Joseph Stiglitz - Problems with GDP as an Economic Barometer
Summary
TLDRThe speaker discusses the limitations of GDP as a measure of economic performance and societal well-being, highlighting its inability to reflect the experiences of the average citizen, particularly in the face of growing inequality. The script also addresses the sustainability issue, noting that GDP does not account for environmental degradation or resource depletion. Alternative measures such as green GDP and the difference between GDP and GNP are proposed to provide a more accurate picture of a country's economic health. The speaker emphasizes the importance of focusing on metrics that truly reflect societal well-being, such as health, leisure, and environmental sustainability.
Takeaways
- 📈 GDP as a measure of success can drive behavior and policy decisions, but it may not always reflect societal well-being.
- 🌳 The rise of GDP does not necessarily correlate with the well-being of the average citizen, especially in the face of increasing inequality.
- 🌿 Traditional GDP calculations do not account for environmental degradation and resource depletion, which are critical for sustainability.
- 💼 The shift from GNP to GDP in the 1990s changed the focus from the income of citizens to the output within a country, which can misrepresent economic health.
- 🌱 Green GDP, which factors in environmental costs, can provide a more accurate picture of economic growth, especially for developing countries.
- 💡 There's resistance from special interest groups, like the coal industry, to alternative economic measures that might not favor their interests.
- 🏛️ High incarceration rates in the U.S. contribute to GDP through spending on prisons, but this is not indicative of societal well-being.
- 🏥 The U.S. spends more on healthcare relative to GDP compared to other countries, yet health outcomes are not proportionally better, questioning the effectiveness of healthcare spending.
- 🏦 The construction of prisons in some states rivals spending on universities, highlighting misplaced priorities that contribute to GDP but not societal well-being.
- 🌐 There's a need for a global conversation and development of alternative economic frameworks that better reflect the true state of societies.
Q & A
What is one of the reasons the speaker has an interest in accounting frameworks?
-The speaker is interested in accounting frameworks because they affect behavior. They illustrate this by referencing how bad accounting practices in the United States during the 90s influenced people's actions.
How does the speaker suggest that information about success influences what people strive for?
-The speaker implies that if GDP is considered a measure of success, people will strive to increase GDP. This includes political leaders who use GDP growth as a metric of their success in office.
What is one issue the speaker identifies with GDP as a measure of economic performance?
-The speaker points out that GDP does not reflect what happens to the typical citizen, especially in the context of growing inequality. They give an example where GDP may be increasing, but median income and the well-being of the majority are deteriorating.
Why did the speaker attempt to focus on green GDP during his time at the Council of Economic Advisers?
-The speaker tried to focus on green GDP to account for environmental degradation and resource depletion, which are particularly important in developing countries where economic growth might come at the cost of depleting natural resources.
What was the coal industry's reaction to the proposal of green GDP, according to the speaker?
-The coal industry opposed the proposal of green GDP by threatening to pass a proviso to defund any research supporting alternative measures, as they knew green GDP would not favor their industry.
What is the difference between GDP and GNP, as mentioned in the script?
-GDP looks at the output within a country, while GNP looks at the income of the people in the country. The speaker suggests that the switch from GNP to GDP in 1990 has significant implications for many countries, especially in the context of privatization and income distribution.
How does the speaker relate the high number of prisoners in the United States to GDP?
-The speaker notes that the high number of prisoners in the United States contributes to GDP because of the money spent on incarceration. However, he argues that this is not a positive contribution to societal well-being.
What is the speaker's view on the efficiency of the U.S. healthcare system in relation to GDP?
-The speaker criticizes the U.S. healthcare system for spending more on healthcare than any other country as a percentage of GDP, yet having lower health outcomes. He suggests that if the system were more efficient, the GDP could decrease, indicating that the current focus on GDP is misguided.
What does the speaker suggest as an alternative to GDP for a more accurate measure of societal well-being?
-The speaker suggests considering other measures such as green GDP, which accounts for environmental degradation and resource depletion, and focusing on metrics that reflect the well-being of the median citizen rather than just overall economic output.
Why is the speaker critical of the focus on GDP as the sole measure of economic success?
-The speaker is critical of the focus on GDP because it does not account for sustainability, environmental impact, income inequality, or the well-being of the average citizen. He argues for a more comprehensive accounting framework that includes these factors.
Outlines
📈 The Impact of Accounting Frameworks on Behavior and Policy
The speaker discusses the influence of accounting frameworks on behavior, citing the example of the United States in the 1990s where poor accounting practices affected people's actions. They argue that the information we gather and how we define success, such as GDP, shapes our goals and aspirations. The speaker critiques the reliance on GDP as a measure of success, pointing out its inability to reflect the well-being of the average citizen, especially in the face of growing inequality. They also mention the need for a more comprehensive accounting framework that includes environmental sustainability, as traditional GDP does not account for resource depletion or environmental degradation. The speaker shares their experience from the Council of Economic Advisers, where they attempted to shift focus towards green GDP, but faced opposition from industries like coal, which would be negatively impacted by such measures. The conversation highlights the importance of considering alternative measures of economic performance and societal well-being.
🌿 Critiquing GDP: The Case for Alternative Economic Indicators
In this paragraph, the speaker continues the critique of GDP as a sole economic indicator, emphasizing its limitations in reflecting societal well-being. They discuss the difference between GDP and GNP, explaining that while GDP measures output within a country, GNP measures the income of the country's people. The speaker uses the example of privatization, where economic activity may increase GDP but the income from that activity goes to foreign entities, leaving the local population worse off. They also touch on the issues of environmental degradation and the sustainability of economic growth, as traditional GDP does not consider the depletion of natural resources. The speaker provides examples of how focusing on GDP can lead to policies that are not in the long-term interest of society, such as the overemphasis on incarceration and healthcare spending in the United States, which contribute to GDP but are indicative of societal problems. The paragraph concludes with a call for a broader perspective on societal success that includes health, leisure, and other aspects beyond mere economic output.
Mindmap
Keywords
💡Accounting Frameworks
💡Behavior
💡GDP
💡Inequality
💡Sustainability
💡Green GDP
💡Special Interest
💡GNP
💡Healthcare
💡Prison Population
Highlights
Accounting frameworks affect behavior, as seen in the 90s with the United States' financial scandals.
Information and metrics used to describe success influence what people strive for.
GDP is often used as a measure of success, but it has limitations in reflecting societal well-being.
GDP does not account for the well-being of the typical citizen, especially in societies with growing inequality.
The focus on GDP can lead to policies that increase it without necessarily improving citizens' lives.
Green GDP is proposed to account for environmental degradation and resource depletion.
Sustainable growth is not reflected in GDP, as seen with deforestation in developing countries.
Special interests, like the coal industry, can influence the adoption of alternative economic measures.
GDP vs. GNP: A shift in focus from the income of people to the output within a country.
Privatization can lead to economic activity within a country but income going to people outside the country.
The United States' high incarceration rate contributes to GDP but is a sign of societal dysfunction.
Healthcare spending in the U.S. is high, but health outcomes are not proportionally better, questioning the GDP's effectiveness as a measure.
Efforts to measure societal well-being more accurately are needed beyond traditional economic indicators.
The need for a global conversation about alternative measures to GDP for a more comprehensive view of societal health.
The role of political rhetoric in shaping economic policies and the focus on GDP.
The importance of considering sustainability, health, leisure, and other aspects of well-being in economic measurements.
Transcripts
fored TV the world is
[Music]
thinking one of the reasons for for my
interest in this subject is uh
accounting Frameworks uh do
affect
Behavior Uh you know we saw that in the
United States in the 90s where people
have bad accounting and that affected
their behavior uh some of what we're
going on now is a reflection of
accounting so more generally uh
information affects behavior and so what
we gather our information about and how
we how we describe success affects what
we strive for if GDP is what we think is
Success people will strive for GDP and
political leaders all the time say you
know uh look at what we've done I've I
you know they always put it you know
I've succeeded in getting the economy to
grow up at 6% now what he did is hard to
figure out but that's that's the the
politician uh does that you know I've
created x million jobs so that's part of
the political rhetoric the question is
by doing that they focus policies on
things that will increase
GDP uh there's actually um informing the
commission we've we've identifyed a
large number of ways in which GDP is not
a good measure of economic performance
or societal well-being and so what we're
trying to do is is partly to focus the
global conversation about these other
measures but also come up with with some
summary counting framework statistics
let me just mention a couple of them uh
one of them I've already alluded to
which is GDP doesn't tell you about what
happens to the typical
Citizen and this is an increasing
problem because uh when you have growing
inequality in society you can have GDP
going up as it has been in the United
States but most people getting worse off
not just poverty going up but the median
income 50% or more of people getting
worse off so that's one example of a
metric the focusing we ought to know
what's happening to the media in person
it's very hard to find statistics of
that about that uh cross countries uh
one of the things that I tried to uh
when I was at the Council of economic
advisers tried to gener rate uh was a
focus on green
GDP uh that is to say to take account of
environmental uh degradation and
resource depletion uh this is
particularly important in developing
countries that may be growing by cutting
down their Force but you know once they
cut down the force there's nothing there
and so unless they do something uh it's
not sustainable GDP tells you nothing
about
sustainability another example is GDP
measures IMF thought the Argentina was
doing great in the early
90s uh I happen to look at the data in a
more fine grain way and we said this is
not
sustainable if you only looked at GDP
you would not have realized that so uh
in the first context uh there are ways
that you can uh uh take out for
depletion of natural resources and
degradation of the environment if you do
that China's growth gets significantly
lowered it's still doing well but it is
much lower than it otherwise would have
been interesting story about about um
the role of special interest uh when uh
we try to push for this and people in
the Department of Commerce were excited
about doing
this uh the coal industry uh basically
passed a Proviso or threatened to pass a
Proviso to take away funding for any
research that would support these
alternative
measures uh because they knew that green
GDP would not be good for the coal
industry so you know it to me that
reinforced my
belief why it's important to measure
these these things uh another example
just just uh to you know is is um uh the
difference between GDP and
GNP uh those of you who are older uh
when you went to school you talked about
GNP and um about 1990 they switched to
GDP
well everybody said oh just a little bit
of difference well it turns out that it
makes a great deal of difference for
many countries and there's a little bit
of I'm sure somebody is going to write
an article about whether there is a
political context to the switch GDP
looks at the output within the country
GNP looks at the income of the people in
the
country well when you started
privatizing a great
deal you had economic activity within
the country but the income from that
economic activity more and more going to
people outside the country
so you have a mine somebody taking a
mine in the country leaving behind
environmental degradation royalties in
some cases of 1 or
2% so almost none of the income from the
mine goes to the people in the country
so GDP is going up but any measure of
green GMP would show the country getting
going down and some really dramatic
examples like in POA n guini where where
where this actually uh is true
um so there are other aspects of Health
Leisure
um uh the fact just to give you two
other ex dramatic examples uh United
States as you you know may know has
about 10 times as many people per capita
in prison as other Advanced industrial
countries uh that contributes to our GDP
because we have to spend money
incarcerating them uh and some Stakes
now are spending as much on prisons
construction of Prisons as they are in
universities well that's good for GDP
but any measure of society well-being
says it's not good to have so many
people in prison and it's a symptom of
something dysfunctional you know we can
have a long discussion about what it is
that's dysfunctional but it's not
positive another example is we spend
more on healthc
care than uh any other country
as a percentage of GDP and our health
outcomes are much lower than in other
Advanced industrial countries and
actually lower than many developing
countries well the extra money that we
spent on Health Care shows up as a
contribution to
GDP if we got more
efficient our GDP could go down well
that's clearly not you know you you
don't want to uh you're looking at the
wrong thing and so I think this is will
provide a good form for thinking a lot
more about uh the strengths and
weaknesses of each of our societies
[Music]
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