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the focus on GDP is itself profoundly flawed. All the "growth" in the US in the past 30 years has only gone to a small number of people.

The most recent cycle has seen median incomes end up below where they were at the beginning of the cycle, for the first time in a very long while.

Beyond the fact that GDP as a measure of the overall economy is not very good, its repartition is becoming the biggest problem.

Don't forget: "growth" = "growth for the top 0.1%'s incomes" these days. Thus GDP goes only so far.

Should we worry that the European institutional framework is less favorable to the ultra rich?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Sep 3rd, 2008 at 03:39:34 PM EST
Is there a more realistic alternative to GDP?  I'm clueless but are there other measures that would highlight more accurately where the growth has occurred and what this actually means with respect to those who have been losing out?

My thought is that GDP can only keep being used to boast about how well a country is doing for a finite time. Surely a plateau will be reached where although there is still growth for the top 0.1% the detriment of this disparity of wealth distribution is then taking chunks out of the economy through the social problems that are arising or becoming worse as a result?

by In Wales (inwales aaat eurotrib.com) on Thu Sep 4th, 2008 at 07:32:53 AM EST
[ Parent ]
The problem is with the insistence on using a single number. I don't think GDP is a useless quantity, but there's no reason why it (or any other single statistical aggregate) needs to be the be-all and end-all of the health of an economy.

The "problem" is that as long as you use more than one dimension to measure something, ranking becomes impossible. For me, the absence of a linear ranking is a good thing.

Anyway, the origin of GDP can be traced back to the work of Kuznets:

Kuznets is credited with revolutionising econometrics, and this work is credited with fueling the so-called Keynesian "revolution". An important book of his is National Income and Its Composition, 1919-1938. Published in 1941, it contains a historically significant work on Gross National Product. His work on the business cycle and disequilibrium aspects of economic growth helped launch development economics. He also studied inequality over time, and his results formed the Kuznets Curve.

...

Kuznets's life work was the collection and organization of the national income accounts of the United States (1934, 1941, and 1946). Kuznets was interested in statistical fact finding focusing specifically on seasonal fluctuations, secular movements, national income estimation, and economic growth. He computed national income back to 1869. He broke it down by industry, by final product, and by use. He also measured the distribution of income between rich and poor. Although Kuznets was not the first economist to try this, his work was so comprehensive and meticulous that it set the standard in the field.

Kuznets helped the U.S. Department of Commerce to standardize the measurement of GNP. He disapproved, however, of its use as a general indication of welfare, writing that "the welfare of a nation can scarcely be inferred from a measure of national income".

Keynes had the following to say about National Income and Inflation:
That the units, in terms of which economists commonly work, are unsatisfactory can be illustrated by the concepts of the national dividend, the stock of real capital and the general price-level:

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Thirdly, the well-known, but unavoidable, element of vagueness which admittedly attends the concept of the general price-level makes this term very unsatisfactory for the purposes of causal analysis, which ought to be exact.

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But the proper place for such things as net real output and the general level of prices lies within the field of historical and statistical description, and their purpose should be to satisfy historical or social curiosity, a purpose for which perfect precision--such as our causal analysis requires, whether or not our knowledge of the actual values of the relevant quantities is complete or exact--is neither usual nor necessary. To say that net output to-day is greater, but the price-level lower, than ten years ago or one year ago, is a proposition of a similar character to the statement that Queen Victoria was a better Queen but not a happier woman than Queen Elizabeth--a proposition not without meaning and not without interest, but unsuitable material for the differential calculus. Our precision will be a mock precision if we try to use such partly vague and non-quantitative concepts as the basis of our quantitative analysis.




A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Sep 4th, 2008 at 07:44:23 AM EST
[ Parent ]
the GDP is effectively a number representing average income (as an aggregate). Focus on a number representing median incomes or on the number representing, say, the lowest 5% of income would lead to very different policies (working towards improving the lot of the middles classes in the first case, and of the poor in the second case).

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Sep 4th, 2008 at 09:39:28 AM EST
[ Parent ]

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