By Jared Bernstein February 28 at 6:00 AM
Jared Bernstein, a former chief economist to Vice President Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities and author of 'The Reconnection Agenda: Reuniting Growth and Prosperity'.
It’s not often, as in “never,” that I’ve been able to recommend a book about economic measurement that’s both important and downright entertaining. Yet, in “The Growth Delusion: Wealth, Poverty, and the Well-Being of Nations,” that’s precisely what author David Pilling provides. If you’ve ever suspected that economists conflate growth with well-being (and yes, I’m guilty as charged), this is your antidote, though, as you’ll see in this interview with the author, his take on these issues are nuanced.
JB: Distinguishing between growth and well-being seems fundamental to your work. How do these concepts differ? To what extent are they related?
David Pilling: Economic growth, as normally defined, is just a measure of the expansion of goods and services produced during a given period. It measures quantity, not quality. When poor countries are transforming themselves into wealthier ones, growth as measured by GDP can be a decent proxy for well-being. So long as the income generated is not being squandered on consumption or stolen by elites — hardly uncommon — raw growth can mean more education, more health care, better housing, better prospects and more material possessions. That can transform people’s lives in countries like China, India and Vietnam.
But once countries reach a certain level of prosperity, the relationship between economic growth and well-being tends to break down. To put it colloquially, more stuff doesn’t automatically equate to more well-being or, to put it even more colloquially, more happiness. Here I would define well-being as things like healthy life expectancy, a sense of community, low crime rates, clean air and water and how people feel about their lives.
Sometimes growth and well-being pull in opposite directions. To give just one example: We could all be richer if only we worked 10 hours more per week. Just ask the South Koreans. But at a certain point, trade-offs become important. We may decide being with our family is more important than an extra unit of output or income.
JB: A potent defense of any proposal is: It will add to GDP growth. An equally potent attack is: It will hurt growth. My read of your book is that these claims should have less policy potency, which struck as a critically important insight. But what should replace them?
DP: Here are three: Will it improve median household income, i.e. the typical person’s livelihood? Will it improve health? Will it reduce carbon emissions?
JB: You write that we must do a better job measuring the value of public services, and you suggest they’re undervalued. One area where this seems extremely germane is health care. How can we improve our measures of value in this area?
DP: U.S. health care “contributes” 17 percent to U.S. GDP, nearly double the proportion spent in countries, such as France, where health services are better. But bigger doesn’t always mean better. We should measure the output of a health service not in dollars charged but in lives saved and health improved.
JB: You note that Adam Smith wrote about the invisible hand, not the invisible sex. Explain the overlooked, undervalued linkages between “home” and “market” production.
DP: We usually measure only activities for which money changes hands. Thus, much of the work undertaken at home, traditionally performed by women, is invisible. I’m not necessarily advocating that we estimate the value of housework and include it in GDP, though theoretically this is possible. But I am saying it is funny that, if I steal your car and sell it, that counts toward growth, but if I look after an aged relative or bring up three well-adjusted children, that does not.
JB: And by “funny,” I don’t think you mean “ha-ha funny.” So here’s a depressing question. Your book is a muscular, compelling argument for better, more inclusive data and measurement. But here in the U.S., we’re stuck in a political moment where such facts are unwelcome, as can be seen in efforts to defund our statistical agencies. Do you worry you’re barking at the moon?
DP: Oddly, I think the two phenomena are related. A decade ago, Nicolas Sarkozy, former French president, said that people did not recognize their own lives in the official statistics. That created, he said, a dangerous gap in perception that could damage democracy. His words were prescient. People may not trust the experts, but that means we need better experts and better facts. Statistical agencies need more money, not less. Measurement is an important part of getting the societies we want.
JB: Your comparisons of American efficiency vs. Japanese alleged inefficiencies were eye-opening. Is this a case of international statistics missing key aspects of quality and culture?
DP: Some 80 percent of advanced economies are made up of services, as opposed to manufactured goods. But GDP finds it difficult to measure services from year to year, let alone country to country. Even if you think a trip on a Japanese bullet train is worth twice the amount of a low-speed Amtrak journey, you cannot book a bullet-train ride between New York and Chicago for love nor money. We place great emphasis on the GDP of one country vs. another. But we are often not comparing like with like.
JB: At one point in the book, you pose the question: “Why have we made economic growth — measured by GDP — a proxy for what we are supposed to value in life?” I wonder if it doesn’t have something to do with who wins and who loses from that formulation. What do you think?
DP: In the U.S. in the past 40 years, the lion’s share of growth has gone to the top 1 percent, even the top 0.1 percent. These are the same people who fund the politicians who set the priorities. Funny that.
JB: Again with the “funny.” I think it’s important to underscore your view that growth, even imperfectly measured, “has the power to transform poor people’s lives.” Though some might mistake your work a treatise against growth, that’s not the case, is it?
DP: My book is not anti-growth. Poor countries have every right to grow themselves out of poverty. But rich countries need to grow differently. They need to grow in a way that minimizes the strain on the planet and maximizes well-being. Fortunately, this is becoming easier. Think of Wikipedia, which provides all human knowledge for free. We can think of that as “growth,” even though it has no negative impact on the environment and makes no direct contribution to GDP.
JB: Though you stress its limitations, put me down as a fan of Bhutan’s efforts to measure gross national happiness. Should we be at least trying to move in that direction, giving more weight to well-being and less to money? Or is that just too squishy?
DP: I prefer the Canadian Index of Well-being, which asked Canadians what they most value and then tried to measure it. So as well as output, it maps things like good jobs, leisure, community and health. It’s definitely not perfect, nor a viable alternative to GDP, but it is a good conversation starter. What sort of society do we want and how should we set the priorities to achieve it?
JB: Finally, you wisely conclude that it takes a village of indicators to begin to make sense out of an economy. Would we not be better off — maybe a lot better off — if we just down-weighted GDP and upweighted inequality, middle-class incomes, environmental measures and so on (measurements, I should point out, that we already have on the shelf)?
DB: Yes, that’s exactly right. GDP is a useful measure, for all its faults. But it shouldn’t be the Lord of Numbers. And it should never be confused — as its inventor Simon Kuznets pointed out — with well-being.
Article taken from The Washington Post