Measuring Welfare Beyond GDP

an article by Andrew Aitken (National Institute of Economic and Social Research; Economic Statistics Centre of Excellence (ESCoE)) published in National Institute Economic Review Volume 249 Issue 1 (August 2019)

Abstract

Gross Domestic Product (GDP) is often treated as shorthand for national economic well-being, even though it was never intended to be; it is a measure of (some) of the marketable output of the economy.

This paper reviews several developments in measuring welfare beyond GDP that were recently presented at the Economic Statistics Centre of Excellence (ESCoE) annual conference in May 2019.

The papers discussed fall into three broad areas.

First, a significant amount of work has focused on incorporating information about the distribution of income, consumption and wealth in the national accounts.

Second, the effects of digitisation and the growth of the internet highlight the potential value in measuring time use as a measure of welfare.

Third, the digital revolution has spawned many new, often ‘free’ goods, the welfare consequences of which are difficult to measure. Other areas, such as government services, are also difficult to measure.

Measuring economic welfare properly matters because it affects the decisions made by government and society. GDP does a reasonable job of measuring the marketable output of the economy (which remains important for some policies), but it should be downgraded; more attention should be given to measures that reflect both objective and subjective measures of well-being, and measures that better reflect the heterogeneity of peoples' experiences.

JEL classification: I31, D31, E01

Full text (PDF 14pp)

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Comparing shipping costs and industrial production as measures of world economic activity

a column by James Hamilton for VOXK CEPR’s Policy Portal

Shipping costs offer a potentially attractive measure of world real economic activity. However, the popular approach of removing a deterministic trend is not consistent with the observed behaviour of shipping costs and results in an unrealistic measure in data since 2015.

This column compares alternative monthly measures based on shipping costs with direct estimates of world industrial production in terms of coherence with world GDP and usefulness for forecasting commodity prices, and concludes that industrial production is a much better measure.

If shipping costs are to be used, the cyclical component should not be calculated using residuals from a linear trend.

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