The Senate subcommittee on Interstate Commerce had a hearing yesterday concerning the value of using the GDP as a measure of the nation's well-being.  Needless to say, along with the stock market and unemployment figures, the GDP is one of the most commonly cited numbers in articles dealing with the state of the economy.  Kate Sheppard over at Tapped takes a look at the issue.  She quotes Robert F. Kennedy who once noted the failures of GDP measurement:

"Our gross national product counts air pollution and cigarette advertising and ambulances to clear our highways of carnage," said Kennedy. "It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl."

The problem with GDP, argued Kennedy, which remains true today, is that it includes a lot of things that destroy the environment, health, and peace of the world as positive but doesn't look at other valuable measures: "It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country."

It's a good point.  Sadly, considering only one Senator, chairman Byron Dorgan, bothered to even show up for the hearing, I don't expect the conventional wisdom on GDP will be changing anytime soon in the United States.

There's also a great piece buried in Google's cache here, rejecting GDP as an adequate indicator in and of itself.  That piece of writing comes from the "post-autistic economics" movement.  This is one of the heterodox schools of economic thought, which, though difficult to define, can basically be summarized as a rejection of the neoclassical economic schools of thought which rose during the second half of the 20th century.  The post-autistic school launches the general criticism that economics relies too heavily on mathematical modeling to the point of drowning itself in abstraction unrelated to everyday experience, and gives humans too much credit for acting in rational manners.  It was begun by young students in France who were hostile to reigning economic opinion:

A group of economics students, their worst fears confirmed, approached Guerrien eager to “do something.” A week later, 15 of them gathered in a classroom to hash out a plan of attack. Someone called the reigning neoclassical dogma “autistic!” The analogy would stick: like sufferers of autism, the field of economics was intelligent but obsessive, narrowly focussed, and cut off from the outside world.

Paul Krugman for whom I have great respect has written a counter argument to those beliefs, which can be found here.  That said, I've taken a number of economics courses in my academic career, and what always always amazes me is the glibness with which those of the Chicago School of thought (popularized by Milton Friedman and currently the predominant economic philosophy today) are willing to dismiss any concerns which aren't quantifiable.  Not to mention the failure to account for information asymmetries and irrational human behavior.  Quite literally, neoclassical economics discounts anything which is not quantifiable, and in most cases does a poor job in quantifying anything which is not at some point sold to a consumer. 

Last semester, I took environmental economics.  In their attempt to place value on national parks, the professor combined the opportunity cost (that which is forfeited by making a certain decision) and the out of pocket cost to determine how much people valued a national park.  However, he failed to carry out these estimates into the future.  Thusly, the park was undervalued because no one placed a value on what people 20 or 50 or 100 years from now would place on the unspoiled wilderness.  And as wilderness becomes a rarer commodity, its value among the average citizen is bound to increase.  In another instance, when the question of spite was brought up -- that is, one party forfeits their own self-interest in order to deny another person financial gain -- the professor noted that since it was quantifiable, it wasn't considered by economists.  I don't know about you, but I know spite drives all sorts of people to cut off their nose to spite their face.

Luckily, for all of modern economics shortcomings with the GDP, the U.N. has adopted a new model, the Human Development Index, which takes life expectancy, literacy and purchasing power into account in addition to GDP.  In other words, does what economists should be doing, calculating the social and environmental welfare, not just the social output.  And while I wouldn't mind seeing income inequality added to that list as well, it's still a great improvement over our current system. 

For further reading, I highly recommend looking into behavioral economics, which I believe to be a far better theory of how humans behave in the market place.  Neoclassical economics holds man to be a rational actor.  The problems with this assumption, which undergurds the rest of their philosophy, are many:

1.  Humans are not rational actors.  They frequently choose instinct and emotion over careful consideration.

2.  There are currently few relationships in which both parties are privelaged to the same information.  Thus, he who is best informed holds an outstanding advantage of he who is ignorant of key issues.  This applies to real estate, medical treatments, mechanical work and much else.

3.  Most times, neoclassical economists create their mathematical model first, and then fail to predict future conditions made upon their model.  That is to say, economics as we know it today rejects the scientific method.

4.  There is simply no way for man to be a rational actor without the appropriate information available to them.  Therefore, as the sheer volume of information increases, the worse "rational man's" choice will be because he cannot begin to understand the entirety of the system in which he is making his decision.

5.  Finally, as noted above, neoclassical economics will associate positive qualities to events which no one would argue are positive (natural disasters, medical emergencies, etc.), but which do contribute to consumer spending.

So, let's do ourselves all a favor and stop looking to the GDP to tell us whether we're better or worse off.  For all we know, it could be telling us that more of us are becoming sick and are receiving medical treatment, or going to war and getting injured for that matter.

P.S. For more commentary, please visit my personal blog over at The Left Anchor.  Thanks!