Life is more than just GDP

“Not everything that is valuable can be measured, and not everything that can be measured is valuable.” Looking back at 2020 and beyond, this old proverb seems relevant. The current resistance to the political and business elite may simply be because the masses believe that the elite do not really care about their lives. However, even though this blind pursuit of market output and profit is facing challenges, more active and effective alternatives have not clearly emerged.

For a long time, gross domestic product (GDP) is an important indicator for measuring the economic scale and success of a country’s economic development, and it is also a key goal of economic policy. attention.

Although GDP is widely regarded as a reliable and objective measure, it is actually a complex statistical value over a period of time. There are also various statistical deviations and controversies without standard answers. The definition of statistical methods It also changes dynamically. The core problem is that it is not used to measure economic welfare, but rather economic output. When the American economist Simon Kuznets put forward the concept of GDP in the 1930s, the original intention was precisely to measure economic welfare. And the US government asked him to design a measurement standard to make fiscal policy, tax and spending decisions, and he did just that.

As a result, GDP has become a statistic that focuses only on market activity, final products and services, ignoring double counting of intermediate inputs for raw materials. But it is precisely non-market activities such as home care and housekeeping that are beneficial to economic welfare, and some market activities are harmful to economic welfare, such as environmental pollution and other side effects caused by production. Furthermore, over the years, the definition of GDP has changed continuously due to different standards. It is worth mentioning that government services and later financial services were ultimately regarded as having productivity and economic value, and thus were included in the definition of GDP.

Another issue is how to explain inflation, because even if the total output of the economy has not increased, rising prices can still promote GDP growth. In addition, the increasing integration between products and services makes it increasingly difficult to measure economic output.

Let’s look at the complexity brought by digitalization. Taking smartphones as an example, today’s mobile phones are very different from those of more than ten years ago. Statistics experts have been trying to confirm the improvement of mobile phone performance by adjusting the price, so as to highlight the birth of “smartphones” (which also means the disappearance of cameras, calculators, portable music players and other devices to a certain extent) ). But on the other hand, it also distinguishes between market prices and product values, which can also be seen as contributing to economic welfare.

A related issue is that it is not that the more money, the happier people’s lives are. In a way, if a person has more money than others, then he will be more concerned about his living conditions than money. Similarly, the proportion of GDP, not total, is also important for national welfare. As a woman said in response to an economist’s warning that “Brexit could reduce UK economic output”: “That is your GDP, regardless of others’ lives, not ours.”

Another problem is that GDP is not responsible for future economic conditions. If current economic output needs to come at the cost of future economic output, future economic benefits may be at stake. This is also true. Statistics experts do consider the depreciation and loss of tangible assets when calculating the net domestic product (NDP), but NDP does not take into account all the losses. In order to more comprehensively consider the sustainability of economic activities, the adverse impact of human capital investment and resource consumption, it also needs to be taken into consideration.

If the phrase “you must be able to accurately evaluate before you can manage” is correct, then issues related to GDP are troublesome, after all, they may interfere with government political and economic decisions. In addition, if we accept GDP as an indicator of economic well-being, then we must understand to whom the GDP indicator serves.

To be sure, GDP has at least formed a data collection structure, and its focus on the market has indeed been helpful in formulating fiscal policies. Moreover, not only can GDP be distorted in different ways, many economists have also questioned that this distortion may worsen over time. In their view, GDP is flawed, but it is still the best indicator we can use to measure the rise and fall of a country.

After all, the main reason why GDP dominates is the lack of readily available alternatives without any disadvantages. The concept of many schemes is inherently problematic. For example, what is a comprehensive measurement indicator used to measure: Is it to measure family welfare? Capturing changes in sustainable national wealth? In addition, there are more realistic questions: Are the receipts we have accurate? Are some forms of capital ignored, such as intangible assets and natural resources?

But no matter what kind of disadvantages exist in GDP, the main problem that GDP faces today is the strong resistance of ordinary people to the elites who support GDP, which makes it urgent to find alternatives. Somewhat funny is that when the digital age brings challenges to GDP statistics, it also accelerates the emergence of alternatives. The explosive growth of big data that we are witnessing today, including real-time data and geolocation data, has created the possibility of new statistical indicators.

As we enter 2020 and enter an era that is even worse in every respect, business and politicians will face tremendous pressure to improve social welfare. And to succeed, they must first understand how to consider everything that is worthy of consideration.