Wednesday, September 09, 2009

The P in GDP stands for 'production', remember?

Joseph Stiglitz questions if statistics "are giving us the right signals" (Project Syndicate/Jakarta Post, 9/9). In the article that reads like advertisement of the chairman of the newly established Commission on the Measurement of Economic Performance and Social Progress, Stiglitz rightly says that GDP is not apt to reflect people well being.

Of course. It's just a measure of production. Yet, that's the best we have now -- for again, measuring production.

We already started "green GDP" here and there, taking account of natural resource depletion and environmental degradation. Despite the rough proxies used, it's a good way to remind us that the business-as-usual production might be harmful to the environment.

But many people push it even more to measure happiness (or in general, well-being). So far I'm skeptical. Production is measurable. So is green production. But happiness? It might be measurable on individual basis, or at least household. You might even come out with measures like aggregare willingness to pay to proxy demand for something (including intangible goods) at community level. But pushing it to grand scale like national GDP will encounter serious aggregation problem.

One of those happiness measures found that the most happy people live in Bhutan. I, for one, don't want to live in Bhutan.

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