Many thanks to reader Mark Hall for bringing this NY Times article to my attention (see above link). It seems that at least one world leader, French President Sarkozy, has questioned the value of using GDP (gross domestic product) as a measurement of economic performance, correctly observing that boosting GDP seems to do little to reverse the deteriorating trend in labor market conditions.
Among the possible casualties of the Great Recession are the gauges that economists have traditionally relied upon to assess societal well-being. So many jobs have disappeared so quickly and so much life savings has been surrendered that some argue the economic indicators themselves have been exposed as inadequate.
In a provocative new study, a pair of Nobel prize-winning economists, Joseph E. Stiglitz and Amartya Sen, urge the adoption of new assessment tools that incorporate a broader concern for human welfare than just economic growth. By their reckoning, much of the contemporary economic disaster owes to the misbegotten assumption that policy makers simply had to focus on nurturing growth, trusting that this would maximize prosperity for all.
The article goes on to note that the study was commissioned by Sarkozy. But, as pointed out in the article, while the study’s authors challenge the wisdom of using GDP to guide economic policy, they don’t really offer an alternative.
Indeed, the difficulty comes in turning these general principles into new means of measurement. The report notes that its authors concur on the big picture, but diverge on the methodologies to be employed when it comes to factoring in the value of a better education and cleaner skies.
The old mode of measurement has taken a beating, and yet the new one, it seems, is still a work in progress.
I am reminded of the work of W. Edwards Deming, father of statistical quality and process control and the “Total Quality Management” concept. One of his fourteen points for improving a company’s performance was to eliminate management by objectives. His point was that if you focused on all of the important little things, the big things would take care of themselves.
The same philosophy can be applied to the economy. Using the two examples provided above, if cleaner skies are important, then focus on that. If better education is important, then focus on that too.
Nothing is more important to a healthy economy than avoiding trade deficits. So make that a key measurement, not GDP. Nothing is more important to maintaining a healthy labor market than avoiding per capita consumption-destroying over-crowding. So focus on stabilizing the population at a sustainable level. Measure unemployment, but be honest about it. Measure per capita purchasing power while being honest about inflation.
Just do what’s right and the economy will take care of itself.