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September 04, 2007

Classic Max: The Shortcomings of GDP

In saying goodbye to Max Sawicky, Nick fondly recalled Sawicky's classic post on GDP. He was right to do so:

The shortcomings of social-democracy are held to be revealed by unfavorable comparisons of Gross Domestic Product per capita. At the most basic level, this is tantamount to criticizing the Boston Philharmonic because it can't make foul shots. We suggest the object of economic activity is not the maximization of GDP, but of well-being or happiness. What's the difference?

If my preference is to work 30 hours a week for $45,000, rather than 40 hours for $60,000, and I am compelled to work the longer week, GDP is higher and I am worse off.

If I get worse health care paying $5,000 a year for a private sector health insurance policy than the same amount in taxes for a public system, GDP is the same but I am worse off.

If Consolidated Crappola, Inc. dumps toxic material into the air that worsens my emphysema, in contrast to a regulatory regime that reduced emissions and my adverse symptoms, GDP might be lower while I am better off.

So short of a treatise, GDP glosses over differences in the value of public and private consumption, discounts the value of public amenities, and implicitly assigns a negative value to leisure time.

Now Max is leaving the blogosphere, and we'll be the worse off for it. A few of his heterodox economist co-bloggers, however, are striking out on their own, starting the blog Econospeak. Take a look.

September 4, 2007 | Permalink


I think he means the Boston Symphony Orchestra, not the Boston Philharmonic, which is an amateur orchestra and could probably kick the BSO's butt at foul shots. . . His basic point stands, of course.

Posted by: Galen | Sep 4, 2007 1:27:40 PM

Jeez, I was hoping that he'd at least leave the archives. But no, what we have in this post from slightly earlier today is a link to a "We're closed" page with an automatic redirect to Econospeak. What is it with this penchant for trashing one's body of blogging work? (That's right, Billmon, I'm looking at you.)

Posted by: mds | Sep 4, 2007 2:45:37 PM

Of course, I'm a rank amature here, but it seems the other problems with GDP comparisons is the issue of how to compare an economy with a GDP of 5 billion Quatloos with one of 10 billion Grotzits ... or heck, even the economy of East Bumblefark with a per capita GDP of $20k to the one in Gotham City with a per capita GDP of $50k.

If a Quatloo buys as much as 2 Grotzits, even if they both have the same exchange rate into dollars, is one economy really better than the other? Certainly, the difference in GDP based on exchange rate tells us something about how well-capitalized an economy is, but if my standard of living -- defined purely materialistically in terms of how much junk I can buy -- is the same in Yurp as here, does it really matter if, due to quirks in exchange rates or what have you, the GDP is different here or in Europe?

Posted by: DAS | Sep 4, 2007 3:11:10 PM

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