Time for a “Brave New Math”?

Channeling some of the logic in our “Health of Nations” podcast, Peter Marber argues in World Policy Journal that it’s time for a “brave new math.” Marber takes issue with economists’ ongoing reliance on old measures of economic health — GDP, inflation, and unemployment:

Traditional measures point to an American economy that’s up even when Americans are feeling down. Across Europe and in Japan, there is also a sense of confusion over current economic directions—a universal sense that the numbers that have been our staples are increasingly meaningless to everyday people.

Newspapers, radio, and television routinely spout headlines about key statistics on GDP, inflation, and employment—astonishingly influential indicators computed in the United States by the government’s Bureau of Labor Statistics and in capitals around the world. Most seem to have little correlation with the realities on the street. Yet, governments, businesses, and individuals still use these yardsticks in their decision-making worldwide, and minor revisions in the data can have major ramifications. Inflation measurements help determine mortgage and savings rates, stock market prices, interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. Despite dramatic shifts in the world over the last few decades, we are still using the same old gauges, nomenclature, and policies of the past.

Marber cites the emergence of so-called wellbeing indexes as a positive development; and he suggests replacing our focus on GDP with an emphasis on the development of human capital.

(HT: Marginal Revolution)

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  1. Zach says:

    The G is government spending.

    Starting in the mid-70s, the accepted definition of recession was two consecutive quarters of negative growth. Since then, any politician who wanted to stay elected has tried to make sure that the economic barometer never dipped below that magic mark. Both parties have pretty much set government spending to be whatever it needed to be so that they could claim a recession didn’t happen on their watch.

    The economic thinking that arrived on GDP being such a useful measure was sound, but we’ve had rigged numbers since it became accepted. The next theory will also be useful only until they can figure out how to rig it.

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  2. Travis Idol says:

    Bhutan’s “gross national happiness”, anyone?
    Quality of life indicators have been around for a while, and I agree they are clearly better than GNP and similar indicators at getting more at the feeling of life on the street. Then again, why should we think that macroeconomic indicators have a strong correlation with general happiness and well-being? Corporations are tossing their pension plans onto the PBGC, slashing retiree health care, outsourcing manufacturing and service operations, and state governments are slashing basic services because they are almost universally required to have a balanced budget. Any wonder people don’t feel “good” about the economy or life in general these days?
    It’s the general problem of thinking that “It’s the economy, stupid” is an axiomatic truth. China is a testament to the fact that a roaring economy doesn’t promote democracy, income equality, environmental health, or social well-being in general. It’s been shown pretty convincingly that the income-happiness correlation is really about having enough to meet basic needs; beyond that, more money only helps to secure your basic needs and those of your loved ones.
    The value of switching to a focus on QLI’s is that our perspective on what is important also changes, which has tremendous social and political implications. I’m not sure why Democratic presidents and governors haven’t pushed for such changes in “economic” reporting.

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