GDP: True Indicator of Wealth?
polaris
Posts: 3,527
I've always contended that the GDP was a poor indicator of a country's wealth as it did not factor in issues of sustainability and such however, I am no economist and it hasn't been easy discussing ...
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http://www.thestar.com/News/article/183223
Feb 19, 2007 04:30 AM
Stuart Laidlaw
Faith and Ethics Reporter
CARDINAL, Ont.–Marj Kempffer hasn't looked at the sky the same in years. Not since the day nine years ago when the clouds poured heavy sheets of ice on this eastern Ontario village.
Three days it went on, the freezing rain clinging to everything it touched in the worst ice storm to hit North America in decades.
Roofs collapsed, roads became impassable and both electrical wires and the poles that held them aloft snapped. Across eastern Ontario and into Quebec, no one escaped. This village on the St. Lawrence River went eight days without power. Others went for several weeks.
The storm stretched from Montreal to Kingston and caused $1.6 billion in damage. To this day, there are houses that still have not been repaired.
Yet, the Ice Storm of 1998 is the biggest single event in Canadian history to boost the Gross Domestic Product, a simple totalling of all goods and services in the economy that is the most-used measure of the economy.
It's this irony – that rebuilding in the wake of devastation is good for the economy – that is in large part fuelling an ambitious attempt to produce an alternative to the GDP, one that balances economic growth against a much larger and more comprehensive set of numbers to tell us if we are truly better off. It's called the Canadian Index of Well-being and its goals are:
To reflect a broad range of factors – such as the availability of health care, literacy rates, the quality of air and water, the costs of adequate housing and the value of unpaid work – that together determine the quality of life in Canada.
To do it so it's comprehensive enough to satisfy the statisticians and policymakers but simple enough to be understood by the general public.
Give policy makers a tool to show, in quantifiable terms, the positive impact of good social policy such as measures to alleviate poverty, and to demonstrate with hard numbers how a dollar spent now on education or health prevention can reap huge rewards years down the road.
"We really need a different kind of statistical indicator – not to replace the GDP, but to complement it," says Michael Wolfson, assistant chief statistician at Statistics Canada.
Neither Wolfson nor any of the other statisticians involved in the project diminish the complexity of the task.
In health care alone, the CIW's measure could include ER wait times, rates of cancer and other diseases, body mass index, smoking rates, life expectancy, infant mortality and low birth rates, even rates of depression and suicide.
Adding all these up, factoring in at least six other "domains" to produce an "integrated index," would be a monumental achievement. There is still considerable disagreement over methodology (see sidebar) even though the first phase of the project is set for this fall.
That's about two years after the original hoped-for launch of the CIW, but organizers say they have preferred to get it right instead of early. The extra time has been used to refine calculations and to co-ordinate the effort with similar projects around the world through the Organization for Economic Co-operation and Development.
Nonetheless, the CIW has gained a legion of fans, from former Saskatchewan premier Roy Romanow to Bay Street moguls to top government statisticians. At least seven Canadian universities including York and Dalhousie, several federal agencies, and a number of non-governmental groups such as the Atkinson Charitable Foundation are involved in the project.
To Romanow, the index is an extension of his groundbreaking study of the Canadian health care system almost five years ago, which found that the social determinants of health – poverty, hunger, homelessness, stress and the environment – need to be considered alongside hospital beds and waiting lists.
For the long-time NDP politician, the GDP's limitations as a measure of well-being are revealed in the negative inputs it includes.
Expenditures on cancer treatment, divorce, prisons and funerals are counted alongside factory production and restaurant meals as good for the economy, but few would say such things have improved their lives.
The ice storm is a case in point.
A Statistics Canada report months after the storm touted a "rebounding" Canadian economy, based on a surge in the GDP. That surge, it turned out, was thanks in large part to the cost of getting eastern Ontario and western Quebec back on its feet.
Cardinal Mayor Larry Dishaw shakes his head at the notion that the ice storm was good for anything, much less the economy. The storm devastated local businesses as consumer dollars were diverted to keeping buildings standing and getting the power back on.
"It was a good six weeks before business was back up," he says.
The wait was too long for many. To this day, Cardinal's main street is dotted by closed stores. Even the local bank eventually closed after 100 years, complaining that business had dropped too much to continue.
To backers of the plan to find an alternative to the GDP, such stories are all too typical, and reflect how traditional economic thinking ignores the realities that people live out every day.
"If you don't measure what counts, what counts is never measured," says Romanow.
The effort in Canada is matched by similar projects in countries around the world, particularly in Europe, Australia and New Zealand.
The statisticians involved in these projects, while they acknowledge the GDP's faults, say its attraction as a statistic stem from its simplicity. As a totalling of every dollar spent in the economy on goods and services, the GDP can reveal at a glance whether business as a whole is up or down.
What it can't tell us is how that money is distributed. A StatsCan report in December found that the gap between rich and poor has been widening in recent decades. Since 1984, the net worth of the top 20 per cent of the population has jumped 64 per cent, while that of those in the bottom 20 per cent has stalled.
As well, the average net income for the top 20 per cent jumped by more than $20,000 to $110,700 between 1995 and 2004, while it inched up only $400 to $12,200 for the bottom group.
Over the same nine-year period, however, the total GDP increased by about a third.
And the more the gap between rich and poor grows, the more inadequate the GDP becomes as a measure of wealth or well-being, says Wolfson.
"GDP tells us how big the pie is, but not how the pie is divided."
Any jump in the GDP that is heralded by economists and policy makers as good news increasingly falls flat with everyone else if they don't see their own lives getting better, says GDP expert Hans Messinger.
Messinger made a career of calculating the GDP at StatsCan, and is now spending his retirement working on the CIW as a better measure of growth.
"That's what a healthy economy is all about, to not only serve the few," he says. "The economy is there to serve everybody."
********
http://www.thestar.com/News/article/183223
Feb 19, 2007 04:30 AM
Stuart Laidlaw
Faith and Ethics Reporter
CARDINAL, Ont.–Marj Kempffer hasn't looked at the sky the same in years. Not since the day nine years ago when the clouds poured heavy sheets of ice on this eastern Ontario village.
Three days it went on, the freezing rain clinging to everything it touched in the worst ice storm to hit North America in decades.
Roofs collapsed, roads became impassable and both electrical wires and the poles that held them aloft snapped. Across eastern Ontario and into Quebec, no one escaped. This village on the St. Lawrence River went eight days without power. Others went for several weeks.
The storm stretched from Montreal to Kingston and caused $1.6 billion in damage. To this day, there are houses that still have not been repaired.
Yet, the Ice Storm of 1998 is the biggest single event in Canadian history to boost the Gross Domestic Product, a simple totalling of all goods and services in the economy that is the most-used measure of the economy.
It's this irony – that rebuilding in the wake of devastation is good for the economy – that is in large part fuelling an ambitious attempt to produce an alternative to the GDP, one that balances economic growth against a much larger and more comprehensive set of numbers to tell us if we are truly better off. It's called the Canadian Index of Well-being and its goals are:
To reflect a broad range of factors – such as the availability of health care, literacy rates, the quality of air and water, the costs of adequate housing and the value of unpaid work – that together determine the quality of life in Canada.
To do it so it's comprehensive enough to satisfy the statisticians and policymakers but simple enough to be understood by the general public.
Give policy makers a tool to show, in quantifiable terms, the positive impact of good social policy such as measures to alleviate poverty, and to demonstrate with hard numbers how a dollar spent now on education or health prevention can reap huge rewards years down the road.
"We really need a different kind of statistical indicator – not to replace the GDP, but to complement it," says Michael Wolfson, assistant chief statistician at Statistics Canada.
Neither Wolfson nor any of the other statisticians involved in the project diminish the complexity of the task.
In health care alone, the CIW's measure could include ER wait times, rates of cancer and other diseases, body mass index, smoking rates, life expectancy, infant mortality and low birth rates, even rates of depression and suicide.
Adding all these up, factoring in at least six other "domains" to produce an "integrated index," would be a monumental achievement. There is still considerable disagreement over methodology (see sidebar) even though the first phase of the project is set for this fall.
That's about two years after the original hoped-for launch of the CIW, but organizers say they have preferred to get it right instead of early. The extra time has been used to refine calculations and to co-ordinate the effort with similar projects around the world through the Organization for Economic Co-operation and Development.
Nonetheless, the CIW has gained a legion of fans, from former Saskatchewan premier Roy Romanow to Bay Street moguls to top government statisticians. At least seven Canadian universities including York and Dalhousie, several federal agencies, and a number of non-governmental groups such as the Atkinson Charitable Foundation are involved in the project.
To Romanow, the index is an extension of his groundbreaking study of the Canadian health care system almost five years ago, which found that the social determinants of health – poverty, hunger, homelessness, stress and the environment – need to be considered alongside hospital beds and waiting lists.
For the long-time NDP politician, the GDP's limitations as a measure of well-being are revealed in the negative inputs it includes.
Expenditures on cancer treatment, divorce, prisons and funerals are counted alongside factory production and restaurant meals as good for the economy, but few would say such things have improved their lives.
The ice storm is a case in point.
A Statistics Canada report months after the storm touted a "rebounding" Canadian economy, based on a surge in the GDP. That surge, it turned out, was thanks in large part to the cost of getting eastern Ontario and western Quebec back on its feet.
Cardinal Mayor Larry Dishaw shakes his head at the notion that the ice storm was good for anything, much less the economy. The storm devastated local businesses as consumer dollars were diverted to keeping buildings standing and getting the power back on.
"It was a good six weeks before business was back up," he says.
The wait was too long for many. To this day, Cardinal's main street is dotted by closed stores. Even the local bank eventually closed after 100 years, complaining that business had dropped too much to continue.
To backers of the plan to find an alternative to the GDP, such stories are all too typical, and reflect how traditional economic thinking ignores the realities that people live out every day.
"If you don't measure what counts, what counts is never measured," says Romanow.
The effort in Canada is matched by similar projects in countries around the world, particularly in Europe, Australia and New Zealand.
The statisticians involved in these projects, while they acknowledge the GDP's faults, say its attraction as a statistic stem from its simplicity. As a totalling of every dollar spent in the economy on goods and services, the GDP can reveal at a glance whether business as a whole is up or down.
What it can't tell us is how that money is distributed. A StatsCan report in December found that the gap between rich and poor has been widening in recent decades. Since 1984, the net worth of the top 20 per cent of the population has jumped 64 per cent, while that of those in the bottom 20 per cent has stalled.
As well, the average net income for the top 20 per cent jumped by more than $20,000 to $110,700 between 1995 and 2004, while it inched up only $400 to $12,200 for the bottom group.
Over the same nine-year period, however, the total GDP increased by about a third.
And the more the gap between rich and poor grows, the more inadequate the GDP becomes as a measure of wealth or well-being, says Wolfson.
"GDP tells us how big the pie is, but not how the pie is divided."
Any jump in the GDP that is heralded by economists and policy makers as good news increasingly falls flat with everyone else if they don't see their own lives getting better, says GDP expert Hans Messinger.
Messinger made a career of calculating the GDP at StatsCan, and is now spending his retirement working on the CIW as a better measure of growth.
"That's what a healthy economy is all about, to not only serve the few," he says. "The economy is there to serve everybody."
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Comments
i understand if your conutry is banking on potatoes to harvest and than they don't ....your GDP would be bad?
in that case...ya it shouldn't measure stability...but i think its not set to..
i think thats more of an opinion....the stability part
GDP i think is just that...how good were you last period..
My happiness is in no way tied to the GDP. My relationships don't depend on the GDP, nor does my health and the health of those around me.
A group of Canadians wanting to make some sort of feel good indicator is a bit of a joke. Canda can't even properly decide how to define poverty. You gotta walk before you can run.
when it hits you, you feel to pain.
So brutalize me with music.”
~ Bob Marley
One of GDP's major problems is that to calculate it only formal economy activities are recorded, hence the wealth of countries with large informal economies is underestimated. The same happens with activities such as the work of stay-at-home parents/spouses, they are not taken into consideration and its relative weight can be significant in some countries.
However the main advantage of GDP is that it is a widely spread indicator, relatively easy to calculate. with a common methodology used almost everywhere, s, all things considered, for statistical purposes it is very useful. Hopefully statistics, polls and access to information will improve enough for us economists and researchers form all fields to have more accurate indicators and measurements.
ya thats what i was saying about the stability factor
problematic in my mind
when it hits you, you feel to pain.
So brutalize me with music.”
~ Bob Marley
Hi there!!
In the situation you're describing the GDP is of little -or zero- use. Furthermore, GDP says nothing about: a country's income distribution; the share of poor population/total population; the gap between rich and poor; the effiency the production system, the health of the social security system and so on and so forth...
Even if this is accurate an even better indicator of a government's capability to pay for social programs is government's total revenues...
ola!
yeah ... it is mentioned in the article as well ... the lack of an indicator in terms of income distribution is problematic because not everyone can agree on what that distirbution should be ...
but - take for example our resources and environment ... we are exploiting those things on the backs of future generations but that would never be indicated in this measure ...
when it hits you, you feel to pain.
So brutalize me with music.”
~ Bob Marley
This is correct again, but GDP is used as a tool to estimate what will be a government's revenue. GDP includes the total production of a country, therefore only a fraction of that goes to the government.
So to decide, say, next year's total public expenditure, first you need to know how you're going to fund it, hence the need of an extremely accurate projection of government revenues: tax collection, social security contributions, publice services fees (if they are in public control). So, when starting to plan the budget, first you have GDP projections, which will give you an estimation of government's revenues and once you have such estimation you can plan your public expenditure.
It's been two years since I left the Ministry of Economics, so I hope my memory is not betraying me about the budget methodology
when it hits you, you feel to pain.
So brutalize me with music.”
~ Bob Marley
Hi dear!!
I still have not read the article
The Gini Index takes values between 0 and 1, the lower the value the more equal the income distribution is. According to this Index Canada is a relatively egalitarian country. The less unequal country -always in terms of per capita income- is Denmark (Gini Index: 0.247), followed closely by Sweden and Norway. (UNDP data)
Of course that all measurements of inequality and income distribution includes an opinion judgement, i.e. how do you understand for social justice.
Hmm, sorry not acquainted with canadian slang
thanks ... that is an interesting measure ... i think that coefficient is growing here ...
ha! ... it means that you are exactly correct ... not sure where it is originally derived from but if u can imagine trying to hit a nail with a hammer ... u want to be "bang on" as in making contact at the correct place ...
Well, Canada -according to Gini Index- is a very egalitarian country. I couldn't say if it is growing or decreasing...I'm sure StatCan has up to date statistics, it is like THE ultimate word in statistics
Thank you very much
I'm not sure if this is a universal problem but Canada doesn't calculate a poverty line or even have an official definition of poverty. It's pretty hard to tackle a problem when you can't even quantify the problem. Many Canadian institutions cretae their own poverty statistics based on income distribution. But, is this realistic in a well off country? Are you really living in poverty if the poverty definition includes having a computer, internet access, cable tv, color tv and vacations?
when it hits you, you feel to pain.
So brutalize me with music.”
~ Bob Marley
those are good points ... no clear cut definition of poverty does not serve advocates well at all ...