The Political Element in Empirical Data?

In a recent article in the Financial Times Joseph Stiglitz argues for a more comprehensive measure of social well-being than Gross Domestic Product (GDP).

As all principles of economics students know, GDP leaves out many interesting things. When I was a student the prime example was: When a man marries his paid housekeeper GDP falls. I am not sure how to adjust this if the housekeeper is also a man and they move to a state with gay marriage. Humor aside, you get the point. GDP misses stuff.

Nevertheless, Stiglitz has bigger fish to fry. This is just a sample:

“What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which most citizens have become worse off. We care, moreover, not just for how well off we are today but how well off we will be in the future. If we are borrowing unsustainably from this future, we should want to know.”

Did I get all the “we’s”?  Yes, I know that decisions are made by the political system “we” have. But clearly this is an example of the tribal mentality. We is a weasel word for the common hierarchy of values that a free society does not have. Where do these values and tradeoffs come from? What do they represent? Recent research.

“Advances in research across a number of disciplines enable us now to develop broader, more encompassing measures of well-being. Such measures recognise that unemployment has an effect that goes well beyond the loss of income to which it gives rise. Health, education, security and social connectedness all are important to quality of life – but are not adequately reflected in GDP.”

So he wants government or international agencies to measure “social connectedness.”

“Too often, we confuse ends with means. One of the criticisms of our economies in the years prior to the crisis is that they did exactly that – a financial sector is a means to a more productive economy, not an end in itself. Even worse is to confuse an improvement in a measurement of well-being with an improvement in well-being itself. Our economy is supposed to increase our well-being. It, too, is not an end in itself. Hopefully, the work of our commission will have increased the impetus to align the metrics of well-being with what really contributes to quality of life – and, in so doing, help us direct our efforts at those things that really matter.”

Of course, the confusions of means with ends, measures with reality, and trivial ends with ultimate ends that “really matter” are bad in general. But I would rather give this as a piece of valuable advice to individuals pursuing their own goals.

Let’s clarify: (1) the “virtues” – should there be any – of a traditional GDP measure is that it uses the metric of market prices. If economics teaches us anything, it is the problem of measuring value without markets. (2) Outside of markets there must be a reliable mechanism that can reveal the value of things to individuals – what is it? And how can economists test its accuracy? (3) There is no value to Society but just to the individuals that compose it (even Jeremy Bentham said as much). Does Stiglitz have some metaphysical entity in mind?

If a measure of social welfare were to be constructed that would trade off reductions in carbon emissions, increases in social connectedness, increases in “security” against losses in GDP what would the rates of tradeoff be? Where would they come from? Does Stiglitz have a real appreciation of the difficulties of doing this scientifically? What are the chances of politicization? Excellent.

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About Mario Rizzo 75 Articles

Affiliation: New York University

Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University. He was also a fellow in law and economics at the University of Chicago and at Yale University.

Professor Rizzo's major fields of research has been law-and economics and ethics-and economics, as well as Austrian economics. He has been the director of at least fifteen major research conferences, the proceedings of which have often been published.

Professor Rizzo received his BA from Fordham University, and his MA and PhD from the University of Chicago.

Visit: Mario Rizzo's Page

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