Joseph Stiglitz - Problems with GDP as an Economic Barometer

Summary

The 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.