Jul 11, 2010

GROSS DOMESTIC PRODUCT AND QUALITY OF LIFE

A critic is being moved frequently to GDP  claiming that it does not take into account the QUALITY of the economic growth it is used to measure. The economists who support GDP (virtually all of them) as a measure of economic growth rejects this criticism by observing that GDP is a numeric value, and as such it is not supposed to contemplate anything allegedly left behind by the numeric criteria it uses. It appears to be a reasonable justification: even wanting to admit that people get stressed out while pursuing richness, and that progress in technology creates a vacuum in human life and in social relations; that workaholism, enviromental issues and all those disturbed behaviours that ultimately require the help of a specialist are a real social treat; all this appears nonetheless to be material for the speculations of sciencies like sociology, psychology and of humanities like philosophy, but by no means can it be anything economics would want to deal with. "Quality of life" is a subjective measure, related to an ideal notion of human nature and well-being whose formulations are left to the aforementioned disciplines, and can rarely reach an objective and unquestionable definition. For the "quality of life" problem, a different formula than GDP has to be used.


Where sciencies like sociology fail

It is a question related to the nature of the topic being studied, more than to the method or tools being implemented: sociology collects and organizes numeric data too. The difference is that, beside any more or less occasional use of objective data (where sociology relies on statistics, which is a science on its own), sociology produces statistics related to the collection and organization of opinions obtained by conducting polls. Opinions can be valuable if the purpose is grasping the public sentiment about a political strategy in that particular moment, or defining a consumption trend etc., but it can never be a valuable criterion for defining once for all what ontologically constitutes a qualitatively acceptable standard of life or, for lack of a better expression, a "life worth living".
So, does this definition have to be left to the lofty altitudes of philosophical speculation? And if this is true, is the destiny of economics as a science to ignore the human content of economic growth, that is to say its implications for the quality of human life, just because numbers cannot represent quality?
The problem boils down to a simple question: what does an increase in GDP mean for everyday life? Does the Government use it to invest in more services (hospitals, busses, etc.)? One can already see that when we say "quality" it does not have to mean something abstract or ideal (like that implied in the criticism of consumerism many sociologists indulge in), but something that touches the core of our life: our serenity and well-being. The question can be simplified further: where does the money go? How is it spent? Economics explained by answering these simple questions can be much easier to understand.


GDP gets the calculations wrong 

Still, one can easily understand the legitimacy of the objection that in applying the concept of quality to the GDP formula we would be weghing down economics with criteria that simply do not belong to it. If we really want to assess the validity of a theory (or that of a tool being used, as in this case), the correct way of proceeding would be to prove its fallacy by moving from within the dominion of reference of that theory. In criticizing GDP through the - otherwise legitimate - external principles of ethics, psychology and philosophy, we are not making any progress, as copiously testified by the plethora of inconclusive discussions taking place on a daily basis in the media. Both parties would simply be hitting their heads against the wall of reciprocal incomprehension, mistaking the pain they feel for the satisfaction of proudly defending their respective positions. 
What is economics all about? Obviously, the foundation of economics is mathematics. By showing that the GDP formula contains outright mathematical mistakes we will be playing and winning by the same rules of our opponent. GDP is not accurate because it does not take into account qualitative parameters (quality of life and the likes). Granted, it does not have to, because it was conceived as quantitative. But a simple example (among many possible) can clarify not only that GDP is inaccurate according to criteria not directly belonging to economics, but also that it is inaccurate from a mathematical standpoint, that is to say: according to its own operational principles.
Example. A factory damages the environment of an area. Then, when the situation becomes finally intolerable, the water is dirty, the air unbreathable and the vegetables unedible, a team specialized in enviromental issues is sent there to clean the area and to purify the water with special filters.
Well, GDP includes the money gained by the factory and also the money gained by the environmental team who went solve the environmental problem. Now, anybody sees there is something wrong here with the calculations, in that a redundancy is taking place. Shouldn't the damage be translated into money and be booked as cost in the income statement of the factory? This way, the numeric imbalance would be taken care of and the GDP would not be inflated, as in fact it is, because it books as gain at the same time the money generated from an industrial activity and that generated by the solution of the problem that that activity caused. Of course, some discrepancy is bound to persist, because the costs of the damage cannot be calculated with absolute precision, due to the frequently long-lasting character of its effects. Another, maybe even more pregnant, example is that of the heavy and literally incalculable consequences of industrial production on national health care systems. 
What I have described in this article can be viewed as a way of seeing GDP taking quality of life into account while avoiding, for once, that wall of incomprehension that usually prevents us from successfully dealing with a problem, when the are more parties involved in it.

 
"Bagneuse parisienne about to be kidnapped by a klingonian spaceship."

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