Thursday, June 10, 2010

Measuring Wealth: A Philosophical Exercise!

The Global Pie Chart exercise is fraught with pitfalls. Implied is the question: what is wealth? defines wealth in economic terms as
'all things that have a monetary or exchange value'. So it's an aggregate term. Water and oil cannot be by themselves 'all things', although definitely should be factors in measuring wealth. Students who noted this, are on the right track.
So, according to Keynes and his GDP, wealth is quantifiable, and you saw that the most popular measure of wealth is Gross National Product or Gross Domestic Product (see my Political Economy glossary for definitions.)
But...there is emerging a new definition of wealth that is NOT quantifiable. Clean air, clean water, good health, happiness, wellbeing...these are qualitative factors. It is now increasingly understood that these qualitative factors are indicators of economic well being. Health IS wealth (as my grandmother used to say!) For example, in the US, the poorer you are, the more likely you are to die earlier than others who are wealthier. It actually is more complicated than that. You see, there are societies that are poor in terms of currency but also long living. This might be because they have clean air, plenty of foraging and agricultural food, etc, most of which does not have exchange value. A friend of mine lives on an obscure Philippino island relatively untouched by civilization. People live off the land, the economy is barely run on money,there are small marketplaces, they are happy and live about as long as we do in the West.
Feminist economists (see my Pol Econ glossary) critique the GDP/GNP. They tend to look at unpaid services, like child caretaking, and argue that they are invisibilized, but should be part of accounting wealth.
In case you think all this talk is far fetched, be aware that tucked inside the 2010 health bill, on p 562 no less, is a provision requiring Congress to help finance and oversee the creation of a 'key national indicators' system, a sort of report card to show improvement, or not, in areas of health, education and the environment. This is called the State of the US, and will be run by the National Academy of Sciences; indicators will also include crime, energy, infrastructure, housing. What is not clear, is which indicators would enhance the GDP. Should they account for happiness or carbon emissions? Accounting wealth is a philosophical exercise. One economist, Amartya Sen, who teaches at Harvard, has created the Human Development Index; you might want to research his indicators.
The criticism of the GDP is as follows: just taking a national average of the GDP per person gives a skewed picture. For example, just a small minority of extremely rich people, can artificially increase the average GDP per person. So this explains why the US has a very high aggregate GDP, but 40 million Americans live under the poverty line. The US' child mortality rate is the same as Cuba's. Yet the US is ranked as high income country, and Cuba is ranked as a middle income country.

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