. Decent indicator (well, except for we wine-lovers).

But computers? Cell phones? Cars? It’s not so clear anymore. Before the 80s (heck, before the 90s), a significant number of North American households had a single income earner. If one person stays home, there are less commuters. Before the 60s, a significant number of households were rural, and many of these were farm-based. Again, even less commuters. Now, more than 80% of Canadians live in urban areas. Sure, we can bus (and I do), but that doesn’t eliminate the need for groceries, and visits to the dentist, and the fact that my entire circle of family and friends live 20 minute drives away (in different directions). My neighbourhood is not my community – my entire city is.

Also, just about every single sector in the Canadian labour force requires computer skills – agriculture, utilities, natural resources, transportation, health care, tourism – you name it, you need a computer to do it. You might not need to own a computer, but grade 3 students these days can’t do their homework assignments without access to Google. And cell phones? I have one for the sole reason that if my daycare provider can’t reach me within an hour if my son ever needs to be sent home for health reasons, she has the right to terminate our contract. This is NOT a luxury.

The incessant and intrinsic demands of the knowledge economy on our time, our brains, and our accessibility of communication renders an enormous number of so-called luxuries into essential tools.

As such, the premise that the more we buy, the happier we are is bunk.

“Ah but,” an economist would say, “you are making these choices of your own free will. You have chosen to earn a higher income, and the resulting increasing demands on your time and cognitive abilities.”

“Yes,” I reply, “but in doing so, I am directly contributing, and in fact disproportionally so, to not just GDP, but the creation of wealth and social progress. Moreover, the more of us who choose this, the more demand for these skills and knowledge, and goods and services, we create. As more people pass the bar of higher education or income, the higher the bar gets pushed.”

And so, cyclically, we argue, Mr. Economist and I.

Enter Monsieur Sarkozy au secours.

The report references my beloved social capital.

“For a long time there have been concerns about the adequacy of current measures of economic performance, in particular those solely based on GDP. Besides, there are even broader concerns about the relevance of these figures as measures of societal wellbeing. To focus specifically on the enhancement of inanimate objects of convenience (for example in the GNP or GDP which have been the focus of a myriad of economic studies of progress), could be ultimately justified – to the extent it could be – only through what these objects do to the human lives they can directly or indirectly influence. Moreover, it has long been clear that GDP is an inadequate metric to gauge well-being over time particularly in its economic, environmental, and social dimensions, some aspects of which are often referred to as sustainability.”

I’m sure there are many, many, political factors at play in commissioning this report, not the least of which is positioning France as an attractive place to live, while downplaying its abysmal economic performance, and reassuring its overly taxed citizens not to feel too downtrodden, because they live la vie en rose.

But I don’t care how partisan and framed and motivated this report is. What I care about is that an internationally respected panel of economists and social scientist have just come out and said that GDP is not the be-all and end-all of decision-making, and that we need to consider a more interrelated formula if we want to ensure that big-picture decisions are made with relevance to individual lives.

“The whole Commission is convinced that the crisis is teaching us a very important lesson: those attempting to guide the economy and our societies are like pilots trying to steering a course without a reliable compass. The decisions they (and we as individual citizens) make depend on what we measure, how good our measurements are and how well our measures are understood.”

Consider this phrase from my microeconomics textbook (the bane of my existence):

“Within a certain range of income, public or shared transportation is an inferior good as households allocate more income to private transportation as income rises.”

What about the possibility that as your income rises, the demands on your time also rise and so you can’t afford to arbitrarily have to wait fifteen minutes for the next bus, because you missed your usual bus due to a last minute dirty diaper?

This statement assumes that private transportation is a superior good, and that it is an elastic one. Not necessarily so.

Or this:

“The number of free lunches served increased due to a price increase on paid lunches, potentially reducing revenue. At a higher price, it became more worthwhile for households to seek eligibility for free school lunches.”

Is it because I’m a mother that I care about the poor kid and her stressed-out parents who just can’t squeeze in a price increase in hot lunches, and between the delay for paperwork (assuming that you get approved for the program), the kid ends up eating nutritionally-poor PB&J for weeks?

Is it because I’m a linguist that I so clearly see the power of this choice of words, and how framing your message also frames your assumptions? It is awfully easy to not see a hungry, nutritionally-deficient kid and frazzled parents when you talk about revenue and households and eligibility.

Some goods are substitutes, but they are not easily so. Indifference cannot be measured only monetarily, because there are too many unseen factors affecting individual decision-making, not the least of which is that we live in a society, not an economy. An economy is a useful construct, sure. But I can’t knock on its door and ask it to water my plants when I’m away.

There is so much that is not factored in adequately in the grandiose science of economics – things like social outcomes and human psychology. And this, ultimately, is what Sarkozy is saying. He is calling to account the myopia of the rational Homo Economicus, and the enormous social burden our collective nearsightedness has cost.

I think fundamentally, the reason I hate economics so much is not because I hate math (oh, do I ever) – it’s because I hate the arrogance.

The decisions that are made based on sophisticated economic modeling are so important, and so pervasive, yet are deliberately removed from the direct consequences.

It matters what words you choose.

It matters what you choose to measure.

It matters that for the first time, a prominent, respected leader of an industrialized country has publicly announced that he doesn’t like GDP.

Nicolas, you can come over to dinner at my house anytime. But be prepared, it’ll be Ontario wine. Il y a des limites, après tout.


2 comments so far

  1. Moosilaneous on

    That’s simplicity’s. Sorry.

  2. Moosilaneous on

    Words are powerful; Measurement tools likewise define our thinking.
    I’m glad to hear someone is considering their combined impact on our world.
    Economics is flawed from the get-go by its reductionist thinking. My favourite beef about it (the essential premise for all models: ceteris paribus)is nothing compared artificial dichotomy, used, I presume, for simplicities sake – an inferior/superior good, an elastic/inelastic one.
    Seriously, people: shades of grey? Can we not recognize that the actions of a market or human beings are not described fairly or appropriately when the complexities are ignored.

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