Sarkozy Is Right: GDP Is A Crappy Way Of Measuring The Economy

French President Nicolas Sarkozy recently got headlines for saying that happiness and leisure time needed to be factored in when measuring GDP. Of course, his country gets the gold medal when it comes to leisure, so this would serve him well.

The NYT follows up on Sarkozy's proposal with the two hand-selected economics who he has working for him:

In a provocative new study, a pair of Nobel prize-winning economists, Joseph E. Stiglitz and Amartya Sen, urge the adoption of new assessment tools that incorporate a broader concern for human welfare than just economic growth. By their reckoning, much of the contemporary economic disaster owes to the misbegotten assumption that policy makers simply had to focus on nurturing growth, trusting that this would maximize prosperity for all.

“What you measure affects what you do,” Mr. Stiglitz said Tuesday as he discussed the study before a gathering of journalists in New York. “If you don’t measure the right thing, you don’t do the right thing.”

According to the report, much of the world has long been ruled by an unhealthy fixation on swelling the gross domestic product, or the quantity of goods and services the economy produces. With a singular obsession on making G.D.P. bigger, many societies — not least, the United States — failed to factor in the social costs of joblessness and the public health impacts of environmental degradation.

Is this liberal-minded claptrap? No, it's really serious, and will probably become moreso in the coming years. As we've argued, new technology is allowing people to gain satisfaction in ways that won't be picked up by GDP measures at all -- whether it's the world of free entertainment or merely the pleasure of interactions with other people in a way that doesn't involve commerce. More generally, technology will probably have a big deflationary effct (arguably it already has) on many goods (including real estate). Thus if we continue to be obsessed with GDP, and only think a policy is successful if its GDP-boosting, then Stiglitz is totally right: "you don't do the right thing."

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