Brian's Musings
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    • Brian's 2020 Newlsetters >
      • 28th June 2020 – Mulling a Covid Afterlife
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      • 24th February, 2020 - The Corona Virus and Much More
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    • Brian's 2019 Newsletters >
      • 23rd November 2019 - Another fascinating mix from around the world
      • 30th October 2019 - Where are we headed now?
      • 10th October 2019 - Another tour of the issues
      • 27th August 2019 -Brighter than usual
      • 2nd August 2019 - Mostly more gloom and doom
      • 5th July 2019 - Not much improvement anywhere
      • 19th June 2019 - Better late than neverNew Page
      • 27th April 2019 - More to make you think about the future
      • April 2019 Letters to the Editor of Business Day
      • 2nd April 2019 - Another Month of Mixed News
      • 27th February 2019 - More good news than bad
      • 4th February 2019 - Trying to make sense of it all
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      • 29th December 2018 - Preparing for 2019
      • 3th November 2018 - Death by Hot Air and Other Cautionary Tales
      • 26th October 2018 – The Case of the Treacherous Till Slip and Other Interesting Tales
      • October 2018 - Feedback on Draft Integrated Resource Plan for South Africa
      • 21st September 2018 - The Information Flow Continues
      • 31st August 2018 - Reading for the first weekend of spring / autumn
      • 31st July 2018 - Watching the World
      • 13th July 2018 - Energy Update 2018
      • 31st May 2018 - Grime and Punishment
      • 20th April, 2018 - The Equaliser Conspiracy
      • 3rd April, 2018 - More Fascinating Facts and Figures
      • 28th February, 2018 - World Update
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      • 29th November 2017 - Guessing Our Future
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      • 3rd July 2017 - Another Energy Update
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      • 12th April 2017 - False News Today
      • 22nd March 2017 - Predicting Speed of Change
      • 27th February 2017 - Growing Inequality
      • 11th January 2017 - Medical Data Mining
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      • 5th May 2016 - A Leisurely Future
      • 17th April 2016 - More Food for Thought
      • 29th March 2016 – America’s Digital Colonisation of the World
      • 11th March 2016 - Measuring Life
      • 26th February 2016 - Growing Older, Growing More
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      • 29th January 2016 - Just Four More Years to 2020 >
        • 15th January 2016 - A Taste of Red and White
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11th March, 2016 – Brian’s Musings #3 – Measuring Life


It’s nearly a century since a group of American economists came up with the notion of gross domestic product (GDP). The concept was simple. Add up the value of all the goods produced in a country and you have a measure of its economic well-being. Investors, rating agencies, economists and politicians still pore over GDP numbers as though they are the holy grail. But is it still a valid measure of economies?


In 2008, France’s President Sarkozy asked Joseph Stiglitz, Amartya Sen and Jean Paul Fitoussi to examine the relevance of GDP as a measure of economies in the twenty first century. Their very readable report concluded it was still a good measure of the goods produced in a country but there also needed to be measures of income, consumption and people’s well-being. Because of the variability of equality within a country, they counselled looking at median rather average per capita numbers.


They went on to comment that market prices are distorted by the fact that there is no charge imposed on carbon emissions and no account is made of these costs in the national accounts. A tendency to measure gradual change does not prepare one for abrupt alterations caused by outlier events. Measuring quality change is a major challenge. Governments play an important role in modern economies yet productivity changes in the provision of government services are ignored.


The household perspective should be emphasised taking account of payments between sectors, such as taxes to government, social benefits and interest paid, and should also reflect payment in kind. Consider income and consumption jointly with wealth; a household that spends its wealth on consumption goods increases its current well-being but at the expense of its future well-being. Many services that households produce for themselves are not recognised in official income and production measures. Further, households are increasingly moving from non-market to market provision of services. Finally, they pointed out that no value is placed on leisure.


Just as I was mulling on all of this I came across the then state of the art laptop I owned when I started MBendi twenty one years ago. Today’s equivalent is 20% of the price in 1995 currency and, assuming Moore’s Law, 500 times more powerful. The value of solar panels and wind turbines produced around the world might be little changed from year to year, yet the cost per kilowatt-hour has dropped dramatically. Robots in factories working 24 hours a day have cut production costs. How are all these productivity gains factored into GDP?


Then take the Internet. Today you can read top newspapers from around the world free of charge. The incremental cost of producing and delivering an additional electronic book or movie is infinitesimal. When I needed information back in 1994, I would get in my car, drive to the library and look it up; today I just type a couple of keywords into a search engine and up pops the information I need. Everywhere people are adding more information to the web and not expecting a cent of recompense.


In their stimulating book, The Second Machine Age, Brynjolfsson and McAfee devote several chapters to exploring this further. Digital products and services might be free but they do have value. Digitisation reduces GDP because prices are lower or free. They recommended measuring the time spent using free services. Online feedback on everything from restaurants to physical products improves quality. They point out that GDP doesn’t measure intangible assets such as intellectual property, organisational capital, user generated content, human capital or learning. Although income may drop, households may move from using paid to free online services with no change in standards of living.


By the end of mulling on all of this my head was buzzing – and still is. My only conclusion is that traditional GDP is a very poor measure of the state and progress of the world we share. What to use instead?


Useful Links


The management summary of the Report by the Commission on theMeasurement of Economic Performance and Social Progress is brief and thought provoking.

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  • Home
  • Brian's Blog
  • Musings
    • Brian's 2020 Newlsetters >
      • 28th June 2020 – Mulling a Covid Afterlife
      • 31st May 2020 - Unlocking your mind while in Lockdown
      • 19th April, 2020 – More stimulants for lockdown contemplation
      • 3rd April 2020 - PLanning Ahead in a Time of Plague
      • 19th March 2020 – More to Mull on in Splendid Isolation
      • 24th February, 2020 - The Corona Virus and Much More
      • 24th January 2020 - What changes likely in the new year?
    • Brian's 2019 Newsletters >
      • 23rd November 2019 - Another fascinating mix from around the world
      • 30th October 2019 - Where are we headed now?
      • 10th October 2019 - Another tour of the issues
      • 27th August 2019 -Brighter than usual
      • 2nd August 2019 - Mostly more gloom and doom
      • 5th July 2019 - Not much improvement anywhere
      • 19th June 2019 - Better late than neverNew Page
      • 27th April 2019 - More to make you think about the future
      • April 2019 Letters to the Editor of Business Day
      • 2nd April 2019 - Another Month of Mixed News
      • 27th February 2019 - More good news than bad
      • 4th February 2019 - Trying to make sense of it all
    • 2018 >
      • 29th December 2018 - Preparing for 2019
      • 3th November 2018 - Death by Hot Air and Other Cautionary Tales
      • 26th October 2018 – The Case of the Treacherous Till Slip and Other Interesting Tales
      • October 2018 - Feedback on Draft Integrated Resource Plan for South Africa
      • 21st September 2018 - The Information Flow Continues
      • 31st August 2018 - Reading for the first weekend of spring / autumn
      • 31st July 2018 - Watching the World
      • 13th July 2018 - Energy Update 2018
      • 31st May 2018 - Grime and Punishment
      • 20th April, 2018 - The Equaliser Conspiracy
      • 3rd April, 2018 - More Fascinating Facts and Figures
      • 28th February, 2018 - World Update
    • 2017 >
      • 29th November 2017 - Guessing Our Future
      • 29th July 2017 – Basic Income Grant
      • 26th July 2017 – Ideas for a Brighter South Africa
      • 3rd July 2017 - Another Energy Update
      • 8th May 2017 – Trucking and Selling
      • 12th April 2017 - False News Today
      • 22nd March 2017 - Predicting Speed of Change
      • 27th February 2017 - Growing Inequality
      • 11th January 2017 - Medical Data Mining
    • 2016 >
      • 13th December 2016 - American Irony
      • 25th November 2016 - Global Decision Making
      • 30th October 2016 - Climate Changes
      • 11th October 2016 - Musing Investments
      • 19th September 2016 - The Inexorable Five
      • 2nd September 2016 - Driving Forward
      • 17th August 2016 - Innovationv Update
      • 19th July 2016 - Powering Along
      • 4th July 2016 – An Eye to the Future
      • 10th June 2016 - Reverse Education
      • 20th May 2016 - More Minding P's and Q's
      • 5th May 2016 - A Leisurely Future
      • 17th April 2016 - More Food for Thought
      • 29th March 2016 – America’s Digital Colonisation of the World
      • 11th March 2016 - Measuring Life
      • 26th February 2016 - Growing Older, Growing More
      • 12th February 2016 – Retirement Reflections
      • 29th January 2016 - Just Four More Years to 2020 >
        • 15th January 2016 - A Taste of Red and White
  • Books