GDP is unscientific and unfair for poor people.

[Wojtek Sokolowski]

At 09:15 PM 9/1/99 +0800, Ju-chang He wrote:
>Date: Wednesday, September 01, 1999 12:24 AM Wojtek Sokolowski wrote:
>>I guess our energies would be better spent if we devised a common political
>>strategy how to change that upwardly skewed distribution of surplus,
>>instead of whining that capitalist growth does not benefit everyone equally.
>>
>>wojtek
>>
>
>
>Do you agree that GDP is unscientific and unfair for poor people?


No, I do not agree with either statement.  I am not quite sure what you
mean by 'scientific' but if that means 'assembled according to a clear and
internally consistent methodology' - then GDP is scientific (of course, we
all know that the implementation of that methodology varies from country to
country, but that is a different issue).  As far as fairness is concerned,
the heart of the issue is the *distribution* of the suprplus rather than
its overall volume.  GDP was NOT designed to measure distribution, it was
designed to measure volume - so the criticism of unfairness does not apply.

I may add that the measure desigend to measure distribution is the gini
index and that measure can be accussed of unfairness for the poor because
it tends to 'flatten' income disparities.  Thus, differences between gini
indices for diffrent countries appeat to be quite small, and that tends to
obscure the true impact of poverty on human development.  

Fortunatly, there are other measures of human development (such as literacy
rate, mortality, malnutrition, access to health care, housing, gender
inequality) reported in literature for most countries of the world.


>
>If you agree that GDP is unscientific and unfair for poor people, I will
devise a
>strategy. It is easy. Do you want to know about it?


Sure - post it - that is what this list is for.

However, there have been many attempts to revise GDP to make it more
sensitive to "human development."  As far as I can tell, these attempts
rely on a rather simple strategy.  Instead treating all economic activities
as "value added" (i.e. as quantity that adds to the overall value), they
divide them to "value added" and "value subtracted" - i.e. some economic
activities (e.g. housing construction) are addedd to the overall value,
whereas other (like prison construction) subtracted from it on the
assumption that they are "social bads' rather tha 'social goods."

I personally remain unconvinced by that strategy.  First, the concept of
what's good and what's bad for society is value-laden and difficult to
determine because of externalities.  For example, prison construction may
be a "social bad" because crime produces social and economic losses, but
also generates new jobs (externality) which is good.  So what's the overall
balance of goods and bads in prison construction?

Secondly, indices are most useful when they are conceptually simple.  For
example, I can use GDP and prevalence of malnutrition in a regression
equation and that allows me to determine the effect of the overall size of
the economy and and the effect of poverty on the quantity I am
investigating, say, overall level of happiness.  Thus, i am able to say
that every million $ of value added to the economy increases the overall
happiness by that much, whereas every percent point of population suffering
from malnutrition decreases that happiness by that much.  That, in turn,
allows me to pinpoint the causes of social problems.

If we conflate value added, malnutrition, and goddess knows what else into
a single measure - we may make some third world country rankings being on a
par with the developed world.  That can make some third world dictators and
the multi-culti crowd in the us feel good about themselves.  However, such
a conflated measure will be quite useless in identifying and analyzing
effects of different social goods and bads.  In other words, good
propaganda bad science.  I do not think it is a good trade off.

So as a general rule, I'd rather see many different indices measuring
different aspects of human and economic development, that a single index
that conflates those aspects.

wojtek