I was in the process of writing a post about science becoming an election issue, but have been somewhat distracted by an article in the Guardian by George Monbiot. The basic idea of the article is essentially that we are so fixated on growth that some people now believe that we should consider using all the resources on our planet if it allows us to then explore other worlds. What I found interesting was, however, the discussion of Gross Domestic Product (GDP), in particular the use of GDP growth as a measure of an economy’s success.
I’ve always had a bit of a problem with using GDP as a measure of a country’s wealth. Although I’m not an economist, it seems a little simplistic to just use this, especially since it gives no real indication of how the wealth is distributed. It is simply a measure of a country’s total economic output. I have argued before (here) that we should really use something like the Gini coefficient (indicating wealth distribution) and GDP, in order to optimise a country’s wealth together with how it is distributed. We could consider accepting a lower GDP if the wealth is more evenly distributed, especially since there doesn’t seem to be any strong evidence showing that giving excessive amounts of money to a select few ultimately benefits everyone.
What I found interesting in George Monbiot’s article was the suggestion – which came from a paper published by someone called Sir Parth Dasgupta – that another problem with GDP is that it doesn’t take into account the effect of GDP growth on a country’s resources. A country with a rapid growth in GDP could be doing this by depleting its resources in an unsustainable way so that even though GDP is growing, the total effective wealth is decreasing. Maybe we need to consider total wealth, GDP and how the wealth is distributed when trying to determine the strength of an economy. Maybe we also need to stop being so fixated on growth and start to consider how sustainable our economy’s are. As the current financial crisis has shown us, rapid growth is unsustainable and we would probably have been much better off if the financial sector had been more cautious and accepted a lower growth rate that would have been more sustainable (we probably can’t get rid of boom and bust completely, but we can probably minimise the amplitude of the perturbations).
Although I’m pleased to see more discussion about how a country’s economy is measured and would personally be very in favour of us considering how wealth is distributed and how sustainable our economy’s are when determining the wealth of a country, I’m not convinced that we are going to be seeing any paradigm shifting changes in the near future. It’s not really in the interests of today’s business leaders (who probably have a great deal of influence with our political leaders) to change the way in which we measure a country’s economic strength, especially if – in order to have an sustainable economy that would ultimately be of long-term benefit to the country, and possible even the world – this would involve them accepting a smaller fraction of the total wealth.
The other extreme is the case where one person has all the income and everyone else has nothing. The Lorentz curve would then be a straight horizontal line along the x-axis that suddenly turns up at the end. In reality the Lorentz curve is somewhere between these two extremes. The Gini coefficient is then the ratio of the area between the line of equality and the Lorentz curve itself (A) and the total area below the line of equality (A+B). In the figure shown the Gini coefficient is A/(A+B). If we assume that the x and y axes run from 0 to 1 (rather than from 0 – 100 %), A+B = 0.5 and the Gini coeffiicient is 2A. The Gini coefficient would then be a number between 0 and 1, although it is sometimes multiplied by 100.
