Why economists worry about the wrong things | David Pilling | TEDxSouthampton

Summary

This engaging talk delves into the intricacies of Gross Domestic Product (GDP), highlighting its role as a measure of economic activity. The speaker humorously recounts the story of including prostitution and drug sales in the UK's GDP, emphasizing GDP's arbitrary nature and its limitations in capturing well-being or innovation. The talk advocates for a shift in focus from GDP to more meaningful indicators like sustainability, median household income, and life expectancy, urging a reevaluation of our economic priorities in the 'spaceman economy'.

Takeaways

• 📈 GDP is an estimate, not a precise calculation, and is influenced by surveys, questionnaires, and estimates.
• 🌍 The inclusion of illegal activities in GDP varies by country, affecting the comparability of economic sizes across nations.
• 💷 The valuation of services like prostitution and the cost of illegal drugs contribute to a country's GDP, highlighting its complexity.
• 🇺🇸 Differences in GDP accounting practices, such as including crime, exist between countries, affecting economic measurements.
• 🔑 GDP has become a key metric in politics and policy-making, despite its limitations and arbitrary nature.
• 📊 GDP's growth is often equated with national success, even though it doesn't account for well-being or distribution of wealth.
• 💊 GDP measures both positive and negative aspects of an economy, including pollution and innovation, which it may not accurately reflect.
• 🏠 GDP does not account for non-monetary transactions, such as housework, which means it overlooks significant contributions to society.
• 📊 Median household income and life expectancy are more reflective of an individual's well-being than GDP, suggesting a need for broader economic measures.
• 🌳 The concept of wealth in nations, including natural and human capital, is missing from GDP but is crucial for understanding a nation's true economic health.
• 🚀 We live in a 'spaceman economy' where the goal is to improve quality of life, not just maximize output, yet we continue to rely heavily on GDP as a measure of success.

Q & A

What is the main topic of the speech?

The main topic of the speech is the concept and implications of Gross Domestic Product (GDP), its measurement, and its impact on society and economy.

Why did the UK start counting prostitutes' contributions to GDP?

The UK started counting prostitutes' contributions to GDP to standardize the measurement of the economy across Europe, where in some countries prostitution was legal and counted, while in others it was not.

How did Joshua Abramski and Steve Drew estimate the number of prostitutes in Britain?

They found a study with an estimate for the number of prostitutes working in London in 2004 and extrapolated this figure for the entire nation, arriving at approximately 60,000 to 87,000 prostitutes.

What was the average cost of a personal service found by Abramski and Drew?

The average cost of a personal service was found to be 67 pounds and 17 pence.

Which drugs were included in the calculation of the UK's GDP?

Heroin, cocaine, crack cocaine, amphetamines, ecstasy, and marijuana were included in the GDP calculation.

What was the contribution of prostitution and drugs to the British economy according to the speech?

Prostitution and drugs were found to be contributing 9.7 billion pounds to the British economy.

Why is GDP considered an estimate rather than an exact measure?

GDP is considered an estimate because it is compiled through surveys, questionnaires, and estimates, which can be influenced by various factors and may not always accurately represent the true state of the economy.

What does the speaker suggest about the relationship between GDP and well-being?

The speaker suggests that GDP should not be confused with well-being, as it measures everything, including negative aspects like pollution and armaments, and does not account for non-monetary contributions to society.

How does the speaker describe the difference between the 'Cowboy Economy' and the 'Spaceman Economy'?

The 'Cowboy Economy' is characterized by ample resources and few people, where maximizing output is the goal. The 'Spaceman Economy', on the other hand, focuses on raising the quality of life with limited resources, aiming not to maximize but potentially minimize output.

What alternative measures does the speaker propose to complement GDP?

The speaker proposes measures such as CO2 emissions for sustainability, median household income to reflect the economy's impact on ordinary people, and healthy life expectancy as simple and understandable targets for politicians.

What did Simon Kuznets want to subtract from GDP, and why?

Simon Kuznets wanted to subtract armaments and financial speculation from GDP because he believed they did not contribute to human welfare and were not genuine economic activities.

How does the speaker illustrate the difference between wealth and income using the example of Bill and Ben?

The speaker uses Bill, a banker with a high income but poor financial decisions, and Ben, a gardener with a lower income but significant inherited wealth, to illustrate that wealth provides a more accurate picture of financial security and well-being than income alone.