This morning Helen Clark, Administrator of United Nations Development Program (UNDP), has hosted in Rio de Janeiro a dialog between a few heads of state and some panelists about the future of Gross Domestic Product (GDP) as a measure of The Future We Want.
The discussion revealed an appalling lack of conceptual clarity among the panel particpants on what GDP statistics actually mean (the word statistic derives from the social status of some relative to others or socio-economic distribution).
Happiness and human development research as a critique of Nobel Laureate Simon Kuznets measure of national income, a macroeconomic measure and the founding methodology of the Bureau of Economic Analysis (BEA) of the United States, not microeconomic firm-level performance (GDP by definition is not applicable to corporate balance sheets), is the new wave in economic thinking to see of measurement of economies is an issue in poverty alleviation and economic development.
This article contends that GDP will continue to be the measure of The Future We Want, contrary to Stiglitz, Sen and Huq, for the following reasons:
A. Happiness is a microeconomic concept and can be defined as maximization of utility or individual statisfaction. Sen is, however, correct intuitively in urging an ethos of inclusion because the probability of deriving higher individual utility (quality of an individual’s life in society) is raised in a more inclusive economy. Historical data on the inclusion of minorities and women is more than adequate to validate this point of mine.
B. Corporate balance sheets are linked conceptually to GDP by the monetary policy process.
C. Human Development Index (HDI) of Nobel Laureate Amartya Sen and Mahbub Al Huq is redundant. Longevity can be proxied with high fidelity by per capita health care expenditures and knowledge and education by per capita spending on non-profit academic institutions for the years of schooling/training attained. GDP per capita as a measure of standard of living is an extant measure. Both longevity and education are reflected as services consumption expenditures in GDP accounting.
D. Denmark’s highly successful experience of using regulatory policy to promote alternative energy use displays political discipline in budgeting, noting that measurement of the Danish economy has not changed from the GDP measure.
At issue, therefore, is not GDP per se but the global GDP growth rate vis-a-vis resource scarcity (directly and highly positively correlated to consumption per capita), any natural capital measures going into national budgets rather than GDP, for the purpose of achieving sustainabilty.