Sarkozy: GDP is a limited measure
French President Nicolas Sarkozy is calling for countries to adopt new ways of measuring well-being because he considers gross domestic product to be obsolete. Alisa Roth reports.
French President Nicolas Sarkozy delivers a speech at the Sorbonne University in Paris about finding new ways to measure the general well-being of the population. (Michel Euler/AFP/Getty Images)
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Kai Ryssdal: There are a zillion economic indicators out there. Maybe a handful are truly A-list, the ones that all by themselves can give you a pretty good idea of where things stand. There is only one, though, whose only purpose is to measure the economy. How big it is and how much it's growing. Or shrinking.
For decades gross domestic product -- or GDP -- has been first among equals. The measure of how much all the goods and services a country produces in a year are worth. GDP is not without its critics, though. And today a group of economists, some of them American, told French President Nicolas Sarkozy that GDP needs to include things like sustainability and personal well-being. Marketplace's Alisa Roth has more.
ALISA ROTH: The debate about what the Gross Domestic Product should include has been around for as long as the GDP itself.
Steve Landefeld runs the Bureau of Economic Analysis. The office that calculates the GDP. He says you have to think about what the index is supposed to do.
STEVE LANDEFELD: GDP is not a measure of welfare, it's a measure of the market economy. And as a measure of the market economy, we believe it does quite well.
But even people who agree the GDP is useful as a snapshot of the market economy say it's incomplete.
Sarah Burd-Sharps is with the Social Science Research Council in New York. Where she helped develop an alternative index. She says we have to consider other things.
SARAH BURD-SHARPS: Things like raising kids and elder-care, and things that just don't get counted at all. I mean prison construction is in there, but the cost of crime on communities and families don't get in there.
Maybe it's absurd to try to put a number to how happy we are, which some indices have tried to do. But what about the economic value of staying at home with a kid, rather than paying for childcare?
Landefeld says those are important. But not for the kinds of things the GDP is used to calculate.
LANDEFELD: If you're using these kinds of things for monetary policy, federal tax projections, allocations of federal funds, you really do want a market measure.
The French report argues that using a strictly market measure distorts what's really going on in the broader economy and can lead to serious mistakes at a policy level.
President Sarkozy, whose known for being disdainful of standard economic indicators, will probably bring the issue up at the G20 meeting this month.
In New York, I'm Alisa Roth for Marketplace.
Comments
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From Vienna, Austria, 10/25/2009
GDP is not a measure of welfare, it's a measure of the market economy. I agree, no matter that it includes also public sector activities, which have no market price. Activities enter the GDP in the case of formal registration, e.g. in the form of a receipt. To a large degree, these are activities performed by MEN working in the official economy.
From DC, 09/18/2009
All of the commenters are correct. A high-quality market measure of the economy is a flat-out necessity. It is not the purpose of such a measure to address issues of happiness or well-being. If more emphasis is to be given to such concepts, then resources will need to go into improvements in the comparatively crude methodologies we presently have for estimating such these things.
As for the GNP to GDP switch, that occurred under negotiated revisions to the United Nations System of National Accounts and is global in its application. As it happens, the US has a large presence abroad, and foreigners have a large presence here. The effects of the statistical switch may be more noticeable in the accounts of countries where a different balance of direct investment exists.
From Atlanta, GA, 09/15/2009
Kai mentions that the GDP has been the number 1 measure 'for decades'. I suppose I'm splitting hairs, but it's been the first for decade+. Gross National Product was the official macro productivity measure until 1992. For the excitement generated at the time regarding the change, the GDP exclusion of net investment income of us abroad and foreigners in the US impacts the figures little in percentage terms. the 2003 figures are within 1%$ of eachother.
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