ECO 362-1
“Mis-Measuring Our Lives” Paper
“What we measure affects what we do; and if our measurements are flawed, decisions may
be distorted” (2). This quote, which indicates that our current measurements of gross
domestic product are wrong, is the basis for the entire book. If our measurements of the
economy are off, it is difficult to get an accurate assessment of the well-being of an
individual as well as the well-being of the world as a whole. Even if some measurements
are correctly stated, people tend to stretch the application of those numbers in ways that
simply will not work. Nicolas Sarkozy writes in his forward that “the problem stems from
the fact that our world, our society, and our economy, have changed, and the measures
have not kept pace” (VIII). Why is this? Because for years we have been adjusting our
measurements as the problems occur and since this is the case, the problems of
mismeasurement will always be one step ahead; measurements must be restructured to
capture all aspects of the economy and how it indicates well-being. Measurements should
reflect what is happening in regards to citizens, poverty, resource depletion, and
environmental degradation. After evidence is examined showing that GDP is a flawed
measurement of economic performance and social progress, one will realize an apparent
requirement for new measurements and new inferences based off these new and existing
measurements.
First, it must be discussed how we currently use GDP measurements and the problems
with the methods of getting these measurements. GDP is calculated in multiple ways, but
for simplification we will use the basic method of total price times total quantity. Quantity
is not to be confused with quality, which GDP does not measure. As time goes on, products
and services are becoming increasingly complex, multi-dimensional, and subject to rapid
change. This will undoubtedly make measuring production, which basically determines
employment, more difficult to measure. So from the start, GDP measurements are flawed
because they don’t incorporate quality change especially when we are using prices from
previous years to calculate real GDP; prices for goods in the past that are applied to goods
in the future don’t make sense because quality continues to increase so you would expect
the prices to change. Further, GDP does not account for non-market activities such as
childcare out of someone’s personal home. These activities produce a service which
produces income and since GDP is the sum of all income paid to factors of production you
