GDP as welfare

The International Commission on the Measurement of Economic Performance and Social Progress, convened by French president Nicolas Sarkozy and chaired by economist Joseph Stiglitz, wrote a lengthy report recently opposing Gross Domestic Product (GDP) as a measure of social welfare.  GDP is the market value of all goods and services produced by a nation in a year.  In his blog, Chicago Law professor Richard Posner outlines some of the critiques, which involve philosophical debates about the definition of welfare and it’s validity as a metric for moral value.   He writes: 

[This] brings me to the third and broadest problem with GDP as a measure of welfare–that even if improved along the lines I have just suggested it would not really measure happiness or well being. Market value is a function mainly of cost. The value that people derive from goods and services is better measured by what they would pay for them if competition did not reduce their price to or near the cost of production; but that value (“consumer surplus”) is difficult to estimate. Or consider—coming closer to current events that have sharpened traditional concerns with GDP’s adequacy as a measure of welfare—the anxiety that people who are involuntarily unnemployed experience.

The second in command at the international commission was the economist Amartya Sen, a pioneer (along with the philosopher Martha Nussbaum) in attempting to develop measures of human “capabilities” and ranking countries according to their ability to equip their citizens with such capabilities (long life, adequate nutrition, education, etc.). The United Nation’s Human Development Index attempts such a ranking, and some might think it a candidate for replacing GDP.

Posner concludes, nevertheless, that we should not jettison GDP as an important value.  First, he argues that government statistics need to be calculated in objective ways to have legitimacy and the other contenders all involve controversial, necessarily biased economics.  Second, he argues that GDP is at least “rougly correlated with adjusted measures of welfare.”  Third, he argues that GDP is important not as method of ranking nations, but as a means of measuring the business cycle in an individual nation.  This addresses the criticism that if GDP accounted for leisure time, an important compenent of welfare, some counties–like France (which in French apparently means “nappy time”)–would be much higher ranked.

-Jake

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December 16, 2009 · Filed Under Economy/Finance, Jake

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  • Editors

    Jacob Bronsther is a law student at NYU, a former Fulbright Scholar to Mauritius, and a graduate of Cornell University. He has an MPhil in Political Theory from the University of Oxford.

  • Sam Gill is a consultant in Washington and a graduate of the University of Chicago. He studied Political Theory at Oxford as a Rhodes Scholar.

  • Marc Grinberg is a Presidential Management Fellow with the U.S. government and a graduate of Princeton University. He earned an MPhil in Political Theory from the University of Oxford.

  • John Rood is the founder of Next Step Test Preparation and a graduate of Michigan State University. He has an AM in Political Theory from the University of Chicago.

  • Luke Freedman is a student at Carleton College, pursuing a double major in Philosophy and Political Science.


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