GDP seen as a poor measure of progress by Nobel economists Stiglitz, Sen and others

Standard measures of economic performance must be overhauled to reflect “well-being” and to help policy-makers address financial instability and climate change according to a major new study prepared by a Commission headed by two Nobel laureates in economics, Joseph Stiglitz and Amartya Sen. 

The Report, prepared at the instigation of the President of France, Nicholas Sarkozy, cites many flaws in existing indicators and makes a wide range of proposals on choosing alternatives that would be better at measuring both economic performance and social progress.
This Report by the Commission on the Measurement of Economic Performance and Social Progress is the latest in a range of initiatives that have addressed the whole issue of what constitutes progress and how it should be measured.
The 22nd Social Policy Conference, organised by Social Justice Ireland, will address the whole question of progress and how it should be measured. It will be held on November 17, 2009 in Dublin and further information will be available on this site.
The Stiglitz/Sen Report is one of the most comprehensive assessments of the limitations of existing data. It also illustrates the scope that exists for improving policy and democratic debate based on good data relating to the issues – such as social cohesion, poverty and the environment – which people find important.
Too often, the Report notes, a narrow measure of market performance, such as gross domestic product (GDP), has been confused with broader measures of welfare. Consequently, the Report notes, governments often focus everything on increasing their GDP growth rate, treating it as an end in itself when it should not be.
This can lead to distortions of policy and unsustainable growth, as the financial crisis has vividly illustrated. It can also create perverse incentives and false trade-offs: for example, action to curb climate change may be seen as damaging to GDP when it may, in fact, be beneficial to the well-being of society.
The Irish Government, along with other Governments, need to abandon their obsession with gross domestic product. Instead they need to provide a much broader framework as a basis for both developing and implementing policy and provide the data necessary for citizens to assess policy success.  President Sarkozy stated that national accounting systems no longer reflect people’s aspirations, values or experiences – creating a source of distrust between citizens and governments. This is a conclusion long held and often articulated by Social Justice Ireland.
The Commission’s Report proposed three key new developments to ensure that real progress is being sought and measured:

  • adjustments to the way GDP is calculated;
  • new measures of well-being and happiness; and
  • new indicators for environmental and financial sustainability.