Transcript Measuring Social and Economic Development Beyond the GDP Questions Addressed in This Presentation • What are economic indicators? • Why are economic indicators important? • What.

Measuring Social and
Economic Development
Beyond the GDP
Questions Addressed
in This Presentation
• What are economic indicators?
• Why are economic indicators important?
• What are the most common economic
indicators?
• What does GDP, the most common economic
indicator, reveal and conceal about the health
of the economy?
• What are some of the alternative indicators
and indices that have been developed to
measure social and economic well-being?
What is an indicator?
• Dictionary Definition: “something observed
or calculated that is used to show the
presence or state of a condition or trend.”
• Examples of common indicators:
thermometers (measure temperature); scales
(measure weight); stethoscopes (measure
heartbeat); rulers (measures distance);
speedometers (measure speed).
What is an Economic
Indicator?
• Economic Indicators are statistical
measures which reflect the overall health
of the economy.
Why Are Economic
Indicators Important?
• Economic indicators are important because they
suggest to investors, politicians, citizens, etc., how well
the economy is doing at a given point in time.
• Based on this knowledge, important investing and
public policy decisions are made, which affect all of us
as stockholders, consumers, citizens, etc.
What Are the Most Common
Economic Indicators?
• Gross Domestic Product (GDP)
• Stock market averages (e.g., DIJA, NASDAQ,
S&P 500, etc.)
• Unemployment rate
• Inflation rate
• Can you think of other common economic
indicators?
Common Economic Indicators
•
They are hundreds if not thousands
of economic indicators, but the two
most commonly reported in the
United States are:
1) The Gross Domestic Product (GDP),
which is reported on a quarterly basis
(i.e., every three months).
2) The various stock market averages
(e.g., the Dow Jones Industrial
Average (DIJA), the NASDAQ
Composite Index, and the Standard &
Poor’s (S & P) 500), which measure
stock market activity on a daily basis
(Monday through Friday).
Reporting GDP :
A Wall Street and Media Ritual
• On a quarterly basis, the U.S.
Commerce Department releases its
GDP figures and the media always
report on them.
• An illustrative example is the article
“Economy Grew 3.9% in 3rd Quarter”
which appeared in the New York Times
on October 31, 2007.
Economy Grew 3.9% in 3rd
Quarter
• The article begins, “The economy
expanded faster than expected in
the third quarter, led by a surge in
consumer spending and
exports…”
• Interest rates, business spending,
residential spending, inflation,
employment figures, and stock
market levels are also mentioned.
• Question: What do these figures
reveal (and conceal) about the
health of the economy?
Let’s Take A Closer Look at GDP!
• Definition: GDP is the market value of all
the goods and services produced by a
country during the course of a year.
• Formula: GDP = consumption + investment
+ government spending + (exports - imports)
• Strength(s): GDP is good at measuring the
amount of market-recognized economic
activity that takes place in a given country.
The World Bank’s GDP
Rankings (2006)
U.S. Millions of Dollars
1
United States (13,244,550)
11 Russia (979,048)
2
Japan (4,367,459)
12 India (886,867)
4
China (2,630,113)
14 Mexico (840,012)
5
United Kingdom (2,373,685) 15 Australia (754,816)
6
France (2,231,631)
16 Netherlands (663,119)
7
Italy (1,852,585)
17 Turkey (392,590)
8
Canada (1,269,096)
18 Belgium (393,590)
9
Spain (1,225,750)
19 Sweden (385,293)
The U.S. accounts for approximately 1/4th
3 Germany (2,897,032)
13 World
SouthProduct
Korea (888,267)
of the Gross
(GWP)!!!
10 Brazil (1,067,706)
20 Switzerland (377,240)
GWP = $48,244,879,000,000
The IMF’s GDP Per Capita
Rankings (2006)
Purchasing Power Parity (PPP)
1
Luxembourg ($80,471) 11 United Kingdom ($35,051)
2
Ireland ($44,087)
12 Finland ($34,819)
3
Norway ($43,574)
13 Belgium ($34,478)
4
United States ($43,444) 14 Sweden ($34,409)
5
Iceland ($40,277)
15 Qatar ($33,049)
6
Switzerland ($37,369)
16 Australia ($32,938)
7
Denmark ($36,549)
17 Singapore ($32,867)
8
Austria ($36,031)
18 Japan ($32,647)
9
Canada ($35,494)
19 Germany ($31,095)
10
Netherlands ($35,078)
20 Italy ($30,732)
GDP Can Be Deceiving
• GDP does not take into account the
distribution of income or wealth.
• GDP does not account for the black market
nor does it recognize the non-monetary
economy (e.g., housework, volunteering,
etc.).
• GDP does not account for externalities like
crime, divorce, and natural disasters. In fact,
it treats them as economic gain.
What’s Wrong with GDP As
A Measure of Progress?
• In the words of one critic, GDP “works like a
calculating machine that adds but cannot
subtract. It treats everything that happens in
the market as a gain for humanity, while
ignoring everything that happens outside the
realm of monetized exchange, regardless of the
importance to well-being.”
Click here to access a short (4 page)
explanation of some of the problems with GDP.
What’s the Economy for, Anyway?
“Distinctions must be kept in
mind between quantity and quality of
growth, between its costs and
return, and between the short and
long run…Goals for more growth
should specify more growth
of what and for what.”
Simon Kuznets, the Nobel Prize-winning economist and
creator of the GDP as a measurement tool, warned against treating
GDP as a gauge of progress.
What’s the Economy for, Anyway?
• GDP growth may well be a means to
economic development, but it should
NOT be considered an end in itself!!!
• After all, some growth may bad for wellbeing (e.g., pollution, crime, war, etc.).
• That’s why it’s important to ask the
question:
• What’s the Economy for, Anyway?
The World Bank’s Income
Inequality Rankings (2006)
An imbalance between rich and poor is the oldest and most fatal ailment of all republics -- Plutarch
1
Azerbaijan (19)
11 Hungary (26.9)
2
Denmark (24.7)
12 Ukraine (28.1)
3
Japan (24.9)
What’s
4
Sweden (24)
14 Germany (28.3)
5
Czech Republic (25.4)
15 Slovenia (28.4)
6
Slovakia 25.8)
16 Rwanda (28.9)
7
Norway (25.8)
17 Croatia (29)
8
Bosnia and Herzegovina (26.2) 18 Austria (29.1)
9
Uzbekistan (26.8)
10 Finland (26.9)
13 Albania
(28.2)
the Economy
for, Anyway?
19 Bulgaria (29.2)
20 Belarus (29.7)
73 United States (40.8)
The United Nation’s Life
Expectancy Rankings (2005)
1 Japan (82.2)
11 Norway (79.6)
2 Hong Kong (81.8)
12 France (79.6)
3 Iceland (80.9)
13 New Zealand (79.3)
4 Switzerland (80.7)
14 Austria (79.2)
5 Australia (80.5)
15 Belgium (79.1)
6 Sweden (80.3)
16 Germany (78.9)
7 Italy (80.2)
17 Singapore (78.9)
8 Canada (80.2)
18 Finland (78.7)
9 Israel (80)
19 Cyprus (78.7)
10 Spain (79.7)
20 Malta (78.76)
What’s the Economy for, Anyway?
30 United States (77.5)
The United Nation’s Infant
Mortality Rankings (2006)
1 Iceland (2.9)
11 Belgium (4.2)
2 Singapore (3)
12 France (4.2)
3 Japan (3.2)
13 Spain (4.2)
4 Sweden (3.2)
14 Germany (4.3)
5 Norway (3.3)
15 Denmark (4.4)
6 Hong Kong (3.7)
16 Austria (4.4)
7 Finland (3.7)
17 Australia (4.4)
8 Czech Republic (3.8)
18 Luxembourg 4.5)
9 Switzerland (4.1)
19 Netherlands (4.7)
What’s the Economy for, Anyway?
10 South Korea (4.1)
20 Israel (4.7)
32 United States (6.3)
• In November of 2007, the European
Commission, the European Parliament, the
Club of Rome, the World Wildlife Foundation,
and the Organization for Economic
Cooperation and Development put on a
conference entitled “Beyond GDP.”
• Click here to view a short video clip about
GDP that emerged from the conference.
• The conclusion that emerged from the conference was the
following:
• “GDP, the best-recognized measure of economic
performance in the world, is often used as a generic indicator
of progress. However, the relationship between economic
growth as measured by GDP and other dimensions of
societal progress is not straightforward. Effectively measuring
progress, wealth and well-being requires indices that are as
clear and appealing as GDP but more inclusive than GDP—
ones that incorporate social and environmental issues. This
is especially important given global challenges such as
climate change, global poverty, pressure on resources and
their potential impact on societies.”
A Sampling of Alternative Measures of
Economic and Social Well-Being
• Index of Sustainable
• Human Development
Economic Welfare
Index
• Canadian Index of Well- • Sustainable Society
Index
Being
• Living Planet Index
Should
the
United States develop an
• Ecological Footprint
• Measure
of Domestic
American
Index
of
Well-Being
to replace
• Calvert-Henderson
Progress
or
supplement
GDP? If so, what
Quality of Life Indicators • Sustainable
National
indicators should it include?
• Genuine Progress
Income
Indicator
• Environmental
Performance Index
• Happy Planet Index
What’s the Economy For, Anyway?
A Project of the Center for Communication and Civic Engagement
at the University of Washington.