GDP Fetishism: why GDP is not a good measure of wellbeing | Hacker News Reader

GDP Fetishism: why GDP is not a good measure of wellbeing

econlib.org

17 pointsyummyfajitas20 comments

Just in case it isn't clear to everyone (and I don't think it is), this is an opinion piece from a libertarian think-tank, funded by something called "the Liberty Fund". Please don't confuse it with anything related to peer-reviewed economic research.

This is why I hate economics: many of its practitioners have absolutely no ethical qualms about blurring the line between publication of their political opinions and their research. Unless you pay exceedingly close attention to the source and context, you can easily be confused into believing that an editorial is somehow an objective analysis of economic theory. And while I'm sure the author raises a legitimate point about the shortcomings of GDP as a metric, this essay is filled with weak assertions and sloppy logic that probably wouldn't pass muster in a real paper.

This article is certainly an opinion piece, but the opinion expressed is about economic methodology, not politics.

The main opinion expressed is that economists should measure well being, not GDP. It supports this opinion by giving examples where GDP != wellbeing (man marrying his maid, TSA harassing people, magical productivity increases) and advocating that economists measure wellbeing rather than GDP whenever the two differ.

"This article is certainly an opinion piece, but the opinion expressed is about economic methodology, not politics."

Yes, a few of the examples were apolitical (e.g. the man marrying his maid and the economics of slavery), but most were thinly veiled attacks on government programs (e.g. the TSA, government stimulus spending, the cash-for-clunkers program, the dead-weight loss of taxes). The author spends most of his time associating government spending with negative impacts on well-being.

This essay advances a vague, unmeasurable quantity as being of paramount importance, disguises the intent of the essay with a few apolitical examples, then proceeds to argue that a number of recent government initiatives are obviously ill-conceived, in light of their impact on this unmeasurable quantity. As a whole, the essay is little more than an attack on government, framed as an objective discussion of economic methodology.

He mentioned two recent government initiatives; Bush-era airport security and an Obama-era policy that exemplifies the broken window fallacy.

His stimulus example was fictional, as was his "man marrying his maid" and "magical 2x productivity gain" example. His other real life example (slavery) was hardly recent.

I think your beliefs about the intent of the essay reflect your views as much as his.

By the way, utility is not vague. It is hard to measure, but that's not the same thing.

Have you read many peer reviewed economics papers? Or even college economics textbooks? They make same arguments about well being, dead weight losses, etc. And they are full of weak assertions and sloppy logic. Peer review can be a process for eliminating error, but it can also be a process for replicating error. Where does your faith in academia economists come from? Have you read a bunch of peer reviewed papers, and decided that they have better logic and reason than the writings of a top econ-blogger ( like Winterspeak ( http://www.winterspeak.com/ )?

Also note that while econlib is funded by the Liberty Fund, most academic economists are substantially funded by the government. There is potential for bias everywhere, let's worry about what people say.

Of course, I also think Henderson is wrong in one of his points. GDP is total national income times a price deflator. If government spending does not result in more productive output, then that will show up in the price deflator, and "real gdp" shouldn't rise. At least in theory. The real problem with the GDP statistics is that the calculation of the price deflator is riddled with methodological problems.

"Have you read many peer reviewed economics papers? Or even college economics textbooks? They make same arguments....also note that while econlib is funded by the Liberty Fund, most academic economists are substantially funded by the government. There is potential for bias everywhere."

Economics papers are reviewed by other economists before publication, and government research funding doesn't dictate political ideology. Also, real economics papers aren't opinion pieces, disguised as "articles" in a "library" of economics.

As I said before, peer review means nothing to me, because peer review replicates error just as much as it replicates truth.

In general, a piece of writing can contain facts (ex. the stock market crashed in 2009), interpretations of facts (ex. President x's policies reduced unemployment), and oughts (ex. leisure is inherently good). The line between the three can often be blurry. Henderson's piece contains facts, interpretations, and oughts. Most academic papers contain facts, interpretations, and oughts. Denigrating something as merely an "opinion" piece is simply a cheap and uninformative way of saying that you disagree with someone's interpretation of the facts.

and government research funding doesn't dictate political ideology

Ha! Future economists are selected by present economists based on their interpretation of the facts. Present economists were selected by past economists. The grant system was originally setup by the FDR administration and Vannevar Bush, who all believed in a powerful state managed by technocratic experts. So just as the Liberty Fund tries replicates libertarian interpretations of the facts, academic system tends to replicate the statist interpretations of the facts that the founders of the system believed in.

And you still didn't answer my original question. How many peer reviewed economics papers have you read through and carefully thought about? Do you have a favorite paper or two?

Your critique would be more interesting if you listed the "weak assertions and sloppy logic", rather than impugning the author and publisher.

Reminds me of a speech by Bobby Kennedy:

Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.

Everyone knows that GDP is an awful measure of economic health and resiliency. No real news here.

Huricane Katrina? GDP goes up. War? GDP goes up. Banks need bailed out a tax payer expense. GDP goes up.

This might be a close to infinite list, so I'll stop.

What is the GDP good for? Fooling an ignorant population. So, it does have some value to the elites.

If you ever have the choice of living in a country with $1,000 per capita GDP and $10,000 per capita GDP, I suggest you choose the latter (unless, of course, you are there for humanitarian work). That's the difference between Haiti-size earthquakes and Chile-size earthquakes.

Life is easier in rich countries than in poor ones. Rich countries also have higher GDP. However, the relationship is causative between the wealth and production and higher quality-of-life, not GDP. The arrows go like this: Wealth -> GDP. Wealth -> Well-being. These are tight enough to make it hard for an order-of-magnitude difference (as opposed to, say, 20%) not to denote a better quality of life.

However, the US has a very high GDP and, although it's not Third World yet, has a distinctly lower quality of life than most European countries (expensive healthcare, high educational costs, 1-2 weeks' vacation being considered normal) despite those countries' lower GDPs.

I have to agree. People in my country fret about our GDP per capita compared to some of our peers. They worry that we are falling behind, somehow losing out.

If this is what losing out is, I'd hate to know how they'd adapt to my old country (I come from Africa originally).

I live in a developed country, with fantastic quality of life, largely unaffected by the recession. People are pretty much mostly happy still.

My salary still goes up every year. I can still afford a comfortable life. I can drive an hour and be at our beaches or one of our great national parks. I can walk around at night without worrying I'm going to get mugged or killed.

Pretty much, I know that if I have kids, they have a good chance of being able to go for opportunities that interest them, and follow them through without externalities like famine, war or unexpected sickness obliterating their chances.

I'll take my current life over working slavish 50-60 hour weeks in the service of some grand GDP goal, thanks.

(I live in New Zealand).

How do you conclude that the US has lower quality of life than Euro countries?

As far as I know, both healthcare and educational costs are included in PPP-adjusted GDP per capita. The US comes out on top of nearly all European nations (only Luxemborg, Norway, Jersey and Lichtenstein have higher PPP-adjusted GDP per capita than the US).

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_...

As for vacation time, you seem to assume Americans would rather have longer vacations and less money, but are somehow prevented from negotiating this with their employers. Do you have evidence of this? Note that if people prefer money to vacation, it would reduce their quality of life to give them more vacation but less money.

http://en.wikipedia.org/wiki/Legatum_Prosperity_Index

http://en.wikipedia.org/wiki/Satisfaction_with_Life_Index

http://en.wikipedia.org/wiki/List_of_countries_by_Human_Deve...

http://en.wikipedia.org/wiki/Quality-of-Life_Index

America does well in these, but is still generally about 10th-20th. It would probably be interesting to break the US down by state and see how they compare to EU nations.

The problem with some of those measures (HDI, Legatum) is that they measure availability of what the index compilers believe people should want rather than what people actually want.

If I want porn and video games, it reduces my well being to give me education at the cost of Hustler/Halo, but it raises my HDI.

HDI measures literacy rate. If people can read, they can be more informed consumers of porn and video games.

Some people will read smut, given the ability to read. That's fine. Some will read logic textbooks and become mathematicians. Also fine. However, it's clearly better for both people to be literate.

Indeed, improving a single criteria holding all others constant is always an improvement to well being. This i true, but irrelevant.

If people choose a good not measured by your index at the expense of a good in the index, it lowers their index value but raises well being.

Another example: a food lover might choose to eat delicious pudding rather than playing soccer. If the index includes health but excludes hedonic pleasure from food (which I believe the HDI does), the food lover's choice might reduce HDI in spite of improving his well being.

It's much the same problem as with a man marrying his maid; utility and well being increases but the index (GDP in that case) decreases.

But ya can't measure wealth directly, so....

GDP is useful for a purpose other than "fooling an ignorant population".

Hmm. I think a lot of people are aware that GDP has its shortcomings. I think many would embrace a metric that fully captured well-being in an economic manner, but I didn't see the author suggesting any new metric that we should be following instead. I think we use GDP because it's the easiest thing we can use that isn't subject to [much] interpretation. And yes, that sometimes leads to problems.

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