Suggestions to replace GDP shouldn't be a proxy for advancing actual policiesby Helen Jackson and Paul Ormerod / July 25, 2018 / Leave a comment
At the moment, many economists and non-economists alike have little confidence in Gross Domestic Product (GDP). It is regularly criticised for being a flawed and incomplete measure of economic welfare. Politicians mindlessly seek to maximise it, it is said, promoting economic growth to the detriment of other policy goals.
Many of these criticisms have resonance. They point to a deep sense of malaise with our economic management, to a feeling that we are undermining those aspects of human welfare which can’t be satisfied through our marketplace transactions. Social respect, a secure job, natural beauty, a liveable climate—issues such as these are felt to be squeezed out by the veneration of GDP growth.
But the insistence that we replace GDP to deal with this malaise can sometimes come across as a displacement activity in lieu of advocating a political programme.
The idea that technocratic adjustments to the way we measure our economy would go a long way to solving the malaise by themselves is illusory. Moreover, there is an elephant in the room—the very real connection between measured economic activity and social and political stability, which is often ignored.
Above all, an alternative measure would need to have credibility across a broad cross-section of society to take off; not just economists, civil servants and politicians, but also journalists, central bankers, businesspeople and investors. While alternatives to GDP have been discussed for 50 years, the lack of a politicalconsensus on potential reforms which could be made has prevented adoption and impact among anyone but a fairly small group of advocates.
In exploring these points further, it is useful to separate the criticisms into two groups.
The first is what we describe as the “technical” critique of GDP. This widely used measure of the size of the economy was developed in the 1930s and 1940s, when manufacturing—the production of things—was much more important in the west than it is now. GDP is held to be an increasingly flawed measure in economies which are increasingly dominated not just by services in general, but by internet-based services in particular.
Another technical critique is the question of how national accounts statisticians allow for quality improvement of existing goods and services and the emergence of new, innovative ones. They are not unaware of the difficulties. But they may very well…