Macroeconomics: GDP, economic growth, welfare

Report
Development
Welfare or well-being?
Leif Bratt
Aug 31 2011
Definition & synonyms
Definition
• act of improving by
expanding or enlarging,
refining a process in
which something passes
by degrees to a more
advanced mature stage, a
recent event that has
some relevance for the
present situation, a state
in which things are
improving, the result of
developing
Synonyms
• advance, change,
expansion, enlargement,
growth, increase,
improvement, progress
Development as
• evolution (homo habilis, erectus,
sapiens) or individual human biomental development (baby – child –
teenager – adult – old) and the
question of influential factors (nature
vs nurture)
Development as
• economic changes in society as
“progress” as upgraded standard of
living or “materialistic” welfare,
measured as economic growth
(annually higher GDP) , or expanded
indices as HDI, GPI , ESI
•
•
Different socio-cultural stages in
society; paleolithicum
(hunter/gatherer), neolithicum
(farming), metal ages (hierarchies),
ancient (slavery), medieval (church &
feudalism), early modern (kings,
commerce, renaissance) & modern
times (parlamentarism, capitalism)
and the question of influential factors
[institutions (values, norms,
legislation), power (political,
economic military), knowledge,
distribution, technical skills)
or on a social or individual level of
improved well-being?
Today’s lecture
measuring this type of
development
Welfare and power
Early indices welfare/developmant
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•
No of electric bulbs
No of telephones/1000
No of cars/1000
TVs/1000
Life expectancy at birth
Persons/physician
Energy
consumption/cap
• 43 to 83 years
Economic structure as
welfare/development
% of GDP World Bank 2008
Micro-economics welfare
p
r
i
c
e
demand
supply
Consumer
surplus
p0
Producer
surplus
q0
quantity
Traditional economic schools;
• Neoclassical economics –
the free market.
• Institutional economics –
governmental policies
… and welfare is measured as
Gross Domestic Product
(GDP)
… it all started with
Adam Smith:
The annual labour of every
nation is the fund which
originally supplies it with all
the necessaries and
conveniences of life which
it annually consumes, and
which consist always either
in the immediate produce of
that labour, or in what is
purchased with that produce
from other nations.(Smith
1776:vol I,I,1)
GDP expressed 3 ways
… or GDP as GNI
• the sum of profits and salaries
(interests) in that production +
• Public salaries
the value of production of goods
and services, at the consumer
level, that is traded/registered on
the market in a country in 1 year
40
35
30
25
20
15
10
5
0
1
2
3
4
5
6
But also as;
The supply balance or expenditures
GDP = (private) consumption + investments/savings
+ government spending + (exports – imports)
Compare
China; (private) consumption + investments/savings +
government spending + (exports – imports)
US; (private) consumption + investments/savings* +
government spending + (exports – imports)
*they borrow to consume.
Welfare is higher than own production
Sources of welfare
1.
2.
3.
4.
5.
6.
Market goods
Market disutilities
Public goods
Private goods
Nature goods
”Black” market goods
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GDP
GDP
partly GDP (salaries)
no
no
no
GDP for different countries 2007
Economic growth for different
countries 2007
Just distribution for optimal welfare ?
Diminishing Marginal Utility
Utility
quantity
GDP and Gini
Gini-coefficient = A/(A+B)
Country
Norway
USA
Sweden
Brazil
China
India
Liberia
Congo
GDP
53.433
45,592
36,712
9,567
5,383
2,753
362
298
Gini
0.26
0.41
0.25
0,55
0.42
0.37
0.53
0.44
If = 0 means all have same income
If = 1 means one person has
it all, the rest nothing
1
51
2 551
128 825
6 506 324
328 601 582
16 596 005 851
838 180 415 568
42 332 258 457 335
2 137 988 519 910 810
107 978 999 416 659 000
5 453 473 770 527 630 000
275 427 410 204 771 000 000
13 910 447 080 919 500 000 000
702 546 409 041 865 000 000 000
35 482 069 985 704 100 000 000 000
1 792 020 106 098 610 000 000 000 000
90 505 882 603 679 500 000 000 000 000
4 570 994 911 270 420 000 000 000 000 000
230 857 861 144 273 000 000 000 000 000 000
11 659 464 315 022 800 000 000 000 000 000 000
1 unit, 2000 år, 4%
GDP and depreciation/depletion
GDP – Depreciation of Human made capital =NDP
NDP – Depletion of Nature capital = eaNDP
eaNDP – defensive & rehab expenditures = SNDP
Environmental curves
Footprint vs GDP
10.0
9.0
8.0
Footprint 2005 in hektar
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
0
5000
10000
15000
20000
25000
GDP i US$/person 2005
30000
35000
40000
45000
Critics of GDP
as a welfare measurement
Spatial fallacy
production there – consumption
here
Time fallacy
consumption now –
consequences later
Holistic fallacy
Repair is included and only a
part of the economy
Human Development Index (HDI)
HDI an index of "human development“
HDI combines three dimensions:
• Life expectancy
• Knowledge and education, (adult literacy & gross
enrollment ratio)
• Standard of living as measured by the logarithm
of GDP/capita at purchasing power parity (PPP).
Genuine Progress Index (GPI)
GDP
has functioned as an
"income sheet"
GPI
will function as a
"balance sheet"
Starts with the GDP number and,
+/- Income Distribution (gini-coefficient)
+ Housework, Volunteering, and Higher Education
- Crime
- Resource Depletion
- Pollution
- Long-Term Environmental Damage
+/- Changes in Leisure Time
- Defensive Expenditures
+/- Lifespan of Consumer Durables & Public Infrastructure
+/- Dependence on Foreign Assets
EPI
(Yale univ. & WEF)
EPI vs ESI
Dodds model of human well-being
1. Well-beings as a State of mind
Mental/feel good factors of well-being
1. Well-beings as a State of the world
Non mental Constituents and Determinants of
welfare/well-being
3. Well-being as human capability
4. Well-beings as the satisfaction of underlying needs
Well-being vs Welfare
"Enjoyment of life" vs. "production of goods“
Max-Neef underlaying needs
No hierarchy, hard to operationalize, more philosophical
Quality of life Index (QLI)
An hierarcy Index of
National footprint/global biocapacity (>1 bad)
Global Gini (> 0,3 = bad)
4 Dodds well-being Indices
Prosperity w/o growth
http://www.sd-commission.org.uk/publications.php?id=914
Every society clings to a myth by
which it lives. Ours is the myth of
economic growth. For the last five
decades the pursuit of growth
has been the single most
important policy goal across the
world. The global economy is
almost five times the size it was
half a century ago. If it continues
to grow at the same rate the
economy will be 80 times that
size by the year 2100.
An even stronger finding is that the
requirements of prosperity go
way beyond material sustenance.
Prosperity has vital social and
psychological dimensions. To do
well is in part about the ability to
give and receive love, to enjoy
the respect of your peers, to
contribute useful work, and to
have a sense of belonging and
trust in the community. In short,
an important component of
prosperity is the ability to
participate meaningfully in the
life of society.
Well-being is multi-dimensional
1. Material living standards (income,
consumption and wealth);
• Give more prominence to the
distribution of income, consumption and
wealth
• Broaden income measures to nonmarket activities
2. Health;
3. Education;
4. Personal activities including work
5. Political voice and governance;
6. Social connections and relationships;
7. Environment (present and future
conditions);
8. Insecurity, of an economic as well as a
physical nature.
Report by the Commission on the Measurement of
Economic Performance and Social Progress
http://www.stiglitz-sen-fitoussi.fr/en/index.htm
The starting point for, the European
Commission Communication on GDP,
was an awareness of the need to
complement GDP with measures of
equitability and sustainability, and of
the fact that all dimensions of wellbeing were not covered by GDP.
GDP and beyond – Measuring progress in a changing
world
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2
009:0433:FIN:EN:PDF
Beyond GDP
http://www.beyond-gdp.eu/index.html
“GDP is an indicator of economic
market activity. It was not
intended to be an accurate
measure of well-being. Even
Simon Kuznets, . . . one of the
main originators of GDP, said: 'the
welfare of a nation can scarcely
be inferred from a measure of
national income'”.
"We cannot face the challenges of
the future with the tools of the
past“
"It's time to go beyond GDP”.
Manuel Barosso
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Genuine Savings
The Happy Planet Index
World Database of Happiness
Living Planet Index

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