Wednesday, January 19, 2011

The value of GDP

I am committed to re-launch this blog again, mainly because I am now teaching a new course on Economic Foundations (Macroeconomics) for the MPhil in Development Studies at Oxford and there are many issues that we cannot cover in the class but are worth discussing.

Today one issue was the extent to which GDP is a good measure of welfare and whether economic growth per se is good or it all depends on what things are being produced. My view is that expanding the amount of goods and services in developing countries is extremely important to: (a) Expand livelihood opportunities for people. (b) Create the resources that can contribute to produce social services and meet social demands for the whole population.

Does that mean that it does not matter what we produce? Absolutely not. We need to be aware that different activities generate different spillovers, contribute to meeting different demands and generate different levels of wages and profits. We should promote sectors that can lead to improvements in welfare for a majority of the population in the long run... but we should also recognize that trade can be useful to exchange goods and services that are not useful to meet social demands for others that may be useful.

For two different positions about the usefulness of GDP, it may be useful to go here (a positive view from OECD here) and here (a critical view, although not from anthropology).

Much to discuss!

1 comment:

Nimi said...

Hmm, I think you've shown that GDP is an important criterion for measuring a country's ability to realise welfare for its population. You haven't show that it is an important criterion of wellbeing itself.

An illustration is helpful. Whether I own a bicycle is an important indication of my ability to get to class on time, but it isn't a measure of whether I do get to class on time.

You yourself seem to hold something similar, when you say that:

"Does that mean that it does not matter what we produce? Absolutely not. We need to be aware that different activities generate different spillovers, contribute to meeting different demands and generate different levels of wages and profits. We should promote sectors that can lead to improvements in welfare for a majority of the population in the long run..."

This means that what allows us to distinguish different activities as beneficial or harmful to wellbeing is not the criterion of whether it contributes to GDP, but something else.

That doesn't mean GDP isn't incredibly useful (precisely as a measure of a country's potential ability to realise its wellbeing), but on your view, at least, it doesn't seem to actually measure wellbeing.