Attention Economy


Friday, September 2, 2016

Looking Beyond GDP

The published version of Jones and Klenow paper is out:
Beyond GDP? Welfare across Countries and Time by Charles I. Jones and Peter J. Klenow
Abstract:
We propose a summary statistic for the economic well-being of people in a country. Our measure incorporates consumption, leisure, mortality, and inequality, first for a narrow set of countries using detailed micro data, and then more broadly using multi-country datasets. While welfare is highly correlated with GDP per capita, deviations are often large. Western Europe looks considerably closer to the United States, emerging Asia has not caught up as much, and many developing countries are further behind. Each component we introduce plays a significant role in accounting for these differences, with mortality being most important.

Non-Technical Summary:
“The two economists try to move beyond GDP and build a measure of economic welfare that uses data on consumption, leisure, any inequality evident in those two variables, and life expectancy in a country….
The results end up being quite interesting. While there is a very strong correlation between the two authors’ measure of welfare and GDP per person, comparisons between countries are different than if we used GDP per person. If policymakers were to compare the United States to France by average consumption, for instance, then France’s living standard is only 60 percent of the U.S. level. But using a measure that includes France’s lower inequality, lower mortality rate, and more leisure, France’s welfare-based living standard is about 92 percent of the U.S. level, with inequality, mortality, and leisure all boosting the relative standard equally.”

Related:
The debate surrounding the usefulness of GDP as a measure of economic well-being:
http://www.pbs.org/newshour/making-sense/column-gdp-useful-measurement-doesnt-show-whole-picture/