In Europe, the impact of 2008 was more severe, especially in countries most affected by the euro crisis. But even there, apart from high unemployment numbers, standard metrics do not fully reflect the adverse impacts of the austerity measures, either the magnitude of people’s suffering or the impacts on long-term standards of living.
Nor do our standard GDP measures provide us with the guidance we need to address the inequality crisis. So what if GDP goes up, if most citizens are worse off? In the first three years of the so-called recovery from the financial crisis, about 91% of the gains went to the top 1%. No wonder that many people doubted the claims of politicians who were then saying the economy was well on the way to a robust recovery.
For a long time I have been concerned with this problem – the gap between what our metrics show and what they need to show. During the Clinton administration, when I served as a member and then chairman of the Council of Economic Advisers, I grew increasingly worried about how our main economic measures failed to take into account environmental degradation and resource depletion. If our economy seems to be growing but that growth is not sustainable because we are destroying the environment and using up scarce natural resources, our statistics should warn us. But because GDP didn’t include resource depletion and environmental degradation, we typically get an excessively rosy picture.
These concerns have now been brought to the fore with the climate crisis.
Monday, November 25, 2019
Stiglitz complains - again - about GDP as a metric
In The Guardian:
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2 comments:
The Stiglitz take is fairly useless. But the general subject is a good one. When I studied finance in 1984 and 1985 we had this idea that we would use like maybe a dozen or more metrics to try and get a first draft take on how a company was doing. And back then this information was actually good stuff to know insofar as valuing a company was concerned. Perhaps nowadays it might now not matter since the markets are so hopelessly rigged and corrupted. But the point is there was no "one metric fallacy."
If I had two metrics for deciding how well a company was doing it would be return on shareholder equity and return on total assets. And to me the return on total assets is a better measure of the social value of the job the company is doing. Most investors would go with return on shareholder equity most of the time. But the point is there is no "one true measure."
For example in month-to-month or quarter-to-quarter demand management considerations GROSS DOMESTIC REVENUE is a much better theoretical measure. Yet neither our treasury, nor our Reserve Bank, nor our department of statistics will so much as compile these figures. Also we choose one inflation figure. We should probably have three. Because the current one underestimates inflation and thereby gives us a rosier picture and all these politicians pat themselves on the back. The Americans are much worse.
Then there are figures which would net out the financial sector or the public sector or both. Or parts of the public sector perhaps excluding infrastructure and welfare. Because there are lots of spending that should be considered overhead. So you might have an overhead component for public spending (quite a bit of it) and an overhead component for finance (virtually all of it) and by taking these out and having maybe a dozen metrics we would get a clearer picture of how well we were doing.
What I'm trying to say here is that our economists suffer under the one best metric fallacy. Whereas they ought to be analysing a dozen metrics at any one time to show how we are doing.
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