Wednesday, May 16, 2007


Ezra also discusses the problem with economists. My problem with economists is that even many of the smart ones tend to instinctively equate the social welfare of a country with its per capita GDP. This is absurd, and it isn't as if they don't actually know this, but nonetheless it tends to be how people operate.

This happens because of two basic reasons. First, there's no actual way to define social welfare scientifically. One can define social welfare functions which meet certain kinds of pleasing properties, but ultimately judgment calls have to be made. You know, is overall social welfare enhanced more if you give an extra dollar to me instead of Bill Gates? Consequently per capita GDP as a measure of society's welfare is seen as a kind of value-neutral measure. But it isn't, or at least policies which lead to more or less growth aren't value neutral as those policies don't necessarily just impact growth and subsequent per capita GDP, they also impact income distribution. So if you advocate for a policy such as "Free Trade," which will increase GDP by $100 but cause Bill Gates to earn $150 more (all of the gains and more), you're implicitly saying that either income distribution is irrelevant or that it's "good" from the perspective of society if Bill Gates gets more and the rest of us get less. Since one needs to make value judgments to evaluate income distribution effects of policy, there's a tendency to just assume they aren't important.

The second is that early on it becomes hardwired in our young economist brains that it makes sense that if the pie is bigger there are more slices to pass around. You can have gains from a policy such as "free trade" and then redistribute the goodies later. But the redistribution doesn't happen.

All this leaves aside other issues, such as the fact that people, especially French people, don't just like goodies but also this mysterious thing called "leisure" which doesn't get counted in that GDP figure...