If I don’t finish this column today, I’m in big trouble: I’ll be writing it on holiday, and my wife is likely to club me to death with a rolled-up copy of the FT’s glossy ‘How to Spend It’ magazine. She’s always telling me that I work too hard, and she may well be right. But what would happen to the economy if we all took life a little bit easier?
The simple answer is that we’d all produce less, which would mean more time to relax and fewer material goods to enjoy. The economy, as measured by gross domestic product, or GDP, would shrink. That would be just fine, of course.
GDP measures the total financial value of all the goods and services produced in an economy over the course of one year. Evidently, therefore, it leaves a lot out. For instance, sex in the context of a loving relationship is generally regarded as a good thing. Yet it would not show up in the GDP figures; sex with a prostitute would do just that, at least in principle. For such reasons, I often see proposals for superior measures of national welfare that allow adjustments for many things, ranging from environmental degradation and arms trading to time spent commuting.
I find such proposals very odd.
When a hatter measures the circumference of your head, he’s trying to work out what size of hat would fit you. It’s true that he has failed to gauge accurately your intelligence, but if you made that complaint he’d be puzzled. He’d be even more puzzled if you started proposing various adjustments. The same with GDP: it was only ever intended to measure economic transactions and there’s not much point in accusing it of failing to measure something else.
But if GDP leaves out so much that matters, why do my fellow economists lavish so much attention on the latest quarterly GDP growth figures?
Continued at ft.com, subscription free.