Monday, August 5, 2013

GDP vs EE IV: Metric or Target?

Ignore for a moment some of the shortcomings of GDP accounting. Consider instead its role. The positivist, ecological economist sees the "circular flow" model with clinical detachment: a cash-flooded Venturi nozzle, measuring the force and vigor of commerce. She marks and notes relationships between suites of external factors that influence and may in turn be influenced by the adsanguinity of the economy. But even with close scrutiny, she hews ever close to the Lucas Critique.

The normative, engineering economist sees instead GDP as a challenge. Poring diligently over periodic 10-K reports, he sketches up "potential GDP" artifacts using sophisticated econometric techniques based on historic data and cautious assumptions about future behavior. In the specifications of this economist, GDP is a policy goal, and its shibboleths are legion: aggregate demand, targeting, stimulus, RBCT, so on, so forth, & al. In this land, the conductor leads the orchestra, the coach heads the team, the coxswain skippers the gig.

These two approaches are not wholly uncomplementary, but they do reflect deeply different default views about the relationship between the citizen and the state. The first approach yields to individuals the residuals of their actions. If you want to work, that's great: you get paid for producing something others want. If you want to stay home and putter in the garden, that's also fine since it's you that bears the costs. In contrast, the marginal couch potato in the engineered world imposes external costs: each hour of leisure, each minute of factory downtime, each ounce of excess inventory takes away from our collective hale and well-met productive merit.

When GDP is an end, anything you elect to do that doesn't contribute to measured national prosperity imposes a negative externality.

The lemma to this is, of course, almost nothing is euvoluntary. Get hurt in a skydiving accident? Your foregone productivity is a social cost. Crack your skull open on the pavement because you're too stupid to wear a helmet? Your recuperation means time away from work. Shame on you, worker. Like to stay at home and get high? You're a drag (heh) on the economy, you loathsome parasite. Internal costs are cleverly inverted here, and even when no other possible collective action problem can be identified, this "lost productivity" is an easy donkey to flog. An orchard of meddlesome political art is too soon then to blossom.
Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.
-Adam Smith via Dugald Stewart, Lectures in Edinburgh as noted in the introduction to WoN.

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Do you have suggestions on where we could find more examples of this phenomenon?