Rethinking GDP and Economic Welfare Measures: Priorities and Plans
The discussion revolves around the limitations of GDP as a measure of welfare and production, emphasizing the need for broader measures encompassing factors like sustainability, global trends, income distribution, and innovation. Proposals include extending national accounts, enhancing subjective well-being measures, and updating existing economic indicators. The objective is to establish more comprehensive and accurate frameworks to evaluate economic well-being and progress.
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GDP & Beyond: Priorities and Plans GDP & Beyond: Priorities and Plans Steve Landefeld, Shaunda Villones, and Alyssa Holdren
GDP as a Measure of Welfare (and Production) GDP as a Measure of Welfare (and Production) Long-standing issue Kuznets Proxy for Standard of Living Renewed interest in broader, or supplemental, measures Housing and financial crisis Great recession and slow recovery Environment, natural resources, energy; investment (including human capital) and saving; and R&D and innovation Rising health care costs Increasing globalization Increasing concentration of income and wealth Challenges: Varying degrees of gaps in data, consensus on estimating methods, and the relevance and importance of these extended accounts How broad? National accounts should include elements that reflect economic welfare that can be brought directly or indirectly into relation with the measuring rod of money. Pigou He emphasized that can might mean anything from can easily to can with violent straining. Progress on broader measures has waited too long (over 75 years!) Need to set ambitious but achievable goals 2
Developing a Work Plan Developing a Work Plan Will address short-term and long-term Supplemental Account priorities and will include the following elements Scope and Methodology Recommended long-term projects extended national accounts, measures of subjective well-being, and dashboards of economic and other social indicators Recommended short-term projects updating/extending one or more of the sets of existing satellite accounts that BEA currently produces or has produced in the past Update will serve as a prototype and catalyst for further extensions and updates for other areas of BEA s economic accounts. Availability of source data Required resources Communication plan Vet the work plan Produce prototype satellite account(s) 3
Better Measure of Production and Economic Better Measure of Production and Economic Welfare Welfare Long-standing issue with lots of research to build on Kuznets: GNP is a measure of market production and incomes, not a measure of economic welfare. Other problems: Distribution of income, externalities of modern life, depletion, etc. Nordhaus and Tobin: Sustainability, value of leisure, non-market production, measure of economic well-being (MEW) Solow, Jorgenson et al. and Hulten: Better understanding of the sources of growth and GDP as a better measure of production (and welfare) Gordon, Berndt, Corrado & Sichel, Bosworth and Triplett, Boskin Commission, BEA/BLS/Census: Improving GDP as a measure of production and welfare through better measures of prices and real output Nordhaus/Nature s Numbers: Expanding GDP to include the environment (including natural resources) Abraham/Beyond the Market: Designing non-market accounts for the United States Stiglitz, et al.: Distribution of income, consumption, and wealth; household production and leisure time; sustainability, subjective measures of well- being, and physical indicators (health, education, environment, etc.) Hulten, Corrado, and Sichel: Innovation BEA: GDP and Beyond 4
Subjective Well Subjective Well- -Being Indexes Being Indexes Attempts to measure well-being using direct surveys and avoids some problems in GDP per capita and other economic measures SWB comes with its own problems Several problems for use in public policy SWB adapts quickly to negative events (even with no improvement in underlying conditions such as loss of wealth, recessions, disability, etc.) reducing usefulness for policy No clear long-term trend in happiness, which also limits usefulness for policy Cultural and attitudinal differences across countries make cross-country comparisons difficult 5
Happiness and the Financial Crisis Happiness and the Financial Crisis [Rate] [Index 2008 = 1.00] 1.02 12.0 Gallup well-being index 1.00 10.0 0.98 Unemployment rate 0.96 8.0 0.94 6.0 0.92 Household net worth 0.90 4.0 0.88 2.0 0.86 0.84 0.0 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Source: BLS, Gallup, FRB 6
Long Long- -Term Happiness and Real GDP Per Capita Term Happiness and Real GDP Per Capita [Index 1965 = 1.00] 3.00 2.50 2.00 1.50 1.00 0.50 0.00 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Real GDP per capita Index of consumer sentiment Average happiness Source: BEA, University of Michigan, Veenhoven, R., World Database of Happiness, Distributional Findings in Nations 7
Dashboard of Social Indicators Dashboard of Social Indicators Subjective weights (including equal weights) vs. market values? Subjective choice of indicators? Appropriateness/representativeness of available indicators as measures of types of well-being? 8
Inventory of current projects Inventory of current projects I. For possible updating, extending, or moving from research to production Arts and Cultural Production Satellite Account Energy Satellite Account Environmental and Natural Resources Satellite Accounts: National Capital Ocean Economy Global Value Chains/Extended International Satellite Account Government Satellite Accounts Health Care Satellite Account Household Production Satellite Account Human Capital Satellite Account Income, Consumption, and Wealth Distribution Satellite Accounts Integrated Income, Product, and Federal Reserve Financial Accounts (more on next slide) Integrated BEA GDP-BLS Productivity Accounts Integrated BEA/BLS Industry- Level Production Account Outdoor Recreation Satellite Account Small Business Satellite Account Travel and Tourism Satellite Accounts 9
Potential Projects: Potential Projects: II. Updates to Make GDP a Better Measure of II. Updates to Make GDP a Better Measure of Welfare and Production Welfare and Production Digital economy Prices for new goods Prices for free goods Other updates to GDP 10
Potential Projects: Potential Projects: III. Dashboard of Existing Measures III. Dashboard of Existing Measures Highlight existing data on economic well-being, including relative measures GDP per capita and other per capita measures GDP, NDP, GNP, command-basis GDP, etc. Saving, net investment, and other rates and shares of GDP 11
UK Example of Alternative Measures of UK Example of Alternative Measures of Economic Well Economic Well- -Being Being Impact of alternative measures: GDP, NDP, GNI, NNI, HHDI, HHFCE, HHAFCE (see charts) Quarterly: 10 main indicators Gross domestic product per capita Net national income per capita Real household disposable income per capita Real household final consumption expenditure per capita Real median equivalized household disposable income (survey data) Whole economy net wealth Household net wealth Perception of financial situation Unemployment rate Inflation (CPI) National well-being: Mix of alternative economic, physical, and subjective measures of 10 dimensions 12
Impact of Alternative Measures: National Impact of Alternative Measures: National Income Income Measures of National Income, 2008 [Current Prices and PPPs] 13
Impact of Alternative Measures: Household Impact of Alternative Measures: Household Income Income Measures of Household Income, 2008 [Current Prices and PPPs] 14
UK Example of Alternative Measures of UK Example of Alternative Measures of Economic Well Economic Well- -Being Being Impact of alternative measures: GDP, NDP, GNI, NNI, HHDI, HHFCE, HHAFCE (see charts) Quarterly: 10 main indicators Gross domestic product per capita Net national income per capita Real household disposable income per capita Real household final consumption expenditure per capita Real median equivalized household disposable income (survey data) Whole economy net wealth Household net wealth Perception of financial situation Unemployment rate Inflation (CPI) National well-being: Mix of alternative economic, physical, and subjective measures of 10 dimensions 15
Potential Projects: Potential Projects: IV. Aggregate Economic Welfare Indexes IV. Aggregate Economic Welfare Indexes Jorgenson et al. (level of living/standard of living) Jones and Klenow (market-based index of consumption, leisure, mortality, and inequality) 16
Potential Projects: Potential Projects: V. What BEA Could Contribute to SWB Indicators V. What BEA Could Contribute to SWB Indicators Subjective well-being indexes BEA statistical toolkit of existing and supplemental information to aid research in understanding the determinants of Subjective Well- Being survey results including: The distribution of personal income and wealth National and regional price indexes Sustainability measures Well-being indicators/dashboards BEA statistical toolkit of existing and extended indicators as inputs to aggregated (usually with equal weights, e.g. Canadian Well-Being Index) and dashboard indicators (e.g. OECD s How s Life ) including: Existing measures, including household income and wealth Extended measures, including human capital, environment, health and education 17
Criteria for Evaluation of Various Criteria for Evaluation of Various Satellite/Supplemental Accounts (Potential Satellite/Supplemental Accounts (Potential Projects I Projects I V) How close are they to BEA s mission and expertise? How relevant and useful are they to public policy? How often do they need to be produced? What are the resource costs to begin regular production? (And benefits relative to core research) What is the methodology and what is the availability of source data? Accuracy, Timeliness, Relevance, Objectivity and Use of Economic Methods Why should BEA rather than others produce these accounts? What is their importance to Customers, Experts, Policy Makers, Business Users, Congress and the Administration? How successfully can BEA vet and roll out the alternative accounts? 18
Developing a Plan to Integrate, Prioritize, and Developing a Plan to Integrate, Prioritize, and Regularly Produce Extended Account Estimates Regularly Produce Extended Account Estimates Questions for the Committee Are there projects that should be added to, or deleted from, the list of potential projects? Are there criteria that should be added to, or deleted from, the criteria list? Given BEA s objectives and the criteria cited above, what would be your suggested top priorities for BEA short-term (1 year) and long-term? 19
