Econoblogosphere update
It's been busy in the econoblogosphere over the last few days... but I've been busy in the real world, so I'm a bit behind... Here are my take-aways, with links to the articles:
FOMC Recap
by Tim Duy, Tim Duy's Fed Watch
The FOMC held steady today, as expected. The reaffirmed their basic forecast, but gave a nod to current global economic and financial economic uncertainty. That is all that should have been expected.
[ graphs of contradictory data showing a healthy economy and an unhealthy economy ]
So, considering all this, you can't really blame the Fed for taking a pass on quantifying the balance of risks. From their perspective, there is no way to answer the question. And that's how the absence of a balance of risks should be interpreted. Neither as a intention to downgrade further in March, nor to upgrade. It is what is it. Pure, absolute uncertainty. White noise.
Yeah, I don't find that comforting either. Get over it.
Why GDP fails as a measure of well-being
by Mark Thoma, CBS MoneyWatch
Using GDP as a measure of welfare has well-known problems, which are among the first things macroeconomics principles courses cover. But the point of the discussions at Davos is that in the digital age, those problems are even deeper. Standard GDP statistics miss many of technology's benefits, so we need to rethink how we measure the typical person's well-being. ...
How can this be fixed? Catherine Rampell provides a nice summary of the alternative measures that have been proposed, including China's " green GDP ," which attempts to adjust for environmental factors; the OECD's " GDP alternatives ," which adjust for leisure; the " Index of Sustainable Economic Welfare ," which accounts for both pollution costs and the distribution of income; and the " Genuine Progress Indicator ," which "adjusts for factors such as income distribution, adds factors such as the value of household and volunteer work, and subtracts factors such as the costs of crime and pollution."
Finally, there are more direct measures of well-being such as the Happy Planet Index, Gross National Happiness and National Well-Being Accounts. ...
In the end, economists -- and the public -- don't care about GDP by itself; they care about the happiness they receive from the goods and services they consume.
Why GDP fails as a measure... period
Econospeak
[ the author lists the major critiques of GDP: philosophical and mathematical ]
A rubber band yardstick would be unreliable. This one is silly putty.
What it all adds up to is the arbitrariness of the idea of an objective aggregate measure of economic activity. Tinkering with some minor technical detail is not going to result in a "more accurate" measure -- simply a different measure whose accuracy or otherwise will be a matter of subjective judgment.
The questions we need to ask are: What do we really want to know and why? What purposes were we pursuing when we sought to measure economic activity? Is measuring GDP helping to achieve those purposes? Are those purposes still our priorities? If not, what should be? What different institutions might we invent to achieve our purposes as we NOW understand them?
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The articles are a whole lot better than my little extracts.