Archive for April 15th, 2014

Quote notes (#73)

Adam Gurri on Diane Coyle’s new book GDP: A Brief but Affectionate History:

One thing I personally came away from Coyle’s book with is the feeling that NGDP targeting and similar notions are probably a bad bet. Depending on what particular recipe has been agreed upon for calculating GDP, policy can easily end up optimizing to very unproductive ends. For example, Coyle mentions how changes in the recipe ended up far overstating the financial sector’s component. The larger the component of GDP the financial sector makes up, the more likely the government is to bail out big firms to prevent a big collapse — after all, the further headline GDP falls quarter over quarter, the more incumbent politicians sweat about losing their seats.

This blog has already dismissed macroeconomic aggregates as politicized ‘garbage‘ — so I agree.

It’s hard to tell from this short review whether Gurri sees the search for “a better proxy for welfare” as worthwhile or hopelessly Quixotic. Regardless, with utilitarian distractions firmly side-lined, it would be intrinsically valuable to arrive at a realistic measure of economic performance (i.e. improvement in productive capability), to provide guidance for systemic auto-correction. It’s well worth recalling how radically inadequate GDP is for this function.

ADDED: Related conundrums raised in James K. Galbraith’s review of Piketty — measuring capital is difficult.

ADDED: Scott Sumner vs Larry Summers (not an agonizing choice). This is good: “I’m a right wing liberal because I have a counterintuitive view of the world …”

ADDED: Scrap the CPI.

April 15, 2014admin 32 Comments »
FILED UNDER :Political economy