Is money everything? | Solving society's problems VII
Profits and GDP
Keywords: GDP, dependent on economy, profits, social policies, country, community, business, transitional indicators, better indicators or indices
Judging a person by how much money they make and thinking you know everything about them is the way to go, right? Every rational person would say that’s obviously not true. Then why do we do the same with a country? When comparing countries or when governments have important speeches about their countries, GDP or Gross Domestic Product is the first to come up or mentioned most likely.
“Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period by a country or countries.”
I briefly mentioned the issue and the concept here in my post: Change how we work or vote, change the world | Solving society's problems III.
The economy is obviously a big part of your country, but when you’re only looking at GDP, then that will be the main focus of how you run a country. Kind of like how you run a business only seeking a profit. You’ll only be dependent of how your country does economically. Of course you have (social) policies to look after the people. However I’d rather see a country as a community than a business, a country where the people come first.
The National Bureau of Ecnomic Research (NBER) of the United States (of America) uses several indicators to define a recession, while the rest of the world only uses one. If the GDP growth/rate is negative for two quarters (in a year), it’s considered a recession. So why then is the prosperity of the economy and by “general” extension the country only defined by one measure, GDP?
Like an addiction or any other bad habit, it will be difficult to not only use GDP. One way to deal with bad habits, is to replace it with another habit, a good one, at least not a bad one. In the same way, it would be better for a country if we’d use other indicators, but instead of going cold turkey and replace them with completely different ones, we would use transitional indicators, I mentioned these here: Change how we work or vote, change the world | Solving society's problems III. To recap:
GDP per capita PPP (Purchase Power Parity);
labor productivity: GDP per hours worked;
median disposable income;
median wealth;
Gross Output (per capita would be nice, but this metric is relatively new);
material productivity: GDP per resource use;
economic energy efficieny; (median disposable income, median wealth,)
gross financial wealth: mean wealth minus debt;
mean net financial assets per capita (median measures for number 8 and 9 would be nice instead of mean because of skewed data by outliers).
These ones still relate to economics, finance or wealth, but also taking a little bit in account the environment and people. There is another flaw of GDP per capita and DDP or democratic domestic product tries to remedy that. With the accompanying inequality measure J: mean-logarithmic deviation MLD; J = ln GDP − ln DDP. GDP is ergodic while DDP is non-ergodic. Ergodic means that the average of your country or per capita would coincide with the situation of every single person. In reality this is not the case. DDP takes that into account by having the time average of a single person and then average over all the people to get a more accurate result. You can see that this would be a good candidate also as a transitional indicator. Democractic Domestic Product
There’s a problem though that these indicators don’t always show or contain the direct causes that would influence those. Also sometimes you would like to have one measure or indicator as a shortcut, as a matter of convenience. Then you have better ones, that are better defined and determined, for example:
Index of Sustainable Economic Welfare (ISEW), Genuine progress indicator (GPI), OECD Better Life Index.
With these indicators you take into account several aspects that are of importance on an individual and social level. Following the maxim: “what gets measured, gets managed”, in Dutch there is something similar: “meten is weten”, i.e. “to measure is to know”.
As a side effect, there will be less polarization in politics, because the actions politicians take, directly result in quantifiable measures that will affect society and your country, making the politicians easier accountable.
Of course there will be still variations in policies, but in general they will be less random opinion based, less populistic and more cohesive, sensible and social.
This way you shape politics from the outside-in or top-down instead of inside-out or bottom-up without any direct interventions. Although a case could be made for other forms of governance, like I mentioned in my post: Change how we work or vote, change the world | Solving society's problems III.
In the end, profit or GDP isn’t everything and we should try to adopt better methods or indicators to measure a country’s status and the wellbeing of it’s citizens. That will benefit the people, politics and society.