Measuring ourselves

We take measuring ourselves incredibly importantly. This is true at the individual level (we want to know whether we fit in), but also at the national level – how well are we doing relative to, say, the Eurozone countries?

In order to be able to say anything at all about the latter, we have to have some measurements. The standard measurement we use when it comes to entire economies like the UK, or like France or Germany or the USA, is Gross Domestic Product, or GDP. It’s the value at market prices of all the goods and services produced in an economy over some period of time. It’s everything we make as a country, at the value we place upon it – very broadly speaking.

That it’s not a good measure of welfare is almost universally well known. This article from a very interesting blog (well worth a read if you’re feeling like procrastinating but want to feel like you’ve been at least a little bit productive) notes that by and large innovation doesn’t appear in the statistics either. Relative to even our parents, but certainly our grandparents’ eras, ours is one of mass variety, it’s argued, and this is the result of innovation – loads more great products for us to buy and enjoy.

The very basic economics says this should be good – we can find the products that most suit us in all areas of our lives, and be happier than if we were more restricted in the choices we could make. However, choices have opportunity costs, and opportunity costs may lead to regrets – if one makes one choice, one cannot have done the other similarly enticing thing. If innovations are sufficiently small (the difference between, say, the latest Android phone made by Samsung and the latest one may by LG), we as consumers cannot realistically be expected to be well informed about these kinds of differences and what they mean.

Anyhow, the bottom line is that we use GDP, and we use it in all sorts of ways (not least to determine how much the government should spend). It’s a vitally important statistic, and a huge amount of effort goes into producing it (effort that shows up in GDP) – and we should be aware of its shortcomings, without necessarily advocating its replacement. It’s not clear how any other measure of well-being could appropriately factor in the amount of choice we have, and how differently it affects each of us.

Space and Economic Value

From wired.com, http://www.wired.co.uk/news/archive/2009-08/11/why-didnt-britain-win-the-race-to-the-moon

This morning at 11:03am, GMT, a British astronaut will be launched into space for the first time.

The Treasury, the part of the UK government that is all about spending and revenues, has taken the opportunity to laud the UK space industry and its support for it on Twitter. Indeed there’s a new National Space Policy, the first such thing to exist here in the UK.

The Tweet, and the policy blurb emphasise that the space industry is “worth £11.8 billion” to the UK economy. Where has this number come from?

One of the first things we’ll be doing next term is thinking about is numbers like these – where do they come from? With an industry like the car industry it’s much easier to work these things out, since people buy cars at a particular price, and we then assume that that price reflects the value we as a society place on that good (a debatable assumption, but an assumption nonetheless).

But with space? Who buys the produce of the space industry? Hence, if there is no end consumer in the same way as most industry, what do we do? The answer is we value by the value of the inputs that went into the process. What was the value of the labour, capital and land inputs that went into production in the industry?

If you’re starting to raise objections about this, that’s fair enough; it’s far from a satisfactory approach.  For example, given this the government could simply give all employees a pay rise to get a GDP increase. However, it’s hard to know what else could be done instead, if we wish to measure things like national economic activity. Some defence can be mounted; the amount paid to the factors of production employed in the space industry must be market rates – if the UK space industry paid too low, then their experts would seek employment elsewhere – space agencies overseas, or other areas of manufacturing, say, in the private sector. As such there is some basis in what we value as a society in these calculations, even if it’s not as direct as in, say, private sector manufacturing.

In addition, the methods employed by the UK when calculating national income are the same as other countries around the world use. Hence at least if our measure is bad, it’s only as bad as what everyone else is doing, and still affords us a basis for comparing between countries.

Measuring social welfare

Social decline? Photograph: Jim Dyson/Getty Images

In a City.A.M. opinion piece, Tim Montgomerie writes about the need to better measure social welfare, primarily to counter the social decline we’re apparently seeing.

One thing that a good measure of social welfare would reveal is the extent to which we are in a decline. It is very common for commentators to lament about how things aren’t like they used to be, harking back to some golden age. It’s less clear what Montgomerie’s golden age is from reading his article which perhaps absolves him a little of this criticism. Nonetheless I’m sure there is an inbuilt tendency in us all to view the age of our youth as that golden age. I’ve come to realise, in my own personal experience, that the 1980s couldn’t have been a social golden age given all the upheavals taking place in that tumultuous decade.

Anyhow, the point remains a good one: we do need to measure social wellbeing in the same way we measure economic wellbeing (i.e., GDP). It’s not a novel point, it gets made year after year; back in 2010 David Cameron was talking about measuring “gross wellbeing” as well as “gross domestic product”, and before the general election Ed Miliband made a request to the Office for National Statistics that they start measuring wellbeing, or “living standards” in a single measure. None of this is to diminish the message, just to point out that it’s nothing new, and that like many public projects, project completion appears to be always somewhere on the distant horizon.

Early next term we’ll be talking about measuring GDP, and measuring economic wellbeing more generally, as well as social wellbeing.

UK growth slows

The BBC’s “UK GDP growth” picture

Hidden beneath the ongoing furore over tax credits, the Office for National Statistics (ONS) this morning released the last UK growth figures: growth of 0.5%.

What does this mean? This is a number for how much more was produced in the UK economy in the months between July and September 2015 compared to the same months in 2014, in real terms (controlling for changes in price levels).

Overall, more was produced (and although 0.5% may seem small, UK GDP was US$2.7tr (trillion) in 2013 hence 0.5% of that is still a healthy US$135bn), but the number is slightly lower than was to be expected (apparently 0.6% was expected).

Additionally, growth wasn’t evenly spread over different parts of the economy: the manufacturing sector produced less, as did the construction sector (which had a large fall), although the service sector produced more.

Here’s plenty more “LIVE” commentary from the Guardian: http://www.theguardian.com/business/live/2015/oct/27/uk-gdp-growth-figures-george-osborne-live-updates

Here’s the actual data release from the ONS: http://www.ons.gov.uk/ons/rel/gva/gross-domestic-product–preliminary-estimate/q3-2015/index.html

We’ll spend time thinking about GDP growth and what it means early in the Spring Term, after Christmas.