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On Our Failed Measures Of "Prosperity"
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
If we choose metrics unwisely, we create self-destructive choices, policies and goals.
Yesterday, I explained why GDP = Waste. This raises a larger issue: we shape our choices and goals to optimize what we choose to measure.
If cholesterol is established as a critical metric of health, for example, then we naturally focus on our cholesterol levels and adjust our diet or take medications to optimize our cholesterol level to the ideal levels.
Do cholesterol levels really reflect health? Are they really critical metrics of well-being, longevity, etc.? If I take a handful of pills to optimize my cholesterol levels, have I become healthy, or does the optimization of that metric create the illusion that we've reached our goal of health?
If 3% GDP growth is established as the optimimum, we shape our choices, policies and systems to reach that goal--even if the process of optimizing that metric is destructive to the economy and society. In other words, if we choose metrics unwisely, we create self-destructive choices, policies and goals.
Correspondent Lew G. recently submitted a fascinating article that describes our propensity for optimizing whatever metric is presented as critical: Economists Don't Understand The Information Age, So Their Claims About Today's Economy Are A Joke.
When we have a bad metric, even if we know it's a bad metric, we still tend to optimize for that metric, because that's what we have to measure progress, success, etc.
There are plenty of examples of questionable metrics: GDP (gross domestic product) as opposed to Gross Domestic Happiness, unemployment (rather than full-time jobs that can support families), and even test scores in education.
When the metrics--and the way they are measured--are both perverse, we get perverse incentives and perverse outputs.
By measuring GDP in the current way, it makes sense to burn the last of our cheap oil paying people to dig holes and then fill them, because the wages paid (even if they're paid with borrowed money) are counted as "growth."
For a variety of reasons, the agendas, priorities and incentives established by metrics such as GDP are rarely made explicit. For example, by focusing on test results rather than life-skills and professionalism, our schools incentivize optimizing test scores anmd cheating, as part of an implicit assumption that scoring well on tests prepares students for jobs in the real economy.
Yet the evidence strongly suggests that scoring well academically is poorly correlated to on-the-job performance, innovation, leadership, etc.
What if our education system stated this set of choices explicitly rather than implicitly? Then we'd have a clearer idea of the consequences of the metrics we've chosen to optimize. The explicit statement would be something like this: Instead of teaching you life-skills that are essential for successful adulthood and the eight essential skills of professionalism, we're teaching you how to take tests that advance your career in academia.
The same kind of perverse priorities and incentives are easily found in healthcare, defense, and of course economics.
Consider GDP: if I decide to ride a $100 used bicycle to work instead of buying a $30,000 auto with mostly borrowed money, the impact on GDP is horrendously negative: I didn't spend $30,000 on the car, thousands of additional dollars on insurance and fuel, didn't pay a bank thousands of dollars in interest and fees, and didn't pay bridge and highway tolls, or excise taxes on the vehicle, fuel, maintenance, etc.
The benefits to me and society at large of riding my used bicycle to work are not even counted: by riding a used bike instead of driving a new auto, I can save capital to invest in productive enterprises, I've taken one vehicle off the road, lessening traffic, I've conserved precious fuel for following generations, and my health will improve from the daily exercise, very likely reducing the costs of my healthcare and the burden on wage-earners of caring for me.
But these unalloyed health benefits are a disaster for GDP as currently measured:GDP would rise only if I become ill and need medications, procedures, tests, etc. on a regular basis.
In other words, in the current way we measure "prosperity" (i.e. "growth"), healthy living, low-cost lifestyles and capital accumulation are catastrophes for the economy rather than tremendous benefits.
Clearly, we need an entirely new set of metrics and ways of measuring them. This will instantly create an entirely new set of agendas, priorities and incentives that change day-to-day choices without any central-state coercion, bureaucracies or top-down Central Planning.
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Not to worry Chuck. If Hillary gets elected she'll push that self-destruct button.
All of this is bullish. Buy TSLA, NFLX, CMG, AMZN, AAAAAAAAPL, Cramer says so.
Also: media blames everyone but Obama for Semper Chai incident http://tinyurl.com/o4mjhqa
They need to play the song: "spend spend spend... spend spend spend... spend your booty"
It is true econ fact if you hoard your cash and not circulate it, nothing grows.
Fuck it, live a little or a lot, spend that stash. Or save it long enufff for it devalue and become old and useless where you can't do anything with it cuz you too sick and pitiful. BUt you will make your kids happy. Fuck them, they are responsible for their own shit.
Mass Fraud should be a crime against humanity.
Please support this petition at the whitehouse.gov
https://petitions.whitehouse.gov/petition/mass-financial-fraud-should-be...
The petition needs 150 signatures to go "live" to the public.
You mean, mass fraud like the federal government?
Stop supporting the beast!
NEVER, EVER, EVER ask evil people (or their Useful Idiot minions) to do good.
After decades of waging a one-sided war on savers, investors, entrepreneurs, and employers in the US - this just shows that the liberals are winning (for now)!
"Savers" ?
Exactly, only the old people are the savers. The youth can't save but also wouldn't save as they have no concept of saving. If the FED can keep the circus going another 10 years they are in the clear.
Savings is so 1980s.
There's adverts all of the time on ZH for "high-yield" accounts for 0.98% return. Meanwhile credit cards offer 1% to as high as 5% cashback on purchases.
Anyone who "saves" currency in this QEconomy is a moron.
What exactly are they winning ? Or, somewhat related, what is "progressivism" progressing toward ?
This is the best idea I have heard in a long time. GDP is a very faulty concept and it does determine the agendas. How do we get people to focus on something else, politicians and media?
The concept of nominal growth is FUBAR, and benefits only bankers and bureaucrats. Real growth comes from first doing more with less, which allows saving, which in turn allows you to do more with more. The concept of money never enters the equation.
Hush. If they hear you they will think you are a terra-ist and deploy contra-measures....
All skinny people are healthy and everything is fine as long as the stock market finishes up every day.
The GDB (Gross Domestic Brokeness) has reached a new high this week, reports show.
Spoken like a true physicist. Excellent suggestions here.
Well, other than all of the "we" and "our" shit, which is spoken like a true collectivist.
That said, his articles are getting better, though.
"Everything that can be counted counts."
The Digital Domain counts every molecule in every bean. There is no measuring problem...just the "p" as in product.
Since demand for any one "thing" is a given don't blame capitalism if prices start to fall.
This is not a failure to deliver...
A very perceptive item by Hugh-Smith. Now we have to figure out how to integrate these ideas into full employment.
The corruption of the numbers coming out of Washington is the problem. It will not matter one bit what you measure if you lie about the underlying metrics. Btw the corruption has only increased in velocity since Obama has taken office.
CH-S...you are the anti-Krugman
Hitlery would ban bicycles
The cholsterol level thing is an excellent example of the futility of living acording to a number that measures worthless issues.
What the studies actually showed was that the people with LOW cholesterol were the ones having heart attacks, not the people with high cholesterol. But they were dying AFTER the studies ended. So as long as they didn't die WHILE the studies were being done, well, what difference did it make? And of course, if you have a drug that lowers cholesterol, you won't sell many pills if people figure out that lowering cholesterol will get you dead faster than if you don't take the pills, and isn't selling pills the greatest good to society?
Having "good" GDP says nothing about whether people are well fed and happy. Maybe there's a pill that will help us get our GDP up? Then we could be forced to watch commercials on TV with some mental case (idiot) prancing around in an orange T-shirt and whooping about his GDP...