GDP is the wrong tool for measuring what matters (2020) | Hacker News Reader

GDP is the wrong tool for measuring what matters (2020)

scientificamerican.com

73 pointssimonfxr34 comments

Two economists were walking down the street. One saw a dog s*t on the ground, and told the other: “If you eat that, I’ll give you thousand dollars.” Other guy looked at it, thought “It’s bad, but I’ll get $1000”, and ate it. His friend paid him, although he still regretted it because it was really bad. After some time, they encountered another dog s*t. This time the guy who ate it before, seeking revenge of the foul taste in his mouth, offered $1000 for eating it to his friend. He accepted, thinking “I’ll gain the $1000 I lost”. He ate it and got paid. After some time, they stopped for a while, and one said to other, “I feel like we just ate dog s*t for nothing”, his friend replied: “Oh, come on! We just contributed to the GDP by $2000, it can’t be for nothing!”

(Commented this exact comment a few days ago, but very relevant so doing it again.)

You forgot taxes. 500$ each.

The trouble with that logic is that there's a huge correlation between happiness (https://worldpopulationreview.com/country-rankings/happiest-...) and GDP per capita.

This is a good example of correlation not being causation. GDP is really just a measure of activity within a framework to measure it. It has nothing constructive to say about the real value of the activity, just that it is happening as measured in a currency.

Besides, the inventor of GDP warned against using it as a measure for policy making, but as with many things in human affairs, oversimplified things that give an impression that helps manipulative people is just run with, regardless of the insanity of it.

BMI is another good example of not only a useless, but even more damaging and dumb fake metric.

There is no good measure for policy making. Goodhart and all that.

But it does serve as an often-indirect measure, as part of a plethora of other measures, to simply explore the effects of policy.

I’m not aware of policy that focuses on improving GDP per se (not saying there isn’t any, Im just not that tuned into politics) but I am aware of people criticising their government when GDP has dropped after a major change. That’s the appropriate use, though.

There have been several studies on this. For example this new article. [0]

[0] https://www.cbsnews.com/news/money-happiness-study-daniel-ka...

Personally, I find the idea of statistically measuring the "happiness" of an entire society to be absolute intellectual fraud.

There is even correlation with my happiness by the minute based on some of the dumb things I read on here at times.

Apart from

1) measuring activity that doesn't contribute much to society in any meaningful way (war), and from

2) failing to measure activity that actually contributes to society (like the grey economy),

3) GDP also fails to measure old activity that is still contributing. In a company's accounting that would be the assets, incl. the IPR and goodwill. In a country, it's the roads that our forefathers built, the education that our parents still have, the peace that was brokered with neighboring states 500 years etc. I wish there was a better tool for measuring that. Even if the GDP of China has surpassed that of the EU for a few years, it will be many years for China to catch up with the GDP (and other contributions) added to the European economy in the past hundreds of years.

GDP adjusted by Gini coefficient would be a better measure. A massive GDP overly concentrated in the top 1% of the population doesn't improve the lives of the rest of the population.

Inverse mean KL divergence between everyone's ideal wealth distribution and the actual wealth distribution.

Forgive me if I missed the objective quantitative measurement the article suggests to replace it.

GDP is kind of like measuring spending in your family when you should be measuring saving. It’s not meant to track personal well-being, but rather the strength of an economy, and for that, a better metric may be savings and investment rate.

Savings rate is a measurement of productivity normalized to consumption. Closely related is investment rate, which is savings times capital efficiency.

If I save 100% of my income, such that I get kicked out of my home, I can't go to work, can't buy food, and I starve to death, am I doing good financially?

Yes? It would be a stupid way to live, but financially, I think you'd be doing "really well," conditional on your income, up until you died.

Australia tracks four or five different GDP calculations, then uses the average result as the GDP they report to everyone.

Every other country uses different calculations for GDP.

It is not a reliable indicator of anything if everyone is using different calculations.

The Gross National Happiness index of Bhutan has been in place for 15 years. Maybe there’s something we can borrow from there.

Gross National Happiness (GNH), sometimes called Gross Domestic Happiness (GDH), is a philosophy that guides the government of Bhutan. It includes an index which is used to measure the collective happiness and well-being of a population. Gross National Happiness Index is instituted as the goal of the government of Bhutan in the Constitution of Bhutan, enacted on 18 July 2008.

https://en.m.wikipedia.org/wiki/Gross_National_Happiness

Frankly, Bhutan is a backwater with a GDP per capita of around $3,000. I don’t think it’s a country people should be imitating despite all their marketing around happiness.

Sure, the citizens might be happy, but people can be happy even in dire circumstances.

> people can be happy even in dire circumstances.

Luckily the population of western countries know better, they do the reverse!

To clarify, my intention is to add to the measurement of value - not replace it.

The current measurements not only ignore but also contribute to the massive devastation of our irreplaceable biosphere, to the immense suffering caused by normalizing a barbaric, insensitive, cruel treatment for everything and everyone in the context of maximizing extraction and downright fraud of short term gains.

Donut (sustainable) economics is another model to consider.

https://en.m.wikipedia.org/wiki/Doughnut_(economic_model)

Bhutan’s implementation of GDH aside. What matters more than happiness? Surely any other metric is just an (often misguided) approximation.

I mean, people can be happy out of ignorance, and that ignorance can include things that contribute to high child mortality.

I'm not sure we should be ok with high child mortality, just because people are happy.

No one is suggesting that and no one is suggesting that happiness is somehow the result of this.

I'm the comment I'm reply to said "What matters more than happiness?".

The point is, plenty of stuff matters more than just happiness.

I see, thank you for clarifying.

It is an interesting phenomenon that people tend to just swallow, hook, line, sinker, rod and reel some obscure measure and metric or ranking as if it’s some kind of law of physics.

What matters is spending time with your loved ones. And it is measured in hours or days.

A healthy economy is needed for people to be able to spend time with loved ones. People who have to work double shifts or can't make ends meet end up missing out on a lot of family time.

GDP doesn't measure a healthy economy however. It measures aggregate production which can be owned by a small minority of extremely wealthy asset holders while everyone else needs to work double shifts. I'd want a measure of inequality in whatever function is used to measure happiness.

Oh absolutely agreed that (US) GDP is a terrible metric that we optimize for. There must be other signals of general economic health that would better serve the greater population.

Not the only thing that matters? Ability to make useful actions - heal, entertain, teach etc. - they all imply resource spending, in addition to time, so shouldn't it be reflected?

Agreed. Yet the Federal Reserve has a mandate to maximise employment, so to me it seems American society is quite literally manipulating the economy with a goal that's equivalent to maximising time away from your family

>Since World War II, most countries around the world have come to use gross domestic product, or GDP, as the core metric for prosperity.

Not exactly, before 1991 it was GNP, Gross National Product.

Changing over was a bit of gamification at the time.

GDP is useless without a standard calculation for computing the GDP. As it is, each country has its own calculation for GDP, which they tinker with to make it look good. The United States famously did this in the 1980's as it transitioned from a manufacturing economy to a service economy. They also included products and services from abroad if it were an American-owned company creating those products or delivering those services. Another country can count that activity as part of their GDP since it was done within their borders.

It's crazy.

I live near a military base that serves as a sorting facility for refugees.

This is mildly beneficial to our GDP. It’s also beneficial to the refugees. Win-win.

But whenever refugees show up, aggregate happiness certainly suffers.

With GDP it's better to have it and not need it

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