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Mismeasuring Our Lives: Why Gdp Doesn't Add Up
In February of 2008, amid the looming global financial crisis, President Nicolas Sarkozy of France asked Nobel Prize?winning economists Joseph Stiglitz and Amartya Sen, along with the distinguished French economist Jean Paul Fitoussi, to establish a commission of leading economists to study whether Gross Domestic Product (GDP)?the most widely used measure of economic activity?is a reliable indicator of economic and social progress. The Commission was given the further task of laying out an agenda for developing better measures. "Mismeasuring Our Lives" is the result of this major intellectual effort, one with pressing relevance for anyone engaged in assessing how and whether our economy is serving the needs of our society. The authors offer a sweeping assessment of the limits of GDP as a measurement of the well-being of societies?considering, for example, how GDP overlooks economic inequality (with the result that most people can be worse off even though average income is increasing); and does not factor environmental impacts into economic decisions. In place of GDP, "Mismeasuring Our Lives" introduces a bold new array of concepts, from sustainable measures of economic welfare, to measures of savings and wealth, to a ?green GDP.OCO At a time when policymakers worldwide are grappling with unprecedented global financial and environmental issues, here is an essential guide to measuring the things that matter.
172 pages, Kindle Edition
First published January 1, 2009
76 people are currently reading
1539 people want to read
About the author
Joseph E. Stiglitz
247 books1,832 followersJoseph Eugene Stiglitz, ForMemRS, FBA, is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is also the former Senior Vice President and Chief Economist of the World Bank. He is known for his critical view of the management of globalization, free-market economists (whom he calls "free market fundamentalists") and some international institutions like the International Monetary Fund and the World Bank.
In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001, he has been a member of the Columbia faculty, and has held the rank of University Professor since 2003. He also chairs the University of Manchester's Brooks World Poverty Institute and is a member of the Pontifical Academy of Social Sciences. Professor Stiglitz is also an honorary professor at Tsinghua University School of Public Policy and Management. Stiglitz is one of the most frequently cited economists in the world.
In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001, he has been a member of the Columbia faculty, and has held the rank of University Professor since 2003. He also chairs the University of Manchester's Brooks World Poverty Institute and is a member of the Pontifical Academy of Social Sciences. Professor Stiglitz is also an honorary professor at Tsinghua University School of Public Policy and Management. Stiglitz is one of the most frequently cited economists in the world.
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Displaying 1 - 18 of 18 reviews
September 17, 2015
To put it bluntly, economics is the study of how to make decisions effectively, what goes into decisions and how to be effective.
Gross Domestic Product (GDP) has often been used as an indicator to try and decide how well a nation is doing at managing its resources and caring for for its population.
This small book attempts to tackle why GDP isn't an effective measure for policy makers to determine if the economy is doing well. In fact, this book is quite adamant that GDP is not the way to measure the economy.
I guess another way of saying this is simply: our economic models are not yet sophisticated enough to make sense of what's actually important to us as a species. We don't know how to maximize utility... and we don't exactly know what this utility is or how to measure it.
Traditionally, we have taken money as the objective indicator, but it's become clear that money is unable to capture much of the intangible "utility" that is important to us. (Such as love, trust, happiness...)
So in this book, there are three proposed indexes which an effective "dashboard" of indicators should ultimately relate to: How productive we are, how happy we are and how sustainable we are.
This sounds great at the onset until you realize that this book is only outlining the principles for what such a dashboard should be... it's not out to provide a turnkey solution, as we are a long way off from understanding what effective measurements should be.
So while economics is about making effective decisions (maximizing utility), this book is less about actual economics than it is about how to determine the actual constraints upon which applied economics should function... basically, humanity has reached the point of realizing the Earth is not unlimited. As such, we can no longer act as though we are in a "sandbox" (free to play and experiment as we please) because we are in a sandbox (a closed environment with very limited resources).
What throws an even bigger wrench into this situation is that even if we were to determine what indicators should be measured on such a "dashboard" there remains the question as to what these indicators would mean... that is, if one of these indicators was the amount of CO2 we were pumping into the air, what amount of CO2 is healthy? What should we aim for? If one of the indicators of well being was longevity, how long is too long, before quality of life goes downhill? If one of the indicators was how many newborn infants die due to air pollution... how many infants dying should be considered "healthy" for the economy?
The deeper question not tackled in this book is, what exactly is "well-being"? They do a good job at taking apart what "sustainable" means, in the fact of limited stocks, and technological disruption (which may make certain unimportant resources more important in the future, or vis versa)... and they are right to point out that even if we were to be able to accurately provide indexes on such resources, we wouldn't necessarily know what such indexes mean, or what should be the desirable range.
All in all, the ambitions of this book, which is really, only to set out the outline of such a project, outstrip the current abilities of humankind to really answer any of these questions effectively... but I suppose it's good to point out the problems now, so we can solve them later.
Where this book begins -- dealing with GDP -- is a good place to start. GDP does have huge issues associated with it... and we shouldn't use this number as an indicator to determine how well we are doing, because it is an incomplete indicator and misses the three proposed indexes as stated above.... indexes... to put into numbers... the very important values to our well being as nations and as human beings.
Gross Domestic Product (GDP) has often been used as an indicator to try and decide how well a nation is doing at managing its resources and caring for for its population.
This small book attempts to tackle why GDP isn't an effective measure for policy makers to determine if the economy is doing well. In fact, this book is quite adamant that GDP is not the way to measure the economy.
I guess another way of saying this is simply: our economic models are not yet sophisticated enough to make sense of what's actually important to us as a species. We don't know how to maximize utility... and we don't exactly know what this utility is or how to measure it.
Traditionally, we have taken money as the objective indicator, but it's become clear that money is unable to capture much of the intangible "utility" that is important to us. (Such as love, trust, happiness...)
So in this book, there are three proposed indexes which an effective "dashboard" of indicators should ultimately relate to: How productive we are, how happy we are and how sustainable we are.
This sounds great at the onset until you realize that this book is only outlining the principles for what such a dashboard should be... it's not out to provide a turnkey solution, as we are a long way off from understanding what effective measurements should be.
So while economics is about making effective decisions (maximizing utility), this book is less about actual economics than it is about how to determine the actual constraints upon which applied economics should function... basically, humanity has reached the point of realizing the Earth is not unlimited. As such, we can no longer act as though we are in a "sandbox" (free to play and experiment as we please) because we are in a sandbox (a closed environment with very limited resources).
What throws an even bigger wrench into this situation is that even if we were to determine what indicators should be measured on such a "dashboard" there remains the question as to what these indicators would mean... that is, if one of these indicators was the amount of CO2 we were pumping into the air, what amount of CO2 is healthy? What should we aim for? If one of the indicators of well being was longevity, how long is too long, before quality of life goes downhill? If one of the indicators was how many newborn infants die due to air pollution... how many infants dying should be considered "healthy" for the economy?
The deeper question not tackled in this book is, what exactly is "well-being"? They do a good job at taking apart what "sustainable" means, in the fact of limited stocks, and technological disruption (which may make certain unimportant resources more important in the future, or vis versa)... and they are right to point out that even if we were to be able to accurately provide indexes on such resources, we wouldn't necessarily know what such indexes mean, or what should be the desirable range.
All in all, the ambitions of this book, which is really, only to set out the outline of such a project, outstrip the current abilities of humankind to really answer any of these questions effectively... but I suppose it's good to point out the problems now, so we can solve them later.
Where this book begins -- dealing with GDP -- is a good place to start. GDP does have huge issues associated with it... and we shouldn't use this number as an indicator to determine how well we are doing, because it is an incomplete indicator and misses the three proposed indexes as stated above.... indexes... to put into numbers... the very important values to our well being as nations and as human beings.
May 22, 2010
An important--and timely--book proposing a new method of measuring the health of nations by balancing simple GDP with quality-of-life and ecological sustainability issues. The book does not provide overall evaluations of any one nation using all of these proposed criteria, it just provides the rationale for using such criteria and indicates the cases in which the criteria are provisional and still under development. But the point is to understand how individual nations, and the world at large, is performing. For instance, while a nation's GDP may increase because of increasing amounts of strip mining, but that strip mining results in environmental degradation, and the pollutants generated from burning the coal strip-mined would reduce the overall quality of life of that country's inhabitants. A grossly simplified example, but it gets the idea across in such a way that politicians and policy-makers will--one hopes--make more intelligent, responsible decisions that those based primarily on monetary considerations.
February 25, 2019
3.5. Really dug the prologue, preface, and executive summary, which accounted for ~one third of the book, but got bored during the actual qualitative discussion, mainly because it did not commit to any replacement for GDP, focusing instead on outlining what a replacement should consider, and so seems to go on for too long without saying much.
October 26, 2016
Despite the ambitious title, this 136-page book suffers from two fatal flaws:
1. It reads as if it was written as the report of a commission of international government economists. Which it was.
2. It falls far short of recommending a number to use instead of GDP. The only numerical change it plots is "GDP minus depreciation!" Far short of the "GDP minus wealth accumulation by billionaires"--or even the Muhammad Yunus suggestion of two decades ago, quite doable and a far better measure: average per-capita income of the poorest 50%, or the poorest 35%, of the population.
Instead, the economists responsible for this book relate only in general terms some important items left out of GDP. Yet they never admit that what's most important simply can't be measured in money.
Money measures only the kind of human effort that those with money pay for. An intact forest is priceless. A full-time mother, to her kids, is priceless. Yet commissioned government economists will insist on measuring something, anything, even if on some level they know that what they're measuring is actively harmful. Transform an intact forest, with clean water, clean air, clean land, into a toxic waste dump? Adds to GDP! Force a mother to neglect her kids to work for crumbs to make a fat cat richer? Adds to GDP!
So GDP will continue to be measured by government economists. The Gross Domestic Plunder, Gross Domestic Pollution, Gross Domestic Plutocracy, Gross Domestic Peonage will all continue to be reported as if good. Because one of the kinds of human effort that people with money pay for is government economists measuring their monetary gains.
Banker to the Poor by Muhammad Yunus
Capital in the 21st Century by Thomas Piketty
and other recent books by Joseph Stiglitz
all come closer to shedding light on what should actually be measured, than this Mismeasuring book does.
1. It reads as if it was written as the report of a commission of international government economists. Which it was.
2. It falls far short of recommending a number to use instead of GDP. The only numerical change it plots is "GDP minus depreciation!" Far short of the "GDP minus wealth accumulation by billionaires"--or even the Muhammad Yunus suggestion of two decades ago, quite doable and a far better measure: average per-capita income of the poorest 50%, or the poorest 35%, of the population.
Instead, the economists responsible for this book relate only in general terms some important items left out of GDP. Yet they never admit that what's most important simply can't be measured in money.
Money measures only the kind of human effort that those with money pay for. An intact forest is priceless. A full-time mother, to her kids, is priceless. Yet commissioned government economists will insist on measuring something, anything, even if on some level they know that what they're measuring is actively harmful. Transform an intact forest, with clean water, clean air, clean land, into a toxic waste dump? Adds to GDP! Force a mother to neglect her kids to work for crumbs to make a fat cat richer? Adds to GDP!
So GDP will continue to be measured by government economists. The Gross Domestic Plunder, Gross Domestic Pollution, Gross Domestic Plutocracy, Gross Domestic Peonage will all continue to be reported as if good. Because one of the kinds of human effort that people with money pay for is government economists measuring their monetary gains.
Banker to the Poor by Muhammad Yunus
Capital in the 21st Century by Thomas Piketty
and other recent books by Joseph Stiglitz
all come closer to shedding light on what should actually be measured, than this Mismeasuring book does.
October 16, 2011
This book read like a report written by a government committee, which isn't surprising given that it was a report written by a government committee. The authors discuss, at a non-technical level (there is a technical document online) several shortcomings of GDP as a measure of national economic well-being. These cover a wide range of issues, most of which I had read about in one form or another--insensitivity to distribution, tenuous connection of economic prosperity and reported subjective well-being, failure to account for environmental impacts, etc. It's all interesting and fine as far as it goes, but I was left with the strong feeling of wanting the authors to take a stand on something. To their credit, they end each chapter with a series of recommendations. But there are so many that no government would focus on all of them, so I wish the authors had taken a stand on which would be most meaningful or important to make. I know it's a political decision, but economists are allowed to express political opinions.
November 2, 2015
Stiglitz, Sen y Fitoussi hacen un análisis sobre las diversas causas por las que el PIB es un indicador insuficiente para medir realmente el progreso en las sociedades, hacen una serie de propuestas para incorporar otras mediciones particularmente los indicadores subjetivos de calidad de vida.
Es una buena lectura que vale la pena para pensar en nuevas formas de estimación para la economía y sobre como tomarlas en cuenta en la elaboración de políticas públicas.
Es una buena lectura que vale la pena para pensar en nuevas formas de estimación para la economía y sobre como tomarlas en cuenta en la elaboración de políticas públicas.
April 22, 2023
Mismeasuring Our Lives is an interesting read, though portions don't age well (most notably the sustainability section, which I suppose is at least a partial validation of statistical efforts in the most recent decade). The book is laid out in three key sections--suggested revisions to classical GDP measures, the adoption or privilege of measures which better capture human wellbeing, and considerations of sustainability, defined as the ability to perpetuate current levels of wellbeing and consumption through future generations.
The suggestions struck me as largely cogent, identifying issues like unmeasured changes in quality (biasing inflation upwards) to estimates of heretofore largely omitted accounts like household labor in the classical GDP section. Certain revisions to adjust for issues like availability of public goods are essential for "apples to apples" cross-country comparisons as well; GDP shouldn't change based on the provider of services (for example, health insurance) unless that change corresponds to differing levels of quality.
The human wellbeing and sustainability sections were necessarily more theoretical, though I agree that efforts to better capture factors like health outcomes, education, economic stability, social connection, political voice, and environmental externalities could drive better policy decisions. This data is necessarily normative, and preferences likely differ across a population, but efforts to maximize time spent on activities which correspond with human flourishing (self-defined through survey data) would be worthwhile. Given that the independent variable in this analysis is so subjective and that any composite measure requires a large degree of inference and judgment--particularly as it pertains to the weight of different dependent variables--consensus is unlikely to be satisfactorily achieved, though that shouldn't suppress efforts to move the proverbial ball forward.
On the sustainability side of the ledger, the authors' approach is an interesting one, considering a dashboard of measurements designed to identify where overconsumption or underinvestment may render future declines in living standards or consumption more likely. In effect, the authors seek to identify where current consumption patterns deplete existing "stocks" of human, physical, and environmental capital, mortgaging the future for present consumption--though the models they propose are necessarily subjective in that output prices (outputs of production, like pollution or environmental degradation) are rarely available the way that input prices (commodities used as factors of production) can be. Further judgment is required as scarcity or projected scarcity of future resources could cause massive swings in future prices of commodities that are relatively abundant today.
On balance, the book does a nice job identifying key areas for future research and introducing a framework through which better policy and market decisions could be made, though practical application is understandably limited. GDP is an imperfect measure, and the addition of satellite accounts like depreciation and depletion, offset by investments in human and physical capital, could underpin a more illustrative and comparative net account that better deals with externalities and flaws in the existing model. Probably the least developed and perhaps the most important idea ties to a two-part sustainability framework--one part tied to valuation (inputs) of environmental resources and the other based on normative assumptions that treats depletion and resource utilization (outputs)--which could flag where a country's consumption and investment levels collectively clip below a threshold where they're consuming their stocks of physical, human, financial, and environmental capital. This, in turn, suggests an unsustainable forward path for current levels of wellbeing.
I'd contend that half the battle ties to appropriately identifying, measuring, and quantifying these issues--the other half ties to effectively conveying them in a manner that's both digestible and actionable to the public. People are notoriously bad at dealing with long-dated challenges and those which are large in scope, so metrics like the EF's "number of earths" required to support a country's lifestyle are likely more resonant than even academically sound measures like net GDP adjusted for depreciation and depletion. In truth, this is probably the most fruitful path forward for achieving meaningful public buy-in--quantitative rigor is important for directing policy proposals, but effective marketing is necessary to achieve investment and collective action.
The suggestions struck me as largely cogent, identifying issues like unmeasured changes in quality (biasing inflation upwards) to estimates of heretofore largely omitted accounts like household labor in the classical GDP section. Certain revisions to adjust for issues like availability of public goods are essential for "apples to apples" cross-country comparisons as well; GDP shouldn't change based on the provider of services (for example, health insurance) unless that change corresponds to differing levels of quality.
The human wellbeing and sustainability sections were necessarily more theoretical, though I agree that efforts to better capture factors like health outcomes, education, economic stability, social connection, political voice, and environmental externalities could drive better policy decisions. This data is necessarily normative, and preferences likely differ across a population, but efforts to maximize time spent on activities which correspond with human flourishing (self-defined through survey data) would be worthwhile. Given that the independent variable in this analysis is so subjective and that any composite measure requires a large degree of inference and judgment--particularly as it pertains to the weight of different dependent variables--consensus is unlikely to be satisfactorily achieved, though that shouldn't suppress efforts to move the proverbial ball forward.
On the sustainability side of the ledger, the authors' approach is an interesting one, considering a dashboard of measurements designed to identify where overconsumption or underinvestment may render future declines in living standards or consumption more likely. In effect, the authors seek to identify where current consumption patterns deplete existing "stocks" of human, physical, and environmental capital, mortgaging the future for present consumption--though the models they propose are necessarily subjective in that output prices (outputs of production, like pollution or environmental degradation) are rarely available the way that input prices (commodities used as factors of production) can be. Further judgment is required as scarcity or projected scarcity of future resources could cause massive swings in future prices of commodities that are relatively abundant today.
On balance, the book does a nice job identifying key areas for future research and introducing a framework through which better policy and market decisions could be made, though practical application is understandably limited. GDP is an imperfect measure, and the addition of satellite accounts like depreciation and depletion, offset by investments in human and physical capital, could underpin a more illustrative and comparative net account that better deals with externalities and flaws in the existing model. Probably the least developed and perhaps the most important idea ties to a two-part sustainability framework--one part tied to valuation (inputs) of environmental resources and the other based on normative assumptions that treats depletion and resource utilization (outputs)--which could flag where a country's consumption and investment levels collectively clip below a threshold where they're consuming their stocks of physical, human, financial, and environmental capital. This, in turn, suggests an unsustainable forward path for current levels of wellbeing.
I'd contend that half the battle ties to appropriately identifying, measuring, and quantifying these issues--the other half ties to effectively conveying them in a manner that's both digestible and actionable to the public. People are notoriously bad at dealing with long-dated challenges and those which are large in scope, so metrics like the EF's "number of earths" required to support a country's lifestyle are likely more resonant than even academically sound measures like net GDP adjusted for depreciation and depletion. In truth, this is probably the most fruitful path forward for achieving meaningful public buy-in--quantitative rigor is important for directing policy proposals, but effective marketing is necessary to achieve investment and collective action.
July 14, 2020
This book is really just a report to influence the future of economic policy related to well being and quality of life. It does a great job of this, but I feel like I read it 9 years too late.
Had I read this before the new sustainable development goals were agreed upon in 2015 it may have seemed like a revelation, but that was not the case. Reports such as this, despite the incredible scholarship that goes into producing them, do not really stand the test of time as page turners.
I don’t feel bad about the less than stellar review. Two of the authors have Nobel prizes, and I’m sure they’ve gotten worse criticism from smarter people than me.
Had I read this before the new sustainable development goals were agreed upon in 2015 it may have seemed like a revelation, but that was not the case. Reports such as this, despite the incredible scholarship that goes into producing them, do not really stand the test of time as page turners.
I don’t feel bad about the less than stellar review. Two of the authors have Nobel prizes, and I’m sure they’ve gotten worse criticism from smarter people than me.
January 6, 2020
I expected a more argumentative book, instead I found a technical book. It is basically a literature review book and a scholar book. However, it is a good book to have a wider view about the extreme simplicity with which we treat economical issues (we basically use only GDP in everyday life). Politicians, journalists and the public should be less simplistic when dealing with economic themes, statisticians and the educational institutions should give them the tools.
December 11, 2019
Don't get me wrong, there's a lot of good in this - but it is still ultimately a dry academic report.
December 17, 2019
A must read for economists and anyone with a conscience.
Read
April 3, 2020DNF at page 66. Too technical and tedious, sounds like exactly what you'd hear from a government report.
October 27, 2022
No doubt it is a great report, but some part of the book seems to be repetitive.
April 1, 2016
Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
John Maynard Keynes
How could you tell how much of it was lies? It MIGHT be true that the average human being was better off now than he had been before the Revolution. The only evidence to the contrary was the mute protest in your own bones, the instinctive feeling that the conditions you lived in were intolerable and that at some other time they must have been different.
George Orwell, 1984
Well, “Mis-measuring” is a bit dry. But what do you expect by a report written by statisticians and economists for policy makers. The Commission on the Measurement of Economic Performance and Social Progress was put together to improve decision making in our economic and political systems through changes in the accounting frameworks and potential metrics about societal values and objectives. While working for a manufacturer of industrial monitor), we developed the slogan “Without Measurement there is No Control” and most certainly it applies to the world at large. But what and how to measure remains the question. Is the future to be measured in Green GDP or in ea-NDP (environmentally adjusted net domestic products)? How about carbon footprints or adjusted net savings?This is still a work in progress and the search for better scaler measures of the “Quality of Life” and of “ Sustainability” remain elusive.
Its not a shortage of data but a lack of information that daunts us. We have mortality and morbidity, averages and medians, inputs and indexes, even assessments and aggregations. We are in a war where linear and logarithmic scales battle forces with objective and subjective data. Aggregated formulas and standardization methods dominate and ambiguity reigns. One of the more interesting is the Environmental sustainability index (ESI) covers five domains and uses 76 variables. All of this brings me to the two quotes chosen above. Truth, lies and statistics.
John Maynard Keynes
How could you tell how much of it was lies? It MIGHT be true that the average human being was better off now than he had been before the Revolution. The only evidence to the contrary was the mute protest in your own bones, the instinctive feeling that the conditions you lived in were intolerable and that at some other time they must have been different.
George Orwell, 1984
Well, “Mis-measuring” is a bit dry. But what do you expect by a report written by statisticians and economists for policy makers. The Commission on the Measurement of Economic Performance and Social Progress was put together to improve decision making in our economic and political systems through changes in the accounting frameworks and potential metrics about societal values and objectives. While working for a manufacturer of industrial monitor), we developed the slogan “Without Measurement there is No Control” and most certainly it applies to the world at large. But what and how to measure remains the question. Is the future to be measured in Green GDP or in ea-NDP (environmentally adjusted net domestic products)? How about carbon footprints or adjusted net savings?This is still a work in progress and the search for better scaler measures of the “Quality of Life” and of “ Sustainability” remain elusive.
Its not a shortage of data but a lack of information that daunts us. We have mortality and morbidity, averages and medians, inputs and indexes, even assessments and aggregations. We are in a war where linear and logarithmic scales battle forces with objective and subjective data. Aggregated formulas and standardization methods dominate and ambiguity reigns. One of the more interesting is the Environmental sustainability index (ESI) covers five domains and uses 76 variables. All of this brings me to the two quotes chosen above. Truth, lies and statistics.
August 4, 2015
Incredibly interesting stuff (Joseph Stieglitz practically guarantees interesting ideas).
However, it is very evident that the book was written from a very technical report. I.e. it is very boring to read.
However, it is very evident that the book was written from a very technical report. I.e. it is very boring to read.
March 6, 2012
See my review at http://www.BillDahl.net or http://www.ThePorpoiseDivingLife.com
Want to read
September 6, 2012
November 4, 2014
Required Reading is never fun.
Displaying 1 - 18 of 18 reviews