GDP and economic growth are two important factors

his latest financial bar column, “Undercover Economist” Tim Harford reminds us of two important things about GDP per capita and economic growth: they are not a measure of well-being (think Middle Eastern oil plutocracies), but they are highly correlated with individual well-being. Personal welfare is surely the only thing we should, or even should, be concerned with. While voicing some pertinent cautions, Harford makes two important points (“Growth Delusions of Lease Truss,” Sept. 30, 2022):

Gross domestic product is not, and never has been, an attempt to measure the well-being of a society. …

Nevertheless, it is interesting how rich citizens are in countries with high GDP. Pick your issue, from life expectancy to infant mortality, from opportunities for women to basic human rights protections, clean streets, lower crime, even better quality art, from TV to opera. Somehow, people who live in rich countries enjoy more of the good things.

Having too much control over goods and services is not a sufficient condition for personal happiness, but it usually helps.

Note that Harford does not criticize the new British Prime Minister Liz Truss for focusing on economic growth, but rather for ignoring some of its necessary and material conditions:

His quip about the “disgrace” of importing cheese suggests someone who does not appreciate the importance of free trade in goods in a prosperous modern economy. …

His vast and open energy price cap is a kick in the teeth for market power. By some measures the biggest financial event in living memory, it feels closer to Mao than Thatcher. And it’s redundant: a truly pro-growth government would achieve the same social goals by letting prices rise, but with an offsetting cash grant to each household.

On the benefits of trade—whether domestic or international—remember James Buchanan, who articulated a very Smithian idea (James M. Buchanan and Richard A. Musgrave, Public Finance and Public Choice: Two Contrasting Views of the State [MIT Press, 1999], p. 245):

If I observe someone with apples and someone else with oranges, I am not trying to say that a particular allocation of oranges and apples in the final position is better than another allocation. If I observe their trading without cheating on each other, whatever emerges, emerges, and I define it as useful.

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