Read the following articles and answer the discussion questions in your initial posting by Wednesday Feb. 12th
Listen to the following podcast:
https://www.npr.org/sections/money/2019/04/08/711132741/how-to-measure-happiness
https://www.npr.org/transcripts/711131851?storyId=711131851
http://www.youtube.com/watch?v=QUaJMNtW6GA
Discussion Questions:
1) After reading the Economist article, listening to the Planet Money podcast, and hearing Stiglitz speak, why is GDP considered an "imperfect" measure of the economy? What are some economic standards that the GDP fails to capture?
2) Economic growth can be defined as an increase in real GDP over time. We care about economic growth because we believe that this means that we improve people's living conditions and standards. However, the critique on GDP points out that GDP actually doesn't really capture improvements on living standards. Therefore, should we still worry about economic growth? Why or why not? If not, what other economic measures should we focus on?
Measuring economies; The trouble with GDP Publication info: The Economist ; London Vol. 419, Iss. 8987, (Apr 30, 2016): 23. ProQuest document link ABSTRACT Gross domestic product (GDP) is increasingly a poor measure of prosperity. It is not even a reliable gauge of production. In the mid 1990s William Nordhaus, an economist at Yale University, looked at two ways of measuring the price of light over the past two centuries as a way to illustrate how flawed economists' attempts to measure changes in living standards are. Any true reckoning of real incomes must somehow account for the vast changes in the quality of things we consume, he wrote. When a first-year undergraduate first encounters the idea of GDP as the value added in an economy, adjusted for inflation, it sounds pretty straightforward, says Sir Charles Bean, the author of a recent review of economic statistics for the British government. Get into the details, though, and it is a highly complex construct - and, as Nordhaus's fable shows, a snare for the unwary. The problem is not just that it is hard to make calculations. It is that what the calculations produce is a measure put to too many purposes, and, though useful, not truly fit for any of them. And there are worries that things may be getting worse. FULL TEXT Gross domestic product (GDP) is increasingly a poor measure of prosperity. It is not even a reliable gauge of production ONE of Albert Einstein's greatest insights was that no matter how, where, when or by whom it is measured, the speed of light in a vacuum is constant. Measurements of light's price, though, are a different matter: they can tell completely different stories depending on when and how they are made. In the mid 1990s William Nordhaus, an economist at Yale University, looked at two ways of measuring the price of light over the past two centuries. You could do it the way someone calculating GDP would do: by adding up the change over time in the prices of the things people bought to make light. On this basis, he reckoned, the price of light rose by a factor of between three and five between 1800 and 1992. But each innovation in lighting, from candles to tungsten light bulbs, was far more efficient than the last. If you measured the price of light in the way a cost-conscious physicist might, in cents per lumen-hour, it plummeted more than a hundredfold. Mr Nordhaus intended this example to illuminate a general point about how flawed economists' attempts to measure changes in living standards are. Any true reckoning of real incomes must somehow account for the vast changes in the quality of things we consume, he wrote. In the case of light, a measurement of inflation based on the cost of things that generated light and one based on a quality-adjusted measure of light itself would have differed by 3.6% a year. When a first-year undergraduate first encounters the idea of GDP as the value added in an economy, adjusted for inflation, it sounds pretty straightforward, says Sir Charles Bean, the author of a recent review of economic statistics for the British government. Get into the details, though, and it is a highly complex construct--and, as Mr Nordhaus's fable shows, a snare for the unwary. The production boundary Measuring GDP requires adding up the value of what is produced, net of inputs, across a wide variety of business lines, weighting each according to its importance in the economy. Both the output and the materials (if any) used up in making it have to be adjusted for inflation to arrive at a figure that allows for comparison with what has gone http://ezproxy.greenriver.edu/login?url=https://search.proquest.com/docview/1785401580?accountid=1558 http://ezproxy.greenriver.edu/login?url=https://search.proquest.com/docview/1785401580?accountid=1558 before. This is tricky enough to do for an economy of farms, production lines and mass markets--the setting in which GDP was first introduced. For today's rich economies, dominated by made-to-order services and increasingly geared to the quality of experience rather than the production of ever more stuff, the trickiness is raised to a higher level. No wonder GDP statistics are still so prone to constant and substantial revision (see "GDP revisions: Rewriting history"). The problem is not just that it is hard to make these calculations. It is that what the calculations produce is a measure put to too many purposes, and, though useful, not truly fit for any of them. And there are worries that things may be getting worse. As the price of light illustrates, standard measures miss some of the improvements delivered by innovation. But at least new lighting products show up in the figures once people start buying the things in sufficient volume. These days it seems that a growing fraction of innovation is not measured at all. In a world where houses are Airbnb hotels and private cars are Uber taxis, where a free software upgrade renews old computers, and Facebook and YouTube bring hours of daily entertainment to hundreds of millions at no price at all, many suspect GDP is becoming an ever more misleading measure. The modern conception of GDP was a creature of the interwar slump and the second world war. In 1932 America's Congress asked Simon Kuznets, a Russian-born economist, to estimate national income over the preceding four years. Until he produced his figures just over a year later, no one knew the full extent of the Depression. In Britain Colin Clark, an enterprising civil servant, had been collecting statistics on national income since the 1920s, and in 1940 John Maynard Keynes made a plea for more detailed figures on Britain's capacity to make guns, tanks and aeroplanes. He went on to establish the modern definition of GDP as the sum of private consumption and investment and government spending (with account taken for foreign trade). Kuznets had treated government spending as a cost to the private sector, but Keynes saw that if wartime procurement by the state was not treated as demand, GDP would fall even as the economy grew. Keynes's idea of GDP won out on both sides of the Atlantic and soon spread further. Countries that wanted to receive post-war aid under America's Marshall plan had to produce an estimate of GDP. In the 1950s Richard Stone, a protege of Keynes, was asked by the United Nations to prepare a template for GDP accounting that could be used by all member states. To be a nation was, in part, to know your GDP. In wartime, GDP was concerned with managing supply. With peace, the influence of Keynes's ideas on fighting slumps flipped it into a way to manage demand, as Diane Coyle notes in her book, "GDP: A Brief but Affectionate History". Either way it was (and is) a measure of production, not of welfare--which, as GDP growth became a goal for politicians, also became an occasion for criticism. A measure created when survival was at stake took little notice of things such as depreciation of assets, or pollution of the environment, let alone finer human accomplishments. In a famous speech in March 1968, Robert Kennedy took aim at what he saw as idolatrous respect for GDP, which measures advertising and jails but does not capture "the beauty of our poetry or the strength of our marriages". It's a manufacturer's world From time to time, such dissatisfactions have brought forth alternatives. In 1972 Mr Nordhaus and James Tobin, a colleague at Yale, came up with a "measure of economic welfare" which counted some bits of state spending, such as defence and education, not as output but as a cost to GDP. It also adjusted for wear-and-tear to capital and the "disamenities" of urban life, such as congestion. The paper was in part a response to environmentalist concerns that GDP treats the plunder of the planet as something that adds to income, rather than as a cost. It was much talked about; it was not much acted on. In 2009 a report commissioned by the French president, Nicolas Sarkozy, and chaired by Joseph Stiglitz, a prominent economist, called for an end to "GDP fetishism" in favour of a "dashboard" of measures to capture human welfare. Kennedy was right. Much that is valuable is neither tangible nor tradable. But much that is tradable is also not tangible. A problem with GDP even when it is being asked to do nothing more than measure production is that it is a relic of a period dominated by manufacturing. In the 1950s, manufacturing made up more than a third of British GDP. Today it makes up a tenth. But the output of factories is still measured much more closely than that of services. Manufacturing output is broken down into 24 separate industries in the national accounts; services, which now make up 80% of the economy, are subdivided into only just over twice that number of categories. A bias toward manufacturing is not the only distortion. By convention GDP measures only output that is bought and sold. There are reasons for this, only some of them sound. First, market transactions are taxable and therefore of interest to the exchequer, an important consumer of GDP statistics. Second, they can be influenced by policies to manage aggregate demand. Third, where there are market prices, it is fairly straightforward to put a value on output. This convention means that so-called "home production", such as housework or caring for an elderly relative, is excluded from GDP, even though such unpaid services have considerable value. In early editions of his bestselling economics textbook Paul Samuelson joked that GDP falls when a man marries his maid. Despite convention, a lot of what is included in GDP lies outside the market economy. Many government services are provided free, and for decades the value given to such output was simply the cost of provision. It is only fairly recently that statisticians have started to measure some bits of public-sector output directly by, for instance, counting the number of operations performed by health services or the number of students taught in schools. Some private-sector services are also measured indirectly. Housing services is one. This is straightforward wherever householders rent the property they live in. Rental payments capture both the value of housing services to tenants as well as the income of landlords from providing them. But in places where most people own the home they live in, a large part of the total value of housing services has to be imputed. Finance is another activity that is mostly measured obliquely (and