11 July 2007

The role of GDP

Questioning the supplanting of Gross Domestic Product by an array of alternative indicators, Daniel Ben-Ami writes:
The first point to note is that the attack on GDP is generally based on a caricature. Countless commentators have made the point, often as if it is their original insight, that GDP is not a perfect measure of human wellbeing. However, it would be hard to find anyone who would have made such a claim for GDP in the first place. No one – except perhaps the most hardcore economics geeks – cares about GDP numbers for their own sake.
I disagree. Perhaps nobody will admit to caring about GDP for its own sake, but it does seem to have become a de facto target for governments that either have no clear objective beyond staying in power, or an array of meaningless micro-targets that have little to do with well-being or can anyway be easily manipulated, at great deadweight cost to society. I also disagree with the author when he casts aspersions on the Millenium Development Goals.

These commit world leaders to such targets as eradicating extreme poverty and hunger, achieving universal primary education and reducing child mortality.
The first two of these I see as unquestionably valid goals; the last needs some qualification.

Nevertheless Mr Ben-Ami is, I think, correct to talk about the unpriced positive externalities arising from economic growth. I don't see much of this in the literature - though I have posted about it, and it's reassuring to see it mentioned by someone else.

...if anything, GDP statistics underestimate the human benefits of economic growth. Having a larger economy itself has important benefits.

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