This week’s New York Times Magazine also had fascinating article about efforts to come up with an alternative to the GDP — i.e., how to put a number on how our country is doing. For years, economists and activists have criticized the GDP as a bad way to measure how we’re doing. For example, Katrina was a terrible tragedy, but it showed up as an increase in the GDP because of all the building, emergency supplies, etc. that it generated. If the GDP is a wrong way to go, why is it worth spending the time to come up with an alternative? Economist Joseph Stiglitz explains,
“Too often, particularly I think in an American context, everybody says, ‘We want policies that reflect our values,’ but nobody says what those values are,” Stiglitz told me. The opportunity to choose a new set of indicators, he added, is tantamount to saying that we should not only have a conversation about recasting G.D.P. We should also, in the aftermath of an extraordinary economic collapse, talk about what the goals of a society really are.
For example:
Do we want government to help us increase our sense of satisfaction? Or do we want it to help us get through our days without feeling misery? The two questions lead toward two very different policy options. Is national progress a matter of making an increasing number of people very rich? Or is it about getting as many people as possible into the middle class?
A better way of measuring how we’re doing might also change how we think about the past.
In [Stiglitz's] view, Americans would have had a much clearer picture of our progress over the past decade if we had focused on median income rather than G.D.P. per capita, which is distorted by top earners and corporate profits. “When you have increasing inequality, median and average behave differently,” Stiglitz said. Real median household income has actually dipped since 2000. But G.D.P. per capita, he noted, has gone up. A president could go on the podium, Stiglitz said, and point to G.D.P. as proof that Americans are doing very well. But if you looked instead at median income, he said, “you could say, a) it’s not sustainable; and b) most people are actually worse off.” We need to focus on those median figures, he insisted.
The same is true for comparing us with the rest of the world.
It has long been the case, for example, that the G.D.P. of the United States outpaces that of European countries with higher taxes and greater government spending; it has thus seemed reasonable to view our economic growth as a vindication of a national emphasis on free markets and entrepreneurship. But things look different if you see the measure itself as flawed or inadequate. We take shorter vacations than Europeans, for instance, which is one reason their G.D.P. is lower than ours — but that could change if our indicators start putting a value on leisure time. Some of the disparity, meanwhile, between the U.S. and various European countries, Stiglitz argued, is a statistical bias resulting from the way G.D.P. formulas account for public-sector benefits. In other words, the services received from the government in a country like Sweden — in public education, health care and child care, among other things — are likely undervalued. Rejiggering the measures of prosperity would almost certainly challenge our self-perceptions, Stiglitz said, perhaps so much so that in the U.S. we might begin to ask, Is our system working as well for most people as we think it has been?
Where many folks who’ve been wrestling with an alternative to the GDP end up is arguing that a single stat just won’t do.
Suppose you’re driving, Stiglitz told me. You would like to know how the vehicle is functioning, but when you check the dashboard there is only one gauge. (It’s a peculiar car.) That single dial conveys one piece of important information: how fast you’re moving. It’s not a bad comparison to the current G.D.P., but it doesn’t tell you many other things: How much fuel do you have left? How far can you go? How many miles have you gone already? So what you want is a car, or a country, with a big dashboard — but not so big that you can’t take in all of its information.
Incorporating a broader range of indicators also gives you at least a little help with tackling difficult if not impossible issues such as trying to measure/incorporate happiness.
while our current economic measures can’t capture the larger effects of unemployment or chronic depression, providing policy makers with that information may influence their actions. “You might say, If we have unemployment, don’t worry, we’ll just compensate the person,” Stiglitz told me. “But that doesn’t fully compensate them.” Stiglitz pointed to the work of the Harvard professor Robert Putnam, who served on the Stiglitz-Sen-Fitoussi commission, which suggests that losing a job can have repercussions that affect a person’s social connections (one main driver of human happiness, regardless of country) for many years afterward.
As a result, some of the more promising efforts such as the State of the USA have ended up creating a very large list of indicators — up to 300 — that people can mix-and-match to suit a particular purpose.
The size of the indicators panel is not a stumbling block; if anything, he argued, it’s an asset for an information-based society. The G.D.P. and other indexes, Hoenig said, are “an artifact of a world before the Web.” For his part, Stiglitz sees the State of the USA as a complement to any future dashboard system. A small dashboard of indicators could be useful for some purposes, a large panel for others. “When you go to a good doctor today, they don’t just look at one or two vital signs,” he said. “They look at a hundred statistics.” State of the USA, he told me, could be a “rich diagnostic tool” for evaluating the health of the country.
