The desire to revive the global economy and simultaneously respond to the global climate crisis raises complex issues: whether statistics gives us the right "signals" about what we do?
In our performance-oriented world, the question has become more important measurement: what we measure affects what we do then.
If we have poor measurement tools, then what we want to make, for example, increase the GDP actually may contribute to deterioration of living standards.
We can stand before the wrong choice, taking into account the compromise between production and environmental protection, which does not exist.
In contrast, a more accurate measurement of economic performance may show that certain other actions to improve the environment is good for the economy.
Eighteen months ago, French President Nicolas Sarkozy has established an international commission of measurement of the main indicators of economic activity and social progress through dissatisfaction with the state statistical information about the economy and society. Shortly Commission should release his long-awaited report.
Big question is whether GDP reflects the standards of living. In many cases, statistics on GDP gives the impression that the economy is much better than it feels most citizens.
In addition, the concentration of GDP leads to conflicts. From political leaders need most to increase. But people want attention paid to strengthening security and reducing air pollution and water, and this may lead to lower GDP growth.
The fact that GDP may be a poor tool for identifying well-being or even market activity, of course, has long been recognized. However, changes in society and the economy, which increased attention to these problems.
At the same time, developments in the economy and methods of collecting statistical data provided more opportunities to improve our output.
For example, it is believed that GDP measures the value of goods and services, but in one of the key sectors - the government - usually we do not have the capacity to do so, they are measuring productivity costs.
If the government spends more - even if ineffectively - productivity increases. For the past 60 years the share of government performance in GDP increased from 21% to 39% in the U.S., from 28% to 53% in France, from 34% to 48% in the UK and from 30% to 44% in Germany.
Thus, what had been a relatively minor problem today was one of the key.
Similarly, quality improvements - for example, better machines, not just a lot more - are responsible for a significant part of GDP growth. However, it is difficult to assess quality improvement. Health care is an example of this problem: given a lot of public health services, and most of the achievements is to improve quality.
Problems of temporal comparisons apply to comparisons between countries. U.S. spends more on health than any other country, but gets less effective. Part of the difference between GDP per capita in the United States and some European countries, therefore, may be the result of how we are measuring.
Another noticeable change concerns increase in inequality. While some bankers are much richer then the average income is growing, even if the income of most people is reduced. Thus, the statistics of GDP per capita does not necessarily reflect everything that happens with most people.
We use market prices to assess the goods and services. But today even the most market advocates have questioned the possibility to rely on market prices, because they oppose the transfer in current prices. Revenues of banks before the crisis - a third of total corporate profits - turned out to be a mirage.
Understanding that sheds light not only on our assessment of economic efficiency, but the conclusions that we do.
Before the crisis, when the growth of the U.S. economy looked much stronger than growth in the EU, many Europeans argued that the Old World should adopt the U.S. style of capitalism.
Of course, everyone could see an increase in public debt of America and effective registration would significantly amend pleasant impression of success, which statistics show GDP.
Recent advances in methodology have provided us the opportunity to better evaluate what makes contribution to the evaluation of its citizens welfare, as well as collect data necessary to conduct such an assessment on a regular basis.
These studies examine and quantitatively determine what should be obvious: the loss of more impact on living standards than the loss of income. They also demonstrate the importance of social connectedness.
Any good evaluation of how well we live, must also take into account sustainable development. Just as the company needs in terms of impairment of its capital, and our national economy balance need to show reduction of natural resources and environmental degradation.
Statistical structure summarize what is happening in our complex society, several figures. Please understand that not everything can be reduced to one number - the GDP.
Report of the Commission on measurement of the main indicators of economic activity and social progress will, hopefully, a better understanding of the proper and improper use of statistics.
This report must also indicate the direction to create a broader range of indicators that accurately reflect how well-being and sustainable development. And it should give an impetus to improve the ability of GDP and related statistics to evaluate the effectiveness of the economy and society.
Such reforms will help us focus our efforts and resources in that direction, which leads to improvement of both indices.
Author: Joseph Stiglitz
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