Monday, May 17, 2010

GDP and Well Being

The New York Times Magazine has an interesting account of attempts to replace (or at least supplement) GDP with measures that more completely capture well being, including measures of social and environmental capital. Economist Joseph Stiglitz offers a car metaphor:
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.
I wrote about the shortcomings of GDP last summer:
Only God can make a tree, but it doesn't have value in GDP until someone cuts it down. If I cut down a tree or destroy an entire mountain and burn it for heat, GDP is increased. But if I make my home more energy efficient, and don't have to burn that wood or that coal, the savings don't show up in GDP—at least not directly.
As I wrote in February, GDP growth has outstripped energy consumption since WW II. Energy intensity, the amount of energy input required to support a dollar of economic output, has fallen by half since 1949.

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