Stiglitz: GDP Is Not Enough

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The U-index measures the proportion of one's time in which the strongest feeling is a negative one. This graph measures women aged 18-68 who are not full time students in the cities of Columbus, Ohio, Rennes, France and Odense, Denmark. Alan Krueger/The Commission on the Measurement of Economic Performance and Social Progress hide caption

itoggle caption Alan Krueger/The Commission on the Measurement of Economic Performance and Social Progress
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The U-index measures the proportion of one's time in which the strongest feeling is a negative one. This graph measures women aged 18-68 who are not full time students in the cities of Columbus, Ohio, Rennes, France and Odense, Denmark.

Alan Krueger/The Commission on the Measurement of Economic Performance and Social Progress

What is the best way to measure economic health? That was the challenge French President Nicholas Sarkozy presented to a commission led by Nobel Prize winner Joseph Stiglitz when he asked them to consider the current state of statistics about the economy and society.

The commission of economists and social scientists presented their report to the French president this week stressing the inadequacy of GDP. From the report:

...Perhaps had there been more awareness of the limitations of standard metrics, like GDP, there would have been less euphoria over economic performance in the years prior to the crisis; metrics which incorporated assessments of sustainability (e.g. increasing indebtedness) would have provided a more cautious view of economic performance. But many countries lack a timely and complete set of wealth accounts — the 'balance sheets' of the economy — that could give a comprehensive picture of assets, debts and liabilities of the main actors in the economy.

The report includes key recommendations for fixing the problems with GDP like: "look at income and consumption rather than production," "emphasize the household perspective" and "broaden income measures to non-market activities."

Another issue the report addresses is GDP's inability to adequately measure well-being over time. From the report:

The traditional approach followed by economists to measure human well-being focuses on the resources that individuals have at their command, which are usually assessed in terms of either money income or assets or the goods and services that they consume. However,
although resources are clearly important for human well-being... they are also clearly insufficient, for reasons that are detailed in Box 2.1.Human well-being depends on what resources enable people to do and to be, and the ability to convert resources into a good life varies across people. This suggests that indicators that go beyond being measures of income, wealth and consumption and incorporate the nonmonetary aspects of quality of life (hereafter referred to as QoL) have an important role to play.

So far, president Sarkozy has embraced the commission's findings and pledged to incoporate them in France's accounting. Speaking to the Financial Times, Sarkozy said:

The world over, citizens think we are lying to them, that the figures are wrong, that they are manipulated. And they have reasons to think like that. Behind the cult of figures, behind all these statistical and accounting structures, there is also the cult of the market that is always right.

The French president also has another reason to celebrate the report. Mr Stiglitz and co-author Jean-Paul Fitoussi say a different approach for measuring performance could cut the per capita GDP gap between the US and France by at least half.

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