It’s all terrible that we measure the economy by what is actually produced, consumed, in the economy. We must, of course, start to measure it some other way. So says Diane Coyle, of Cambridge:
There is nothing like the biggest economic crisis for 300 years – not to mention months of lockdown – to make people ask some fundamental questions. Why are “key workers” some of the worst-paid people in our societies?
Adam Smith explained this in 1776, the diamonds and water paradox. There’re a lot of people who can do that key working, it’s not a rare set of skills. End of.
Why are airlines but not freelancers in the arts getting government bailouts?
Arts Council England have made some very questionable choices about who receives their “recovery fund” grants. The council boasts on its website that “to date, we have announced £334 million of investment, with much more to come.” But where has all that money gone?
Scouring through the Round 2 grants, Guido noticed that the Arts Council gave £215,305 to “Le Gateau Chocolat” – a solo drag act from Brighton. Le Gateau Chocolat Ltd is private limited company claiming to have 2 employees, owned by a man called George Ikediashi, who is the company’s sole performer.
For some years now there has been a drumbeat of growing discontent about the use of growth in Gross Domestic Product (GDP) as the measure of progress. It excludes the way nature is affected by production and consumption. It excludes valuable but unpaid work such as childcare or volunteering. It ignores the distribution of gains, the fact that in so many countries the top ten per cent or one per cent have seen substantial increases in their incomes, while those of the rest have barely grown.
All of those explained by Simon Kuznets when he started the idea 80 years back. The advantage of GDP being that it’s something we can actually calculate, in something usefully akin to real time, in an objective manner. As we’ve also known for some 80 years.
Increasingly, economists and statisticians have also been trying to improve the measurement of the digital economy, which is not adequately captured by existing statistics.
Ah! Something true. Bjornolfson et al showing that Facebook is worth $8,000 a year each to us, email and search engines $18,000. Or, at least, that’s what people claim they;d have to be paid to give them up. Good work being done there.
Tech-driven changes mean that on the one hand, measures of price inflation may miss the many free apps people use – such as taking photos on a smartphone and sharing them online rather than buying a camera and paying for developing and printing. On the other hand, the digital economy is also clearly helping drive major inequalities of wealth
But then back to the usual standard of logic here. Think on it. If we’re all gaining access to these vast freebies – me and you on exactly the same terms as Jeff Bezos, Warren Buffett and Bill Gates – actually, better than Bill as he probably insists on using Bing not Google – then how can we say that any useful measure of inequality is increasing?
If we had been using a lens other than conventional GDP growth during the past decade, we would have had a different mental picture of economic progress. We would have been aware of the big differences in income growth between different places or groups.
Others have done this work, Milanovic for example, Income inequality is decreasing even before we consider Bjornolfson.
We would know how far we have run down the country’s natural capital to sustain lifestyles by destroying biodiversity and altering the climate.
This work is also being done. Norway being the European country most consuming its natural capital.
Whatever we mean by the economy growing, by things getting better, the gains will have to be more evenly shared than in the past. In particular, the new technologies transforming life will need to bring wider benefits than they have so far.
We all gain access at exactly the same rate to the vast benefits of those techs and we’ve got to do better?
Diane Coyle is the Bennett Professor for Public Policy, University of Cambridge
Anyone surprised that public policy is such a dung heap at present if this is the academic standard?