A few years ago I was visiting the museum of a local Maine historical society. When the docent discovered I worked as an economist, he immediately wanted to show me their collection of early currency that had circulated in the community. His assumption was that an economist would, of course, be interested in money. I really wasn’t interested.
While economics often has to do with measurement of human and natural phenomena in monetary terms, there is much more to economics than just money. I prefer a definition of economics as the allocation of scarce resources to satisfy human needs and generate human wellbeing. That has to do with much more than measuring things in dollar terms.
I thought of this issue of what gets measured in economics when I checked the March data synopsis prepared for the Congressional Joint Economic Committee, Economic Indicators. This publication has changed little for decades and reflects the idea that economics is only about what can be measured in dollar terms. The idea is clearly illustrated by the lead indicator in the publication, Gross Domestic Product (GDP), the dollar value of goods and services produced in an economy.
U. S. Gross Domestic ProductGDP is a metric widely criticized by economists. For example, see the work of Nobel Laureates Joseph Stiglitz and Amartaya Sen, along with Jean-Paul Fitoussi, Report by the Commission on the Measure of Economic Performance and Social Progress. It is not that GDP is unimportant, rather it is incomplete as a measure of how well an economy provides welfare for people. As such, it gets much too much attention by policymakers. Economists enable this misplaced importance.
Let me give a simple example of the kind of things GDP misses. Recently I took a copy of Mary Ellen Chases’s novel The Edge of Darkness off my bookshelf. I think this is one of Chase’s best works and is clearly illustrates community life in coastal Maine. Re-reading the book gave me great pleasure and reaffirmed some of my understanding of Maine as place. The book was part of my mother’s library and I think she got it from a library used-book sale. So the book probably had no impact on official GDP statistics since 1957 when it first sold in the market place. Yet it continues to generate wellbeing to this day. Wellbeing is more than just the dollar value of transactions in markets.
Contrast my enjoyment from reading Maine literature with the lunch I had a few weeks ago at a central-Maine restaurant I have enjoyed in the past. The vegetables were undercooked, the service was indifferent, and the steak was tough. Yet the price I paid for the meal (too much, in fact) registered in the GDP statistics for the month. GDP measured a market transaction that I regretted, not a source of personal satisfaction.
In fact the whole of Economic Indicators reflects the unwillingness or inability of policy makers to think more broadly about what we should measure. It is natural to suggest that economists are at fault here, but the reality is that there is a flood of academic writings from economists that suggests additional metrics that should be central to our understanding of economic performance. These include measures of:
- Economic inequality
- Spillover effects, what economists call externalities
- Human health and longevity
- Life satisfaction or happiness
- Ecological systems that provide the life support for humans on the planet
These metrics and many more are indicators of how the allocation of scarce resources affects wellbeing. All the things that matter are not readily measurable in dollar terms. It is time we broaden our view of what we should measure when we talk about economics, because we focus in public policy on what we measure