Getting on the Anti-GDP Bandwagon

Economist Edoardo Campanello appears to be jumping on the anti-GDP bandwagon in his post at Project Syndicate:

In a year of populist discontent across the West and narrowing prospects for major emerging economies, the future may end up being shaped in an unlikely setting: the world’s statistical offices. Among ordinary people and specialists alike, there seems to be an increasingly powerful sense of dissatisfaction not only with the pace of economic growth, but with how that growth is defined and measured.

There are two reasons for this. First, aggregate economic growth in the developed world has brought little, if any, benefit to the vast majority of citizens in recent decades – a trend that has been particularly pronounced against the backdrop of the 2008 global financial crisis. As Nobel laureate Joseph Stiglitz reminds us, “in the ‘recovery” of 2009-2010, the top 1% of US income earners captured 93% of the income growth.”

But second, and arguably more important, defining welfare solely in terms of what can be measured by markets misses much of what contributes to – or detracts from – human wellbeing. In 1968, Robert Kennedy, campaigning for the presidency of the United States, lamented that this approach “measures everything except that which makes life worthwhile.” It says nothing, for example, about environmental quality, the cohesion of communities, or the stability of individual and group identities – all of which clearly influence wellbeing.

I’m not entirely sure what he’s getting at. Is it that in a globalized world an increase in economic growth in the developing world may not be reflected in an increase in wellbeing (however measured) in the developed world? Is it that economic inequality in the developed world stands in the way of the benefits of trade being realized by most people? Why would you expect policies directed at increasing measurable economic growth to address that?

Note that he proposes no alternative to GDP as a guide or benchmark for policy. He merely points out its inadequacy as the be all and end all of policy. I agree.

I think he should be more cautious in what he wishes for. The proper alternative to an inadequate measurement is a better measurement—not no measurement. All mainstream schools of macroeconomic thought rely on some more or less objective measurements of economic activity for their policy prescriptions. To reject measurement is to reject any organized attempt at changing things, including on the part of government.

In the much more succinct phrase attributed to the great writer and scholar of management, Peter Drucker, if you can’t measure it you can’t manage it. And if you can’t manage it it should not be the object of government policy. I suspect that precisely the opposite message will be inferred, a license for abuse.