The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [90]
A clear conclusion is that economic policies should be based on a wider range of statistics than GDP alone, and in particular that measures of the economy’s wealth in the widest sense—including natural and human resources—should also be monitored. GDP measures flows of goods and service each year, whereas we need also to take into account the stock of resources, which captures many years’ worth of activity. Basing economic policy on GDP alone and not national wealth is like running a company with reference only to profit and loss accounts and not the balance sheet. One government, Australia’s, already offers pointers to the use of economic statistics in ways that will help us to know when we have got to the point of Enough. More on this later.
But first, I want to spend some time on other profound measurement problems, which arise from the way the structure of the economy is changing. These present tougher measurement challenges than adding measures of economic, social, and natural wealth to the array of existing statistics that governments monitor in setting policy. For the problem is conceptual: it isn’t immediately obvious what to start measuring. Why so?
An ever-increasing share of the advanced economies is made up of intangible activities—they are services such as health care or management consultancy or payroll services or acting, or they are servicelike aspects of goods such as research and design or marketing and after-sales service. For a number of reasons, these intangibles are not measured well in current economic statistics. What’s more, increasing swaths of the economy have features that mean either that the price of the activity charged in a market transaction is not necessarily a true reflection of their value, or that the price that can be charged does not cover their costs. This has long been a problem affecting the way government services such as education and policing are measured in GDP. It is a growing problem as, due to technological change, a growing share of the economy consists of goods and services that cost a lot to create in the first place but then not much to reproduce or distribute—the fixed costs of producing them are high due to high up-front investment but the marginal cost of producing and selling an additional item is close to zero. These increasing returns activities are growing in their extent, as seen in the growth of goods and research-intensive goods as a share of the leading economies’ annual output.
The more you think about the measurement problems, the more it becomes clear that the difficulty in measuring is a result not just of failing to collect the right statistics but is actually due to the way we think about such activities. The conceptual framework that lies behind existing economic statistics is a bad fit for an economy that is no longer mass-producing standardized manufactured goods. The structure of the economy is changing, and so is what people value. This is true both in the sense of what they’ll spend their money on in the weightless economy and in the sense of a growing appreciation of the legacy of today’s economy for tomorrow’s society. Looking at dry statistics—Mr. Gradgrind’s “Facts! Give me facts!”—is a path into deep questions about what society values.
This sounds rather cryptic. So I’m going to start this statistical expedition with teachers and then go on to tell a story about string quartets and the mega rock band U2.
WHAT’S A TEACHER WORTH?
The fact that some costs are rising faster than the general rate of inflation in the economy was first noted by William Baumol in a classic 1966 paper and in a 1993 follow-up.8 He noted the same phenomenon in services such as health care and teaching, and in the performing arts, in several leading economies. It’s widely known that health budgets for example grow at a consistently faster pace than the economy as a whole. The fact that the phenomenon