Why Measure?

In an op-ed in the New York Times history professor Eric Zencey makes an extremely weak case for abandoning the gross domestic product as a measure of national income:

To begin with, gross domestic product excludes a great deal of production that has economic value. Neither volunteer work nor unpaid domestic services (housework, child rearing, do-it-yourself home improvement) make it into the accounts, and our standard of living, our general level of economic well-being, benefits mightily from both. Nor does it include the huge economic benefit that we get directly, outside of any market, from nature. A mundane example: If you let the sun dry your clothes, the service is free and doesn’t show up in our domestic product; if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more unsustainable — and give G.D.P. a bit of a bump.

In general, the replacement of natural-capital services (like sun-drying clothes, or the propagation of fish, or flood control and water purification) with built-capital services (like those from a clothes dryer, or an industrial fish farm, or from levees, dams and treatment plants) is a bad trade — built capital is costly, doesn’t maintain itself, and in many cases provides an inferior, less-certain service. But in gross domestic product, every instance of replacement of a natural-capital service with a built-capital service shows up as a good thing, an increase in national economic activity. Is it any wonder that we now face a global crisis in the form of a pressing scarcity of natural-capital services of all kinds?

Using the same logic as Dr. Zencey deploys in this argument, housework, watching television, and mowing your own lawn should be included in the employment statistics. If we used that reckoning I have little doubt that the United States would rank as the most overemployed country on the face of the earth but that would obscure the changes in gainful employment over time, which is the real use of statistics like GDP, the money supply, or the unemployment rate. They’re useful for gauging change. I suspect that very few unemployed auto workers would be satisfied at being reminded of how much home repair they’re accomplishing or that they’ve got a lot more time to watch the ball game.

Economics is not physics. Physics is concerned with measuring time, space, movement, weight, and so on. The speed or position of a particle ultimately doesn’t make a great deal of difference either to the particle itself or the physicist measuring them only the accuracy of the measurement (even if both can’t be determined at the same time). However much economists might wish otherwise all of the things used for measuring in economics are political judgments. That they are not perfect tools does not render them useless.

One comparison might be IQ, another political measuring tool. It is reasonably argued that some smart people score poorly on IQ tests but that doesn’t mean that IQ tests are useless. While smart people possibly score poorly on them, people of low intelligence don’t score well. We don’t know what IQ tests really measure but they seem to measure something and that something has some vague relationship to what we think of as intelligence.

GDP is similar. While China is a country of great natural beauty, travelers don’t generally return from China and comment on its wealth but on its poverty and the Chinese themselves share that view. It may be an imperfect tool but GDP bears some relationship to what we think of as wealth and as such is a useful tool.

However, it’s not the only way to measure wealth and not the most important way. On this Dr. Zencey and I are in agreement.

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