Nature: Time to leave GDP behind

[Felix]

http://www.nature.com/news/development- ... nd-1.14499

GDP measures mainly market transactions. It ignores social costs, environmental impacts and income inequality. If a business used GDP-style accounting, it would aim to maximize gross revenue — even at the expense of profitability, efficiency, sustainability or flexibility. That is hardly smart or sustainable (think Enron). Yet since the end of the Second World War, promoting GDP growth has remained the primary national policy goal in almost every country1.

[henrik]

GDP is dangerously inadequate as a measure of quality of life.

Yes. Among other things, the danger is well illustrated by relatively poorer countries trying to play catch-up in per capita GDP terms, often to the detriment of the diversity of their economies, the environment, the self-esteem of the people etc. Not cool.

I think the problem with the proposed replacements/successors to GDP that I've heard about so far is that they've been trying to combine too many different categories into one. Why? It makes sense to account for environmental impact, resource use efficiency etc for the things that can be measured in money. Subjective happiness-stress-quality type indicators should be kept separate not only because it doesn't make sense to count apples and oranges to get an appenges count but also because having the numbers and trends next to each other instead of mixed might prove illuminating in itself. And then there are purely moral issues like divorce, which might have completely opposite directions in the good-bad scale depending on culture, history etc and should have no place in trying to create a universal indicator.

A dollar's worth of increased income to a poor person boosts welfare more than a dollar's worth of increased income does for a rich person.

Again, yes. Marginal utility. This should also be taken into account when measuring natural resource use, the creation of jobs, and even the increase in whatever the successor of GDP will be called itself:)

TL;DR I liked how the article distinguished between "adjusted economic measures" and "subjective measures of well-being". No need to try to combine them. We can measure more than one thing and strive for more than one thing.

[jacob]

It's almost a rule of humanity that "we become what we measure" as the goal will always be to increase the "measure" as much as possible.

It's also good management practice not to have more than, say, 3, goals, because the more there are, the more confounding they are and the harder the strategy/optimization gets. Hence, for the purpose of non-experts, it's best to just have one number. This puts the responsibility of correctly combining the underlying factors (which is really equivalent of the strategy then) on the experts.

[henrik]

True, but there are two problems with this.

First, combining very different things into one measure risks that some underlying factors will mask the others. For example, most companies are measuring profits and employee satisfaction. If those were to be combined into a "happy profit" index at some weighting, the result might be that a company which is very profitable at the expense of the employees and a company that is unsustanably lavish with their staff will look the same by score, even though they clearly have different problems.

Second, the more complicated you make the combined score, the more pressure there will be to correct the underlying factors (add, remove or reweight aspects) as circumstances change. This will make it harder to track progress over time.

[jacob]

OTOH if you give ten factors, then you leave it to the users to do the weighing. Most users can't handle that.

By giving weights, you essentially define the strategy, e.g. if happiness has twice the weight of profit, then the strategy is happiness over profit.

By giving no weights, the users have no idea whether to prioritize happiness or profit.

[henrik]

Well, yes, it's hard to argue with the fact that dumbing things down makes them easier:)