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...that the well-being of a group of three or more people can be honestly conceived of as a single average or summed function -- is a false proposition.

How exceedingly interesting.

That's GNP down the rat hole, for starters.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Oct 12th, 2010 at 11:48:34 AM EST
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Yes, that is exactly what it means, as far as making any grand generalizations about individual well being from GDP figures are concerned.  That was his point, elucidated in further work by Sen -- that we really can't say that "a rising tide lifts all boats" when it comes to economics.

However, GDP, and its cousins GNP and GNI, are still quite useful in summarizing the total amount of market-based economic activity that is going on in an economy, which is their primary function in economics, if not in policy debates. Although many seem to forget their intro macroeconomics by the time they become journalists, it's pretty standard in the field, and in economics instruction, that GDP is useless as a stand alone data point.  It only makes sense in the context of other data to judge well-being, power, or economic activity.

by santiago on Wed Oct 13th, 2010 at 01:11:00 PM EST
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Journalists. And policy makers. And economists talking about making policy. Weird, huh?
by Colman (colman at eurotrib.com) on Wed Oct 13th, 2010 at 01:40:20 PM EST
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All the same thing: blogger wanna-bes -- people who have been liberated to speak in forums where they need not be encumbered with the facts.
by santiago on Wed Oct 13th, 2010 at 02:20:52 PM EST
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Although many seem to forget their intro macroeconomics by the time they become journalists,

That is a natural consequence of always and uncritically using GDP or GDP pro capita as the metric for wealth in all economic exposition except these (usually perfunctory) disclaimers.

One cannot exonerate an academic discipline from perpetuating an error solely by noting disclaimers in first-year textbooks when the same discipline ignores those disclaimers essentially from the point they are made and until you graduate. In fact, reading disclaimers about the non-universal applicability of GDP in the discussion section of a first-year national accounting textbook feels a lot like reading a Quack Miranda: "We have to include a disclaimer about not elevating GDP to the One True Proxy in order to cover our asses. This being done, let's get back to elevating GDP to The One True Proxy."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Oct 14th, 2010 at 05:47:40 AM EST
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I don't quite agree.  It's more than a disclaimer. It does actually represent the way GDP and similar data points are used in the field and in professional advice to policymakers and business people. GDP per capita is a very good way of measuring economic growth, and its use in the field is mostly limited to discussions of economic growth.  It is not a particularly good way to measure economic well-being and usually isn't used as the primary evidence regarding discussions of well-being -- unemployment or other data points are used instead or with GDP. For example, GDP is but one of the frequently published and cited economic leading indicators which are meant to summarize both growth and well-being aspects of the economy.  All of the indicators get reported; not just GDP alone.

However, it cannot be denied that there is a strong association between economic well-being of even the poorest sectors of a society and GDP, regardless of how it is measured, particularly when GDP growth is slow or negative, so it would be dishonest to eliminate discussions of GDP from issues of well-being entirely.

I just don't see many economists doing the things you attribute to them. I do see a lot of other people doing it, and I see economists frequently and publicly correcting them when they do. (I just came from the right of center National Association of Business Economists annual meeting, and entire sessions, as usual, were devoted to precisely the topic of the misuse of GDP in policy debate and how to try to correct it.)  It's just not the field's fault. It really is the journalists here.

by santiago on Thu Oct 14th, 2010 at 10:20:36 AM EST
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They were? Which ones?

I can see one there. The others seem marginally less relevant.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Oct 14th, 2010 at 11:26:40 AM EST
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Section 23, directly, and 19 and 20 inclusively.

Section 23 presented recent papers on alternative methods to GDP for measuring economic activity and the drawbacks of GDP and the alternatives to it. This has always been a topic of interest in economics, because of the inherent difficulties in the whole project of defining and measuring an economy and what it means for different people.

by santiago on Thu Oct 14th, 2010 at 12:58:59 PM EST
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