The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [17]
Most of the debate has been about the adjustments under the first three categories listed above, and it’s therefore easy to get the impression that GDP greatly overstates “true” welfare. Yet few people appreciate the absolutely enormous understatement of GDP which is due to our failure to measure the impact of new and improved goods and services. Recent examples include the impact of consumer electronics such as computers, cameras, or mobile phones, whose quality and capabilities have increased far beyond the extent captured in the figures, and the impact of new medicines or medical techniques. But there are countless everyday examples too—zippers, shampoo, sliced loaves, smoothies, pantyhose, noniron shirts, breakfast cereals—apparently more trivial but nevertheless making a big contribution to the ease and enjoyment of life.
I am not aware of any attempt to take account of the undermeasurement of GDP by the omission of new and better quality goods apart from the Boskin Commission in the United States. It looked mainly at capturing better the improved quality of electronic goods. Its 1996 report found that the statistics had overstated U.S. price inflation by about 1.1 percent, and correspondingly understated real GDP growth.19 National statistical offices do by and large now try to incorporate some allowance for improvements in quality of goods such as computers or cameras. However, William Nordhaus has shown that for some technologies—he looks at lighting and computers—the improvements are far, far greater than has been reflected in GDP statistics.20 No estimates exist for the understatement of GDP by failing to take account of the whole range of new goods and quality improvements; whatever the figure, it would be extremely large.
Although this failure to measure the benefits of innovation is a significant blind spot, ignoring the profound structural changes in the economy, the effort to find better measures than GDP to guide policy has become more vigorous. The high-profile Commission on the Measurement of Economic Performance and Social Progress, founded by French president Nicolas Sarkozy and led by two Nobel-winning economists, Amartya Sen and Joseph Stiglitz, is a recent example. Its opening statement of issues declares:
There is a huge distance between standard measures of important socio-economic variables like growth, inflation, inequalities etc, and widespread perception. The gap is so large and universal that it cannot be explained by reference to money illusion and/or to psychological characteristics of human nature. Our statistical apparatus, which may have served us well in a not too distant past, is in need of serious revision.21
The commission selected three main directions of study: (1) the limits of GDP as an indicator of progress or economic performance; (2) the quality of life, taking a broader perspective on well-being, including asking people about how they themselves feel; (3) sustainable development and the environment. The commission’s central conclusion was that governments should supplement conventional economic statistics with a much wider range of measurements, including environmental indicators and direct measures of well-being.
An initiative by the Organization for Economic Cooperation and Development takes the same approach. At the close of its second World Forum on Statistics, Knowledge, and Policy held in Istanbul in 2007, participants (including the World Bank and the UN Development Program) agreed on the need for national statistical offices, academics, and public and private bodies to work