Tuesday, September 26, 2006

Stiglitz on GDP

Economist Joe Stiglitz, writing in Fortune magazine, takes aim at Gross Domestic Product as a measure of how well an economy is doing. He prefers Green Net National Product to take into account (1) degradation of the environment and use of natural resources, (2) depreciation, and (3) payments to foreigners.

I won't argue the points, but they seem somewhat pedantic to me (even as a fellow pedant). I bet these two measures are highly correlated over time and across countries, so for most purposes the distinction is not crucial. Moreover, I doubt focusing on the wrong measure has really lead to any significant policy blunders. No politician wakes up in the morning and says, "Today, I am going to maximize GDP as measured by my national income accountants."