An Alternative to GDP as a Measure of Welfare

Over the course of the semester, we’ll address the issue of economic growth and economic well-being. We’ll ask–and attempt to answer–question such as “why are most African countries still so poor?”, “why has there been an economic miracle in many parts of east Asia?”, etc. As we’ll see, the most widely used measure of economic welfare (or well-being) is gross domestic product (GDP), which is a measure of the total goods and services produced in a country in a given year.

Evidence suggests that the higher a country’s GDP, the better that country’s residents live; that is, they are better off. Recently, there has been increasing criticism of the focus on GDP as a measure of societal welfare. Think of the recent oil spill of the US coast in the Gulf of Mexico. The money spent to (attempt to) clean the waters and beaches served to increase the GDP in this area during the clean-up. It doesn’t take too much imagination to understand that this increase in GDP was probably not a boost in the general welfare of the individuals living in the region.

Robert Kennedy, at the start of his ill-fated run for the US presidency in 1968, remarked about GDP:

“The GDP* measures everything except that which makes life worthwhile.”

In a recent TED talk, statistician Nic Marks tackles some of the issues of using the GDP as a measure of a society’s “success.” From the abstract:

Statistician Nic Marks asks why we measure a nation’s success by its productivity — instead of by the happiness and well-being of its people. He introduces the Happy Planet Index, which tracks national well-being against resource use (because a happy life doesn’t have to cost the earth). Which countries rank highest in the HPI? You might be surprised.

What Final Exams in Introductory Economics Courses at Berkeley look like

Here are two final exams from Professor DeLong at UC-Berkeley. Maybe I should make my final exams a little bit more difficult.

Political Economy 101, “Modern” Theories of Political Economy.
PART I: SHORT ANSWERS: Do 7 of 8. 1 hour–one-third of exam–10 min. per question:
  1. What facts about the way the world appeared to be working before 1914 made it reasonable for Norman Angell to hope that full-scale war between great powers had become a thing of the past?
  2. The dominant social-democratic consensus when Milton Friedman wrote was that the logic and working of the market needed to be curbed by an active, powerful, energetic government aggressively regulating in the public interest. What does Milton Friedman think is wrong with this? What does he think is wrong with the conventional “conservative” point of view?
  3. What does Karl Polanyi mean when he calls the commodities of land, labor, and finance “fictitious”?
  4. Does Paul Krugman believe the West should feel threatened by the fact that Asian countries have achieved “miraculous” growth under a different political ideology? Why or why not?
  5. What does Benedict Anderson mean by “imagined” when he calls nations “imagined communities”? What does Benedict Anderson think that “print capitalism” did in creating his imagined communities?
  6. What was the main point of each of the following three articles: i.) Stephen Holmes on the meaning of liberalism; ii.) Francis Fukuyama on the “end of history”; iii.) Benjamin Barber on “Jihad vs. McWorld”?
  7. What does Robert Reich mean by “symbolic analyst”? What does he want symbolic analysts to invest in and why?
  8. What are the differences between Dani Rodrik’s and Joe Stiglitz’s approaches to understanding economic development policy?
PART II: LONG ESSAYS: Do 2 of 3. 2 hours–two-thirds of exam–1 hr. per question:
  1. In what ways are thinkers like Milton Friedman and thinkers like James Scott close intellectual allies? In what ways are they mortal intellectual enemies? How have the pieces of twentieth century history that they have lived through and focus on led them to their respective conclusions? How does the thought of each differ from the ideological labels traditionally applied to them?
  2. One way to understand almost all of the thinkers read in this course is that they are all trying in various ways to escape from the box history placed us in when history turned out not to follow the “pre-WWI classical liberal” path of steadily increasing prosperity, democratization, globalization, and peace. Take at least six of the thinkers read in this course and put them in their proper place in this perspective: What things in twentieth-century history made them reject or try to fix classical liberalism? How did they think that humanity should get out of the traps and problems that history was presenting?
  3. A large number of the thinkers we have read are explicitly concerned not just with what is but with what ought to be–not just with the technocratic “what works” but with the moral questions of “what kind of people we are” and “who are we responsible toward.” Consider John Maynard Keynes, Karl Polanyi, Milton Friedman, and Joe Stiglitz. How are each of their arguments and points of view “moral” rather than “technocratic”? Does the moral element strengthen or weaken the cases they make, in your opinion.

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