Mismeasuring Our Lives: Why GDP Doesn’t Add Up by Joseph E. Stiglitz
My rating: 3 of 5 stars
To put it bluntly, economics is the study of how to make decisions effectively, what goes into decisions and how to be effective.
Gross Domestic Product (GDP) has often been used as an indicator to try and decide how well a nation is doing at managing its resources and caring for for its population.
This small book attempts to tackle why GDP isn’t an effective measure for policy makers to determine if the economy is doing well. In fact, this book is quite adamant that GDP is not the way to measure the economy.
I guess another way of saying this is simply: our economic models are not yet sophisticated enough to make sense of what’s actually important to us as a species. We don’t know how to maximize utility… and we don’t exactly know what this utility is or how to measure it.
Traditionally, we have taken money as the objective indicator, but it’s become clear that money is unable to capture much of the intangible “utility” that is important to us. (Such as love, trust, happiness…)
So in this book, there are three proposed indexes which an effective “dashboard” of indicators should ultimately relate to: How productive we are, how happy we are and how sustainable we are.
This sounds great at the onset until you realize that this book is only outlining the principles for what such a dashboard should be… it’s not out to provide a turnkey solution, as we are a long way off from understanding what effective measurements should be.
So while economics is about making effective decisions (maximizing utility), this book is less about actual economics than it is about how to determine the actual constraints upon which applied economics should function… basically, humanity has reached the point of realizing the Earth is not unlimited. As such, we can no longer act as though we are in a “sandbox” (free to play and experiment as we please) because we are in a sandbox (a closed environment with very limited resources).
What throws an even bigger wrench into this situation is that even if we were to determine what indicators should be measured on such a “dashboard” there remains the question as to what these indicators would mean… that is, if one of these indicators was the amount of CO2 we were pumping into the air, what amount of CO2 is healthy? What should we aim for? If one of the indicators of well being was longevity, how long is too long, before quality of life goes downhill? If one of the indicators was how many newborn infants die due to air pollution… how many infants dying should be considered “healthy” for the economy?
The deeper question not tackled in this book is, what exactly is “well-being”? They do a good job at taking apart what “sustainable” means, in the fact of limited stocks, and technological disruption (which may make certain unimportant resources more important in the future, or vis versa)… and they are right to point out that even if we were to be able to accurately provide indexes on such resources, we wouldn’t necessarily know what such indexes mean, or what should be the desirable range.
All in all, the ambitions of this book, which is really, only to set out the outline of such a project, outstrip the current abilities of humankind to really answer any of these questions effectively… but I suppose it’s good to point out the problems now, so we can solve them later.
Where this book begins — dealing with GDP — is a good place to start. GDP does have huge issues associated with it… and we shouldn’t use this number as an indicator to determine how well we are doing, because it is an incomplete indicator and misses the three proposed indexes as stated above…. indexes… to put into numbers… the very important values to our well being as nations and as human beings.
