Making economics warm and fuzzy
Michael Avari Monday, September 14, 2009 at 04:00PM Sarkozy hires Stiglitz to study including soft factors such as well-being, income inquality, charity, crime, " 'efficiency' of the health system" [what does that mean?], even traffic jams in GDP:
Stiglitz explained, "The big question concerns whether GDP provides a good measure of living standards."
GDP was never meant to be a measure of living standards, but of economic production. Some may correlate GDP to standards of living, although the latter is so subjective and personal as to be practically meaningless. A recluse living to the Andes may perceive he has a better standard of living than a trader on Wall Street who is nominally wealthier but must now forgo his Manhattan penthouse, beach house in the Hamptons, and 70' yacht. I am not defending GDP as a perfect yardstick, but to allow soft, unquantifiable, intangible measures will distort decision making and policy formulation.
Why not, say, include measures of political freedom, degree of democracy, justice attained under a country's Constitution and legal process, average value of property and investment portfolio, and other such factor that also affect standard of living? Why not enumerate rights under a bill of rights?
Even, more interesting, why not include the net number of businesses started per capita? Under these attributes, Sarkozy may find the traditional definition of GDP more attractive and send Stiglitz back to Columbia University to rethink liberal finagling with economics.