Has GDP outgrown its use?
When it came to data, Kuznets was meticulous. But what, precisely, should be measured? He was inclined to include only activities he believed contributed to society’s wellbeing. Why count things like spending on armaments, he reasoned, when war clearly detracted from human welfare? He also wanted to subtract advertising (useless), financial and speculative activities (dangerous) and government spending (tautological, since it was just recycled taxes). Presumably he wouldn’t have been thrilled with the idea that the more heroin consumed and prostitutes visited, the healthier an economy.
.. The first thing to understand about GDP is that it is a measure of flow, not stock. A country with high GDP might have run down its infrastructure disastrously over years to maximise income. The US, with its ageing airports and less-than-pristine roads, is sometimes accused of precisely that.
.. Take a table setting of a knife, fork and spoon. In output terms, a setting of three spoons is equally good. In quality-of-life terms, clearly not. Coyle calls GDP an “artefact of the age of mass production”.
.. If banking had been subtracted from GDP, rather than added to it, as Kuznets had proposed, it is plausible to speculate that the financial crisis would never have happened.
.. The most obvious is housework. There is no monetary value at all assigned to cooking, cleaning, child-rearing and caring for older or disabled people at home. That is partly because such work, often done by women, is undervalued.
.. As author Jeremy Rifkin points out in his recent book The Zero Marginal Cost Society, the price of many products – online music, internet-enabled car-sharing, Wikipedia, solar energy, Skype – is tending to zero. How do we value economic activity if it doesn’t command a price?