Sunday, November 24, 2019

Stiglitz - It's Time to Ditch GDP


Justin Trudeau, Bill Morneau and every other perpetual-exponential-growther, or PEG'er, are joined at the hip to GDP, gross domestic product. They are GDP's high priests. It is, to them, the ultimate measure of success or failure, how they justify most of their increasingly bad decisions. That puts them with the dinosaurs which, oddly enough, happens to be where we might all wind up if we don't change course.

Joe Stiglitz is a fascinating character. He did his doctorate on the perils of inequality. He rose to be chief economist at the World Bank. He was awarded the Nobel Prize in economics. He's campaigned against rising inequality most of his life.

Joe believes it's time for clear-headed leaders to 'retire' metrics such as GDP.

So what if GDP goes up, if most citizens are worse off? In the first three years of the so-called recovery from the financial crisis, about 91% of the gains went to the top 1%. No wonder that many people doubted the claims of politicians who were then saying the economy was well on the way to a robust recovery.

...If our economy seems to be growing but that growth is not sustainable because we are destroying the environment and using up scarce natural resources, our statistics should warn us. But because GDP didn’t include resource depletion and environmental degradation, we typically get an excessively rosy picture.

These concerns have now been brought to the fore with the climate crisis. It has been three decades since the threat of climate change was first widely recognized, and matters have grown worse faster than initially expected. There have been more extreme events, greater melting of glaciers and greater natural habitat destruction.
It is clear that something is fundamentally wrong with the way we assess economic performance and social progress. Even worse, our metrics frequently give the misleading impression that there is a trade-off between the two; that, for instance, changes that enhance people’s economic security, whether through improved pensions or a better welfare state, come at the expense of national economic performance. 
Getting the measure right – or at least a lot better – is crucially important, especially in our metrics- and performance-oriented society. If we measure the wrong thing, we will do the wrong thing. If our measures tell us everything is fine when it really isn’t, we will be complacent.
And it should be clear that, in spite of the increases in GDP, in spite of the 2008 crisis being well behind us, everything is not fine. We see this in the political discontent rippling through so many advanced countries; we see it in the widespread support of demagogues, whose successes depend on exploiting economic discontent; and we see it in the environment around us, where fires rage and floods and droughts occur at ever-increasing intervals.
Stiglitz argues for new metrics that are relevant to the climate change epoch. The post-war era is over and our politicians need to accept that. They must stop governing as though we were still in the 80s because we're not. That era is gone and it's not coming back.

It may not feel like it but we're in a fight for survival. The stakes couldn't be higher. Global warming and severe weather events of increasing frequency, intensity and duration; ocean acidification and deep ocean heating; species extinction and migration; the proliferation and spread of infectious diseases; overpopulation; resource depletion and exhaustion; desertification; deforestation; the decline by more than half in global populations of both terrestrial and marine life; degradation of arable farmland; the rise of autocracy displacing liberal democracy; inequality and austerity dissolving the bonds of social cohesion; social unrest and upheaval; nuclear proliferation and terrorism. Growing the GDP answers none of these things. Carrying on as though we're still in the 80s only deepens our vulnerabilities.

We've got to stop focusing on quantity and, instead, address quality. That means addressing inequality, in all its permutations. That means coming to grips with automation, robotics, artificial intelligence, income and wealth redistribution.  It means recognizing that our present isn't a continuation of the past so much as the onset of a very different future for which we'll pay dearly if we don't get it right. Change is coming. Change is happening. It's up to us to decide if that change will be on our terms.

12 comments:

  1. “If we measure the wrong thing, we will do the wrong thing. “.....
    And there my friend lays the whole problem, as you know I have all but given up on commenting upon our democratic decline, I simply feel that the pressure from the right wing ideologues is overwhelming common sense. In my humble opinion it is the undeniable fact that in our society those with the most money (perhaps most perceived assets would be a better term?) have the most influence in the way forward, and most if not all are only interested in increasing their 'assets'. As you have pointed out many, many, many times our planet cannot survive on 'money' but unless we pour those assets into saving our planet from the toxins we are daily adding to our atmosphere then we and more importantly our kids are doomed for a very different existence from us...if they do indeed continue to exist!

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  2. Measuring progress by looking only at GDP is like driving while looking only at the speedometer. The speedometer gives useful information to be sure, but knowing speed without further context is meaningless. Trying to achieve maximum speed without paying attention to road conditions can be fatal.

    We need to see GDP within a wider context and recognize when it's time to let off the gas and hit the brakes. Stiglitz is right that we need a fuel gauge to warn of resource depletion, an engine temperature gauge to warn of societal discontent and a warning light indicating excessive pollution. Without these, we're putting ourselves in danger.

    Cap

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  3. Rural, I think that any hope of a successful democratic restoration hinges on rebalancing the power of the public in government.

    Governments now throw around the term "stakeholder" a status that can at times diminish the public interest. The horrendous state of our fisheries attests to this. The KPMG/Isle of Man scandal another.

    In truly dangerous times the pendulum needs to swing back heavily in favour of the public interest over all others. I don't see that Trudeau is capable of making that pivot although he pays lip service, of a sort, to the notion.

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  4. We are in grave peril, Cap, no matter how much we wish to avoid it. The nature and degree of our collective predicament renders the blind pursuit of GDP, perpetual exponential growth, obscene. Yet in this age of technocracy, the administrator class that has ascended to power shows itself incapable of responding.

    To once again flog Churchill's line, sometimes it is not enough to do our best. Sometimes we must do what is required. Where are we to find leaders who would give that life?

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  5. Mound, I agree we need a fundamentally change but unfortunately NO political party is capable of doing that even if they wanted to! Simply suggesting such moves would have the 'opposition' attacking such ideas, they are all subject to the pressures to survive which dictate if they can stay in power. Proportional Representation is the long term answer but I am unsure that our general public, particularly those who favor a more authoritative regime, are ever going to vote for such (or can make it work).

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  6. We can't seem to live within our means so we keep adding to the massive, growing debt load.

    Govt measures debt as a ratio of debt to GDP, so as the debt grows every year, as long as GDP grows the ratio remains the same, and everything is ok.

    So GDP absolutely MUST grow every year, forever, according to Govt. Good luck with that on a finite planet.

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  7. That's quite right, Hugh. We're locked in a giant governmental Ponzi scheme, always looking for an ever bigger tomorrow to finance our current debt and deficits. That is the heart of our fiscal policy and it extends into other areas such as our immigration policy. We don't want immigrants as much as we need them to expand our economy and grow our tax base. In some circumstances that can be a valid short-term policy but we've enshrined it as an immutable law of governance.

    This is what we get from the calibre of leadership we endure today. It's politics of the never, never.

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  8. Rural, the inescapable truth is that change is coming one way or the other. We either respond to it and do whatever we can to effect a "soft landing" or we wait until the wings fall off and we bore a great, smoking hole in the dirt.

    Sustainable retreat is a form of 'soft landing.' Many people won't find it to their liking but only when they ignore the alternative.

    As I mentioned to Hugh, this is a global Ponzi scheme. We are robbing the future to keep this fraud going just a little longer. It's a form of mental illness and it is deeply embedded in our political leadership.

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  9. Ponzi schemes tend to not end well.

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  10. Worldwide Governments have been bought and paid for.
    It will be difficult, perhaps impossible, to break that fact.
    The richest rich confiscate more wealth by the day and with that more power and influence.
    All this and the masses still worship these monsters and worse still wish to emulate them.

    TB

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  11. Stiglitz can say and write anything he wants as long as he sits in his comfortable pew drawing down an extremely big salary sitting where he does at present.

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