GDP: GROSS DOMESTIC POLLUTION?

TOWARDS A BETTER WAY OF EVALUATING ECONOMIC ACTIVITY.

Paul Krugman observes in his blog that:

"For most of the past decade, China’s industrial value-added growth (IVA) –industry output less input costs – has moved broadly in step with movements in electricity consumption. But the relationship’s broken down recently: electricity use is still seeing negative growth, while IVA is growing at a decent positive rate again.

Some China analysts are crying foul: If IVA growth figures are being cooked, surely that means China’s recent GDP data have been overstated too."

Gross Domestic PRODUCT, GDP, has long been debated. Louis XV's surgeon was the first to consider GDP, and he defined it agriculturally. The next generation of "physiocrats" generalized "product" to industry, and Adam Smith went to France to study under them. "Product" was the addition of all the expenditures of all FINAL good and services. If one is ten times more inefficient getting to the same product, one has contributed ten times more to the GDP. GDP: a polluter's dream.

The very concept of GDP is well cooked, in any country, and the recipes vary, from country to country.

At the very least, a notion of EFFICIENT GDP should be introduced: when American cars by the millions hold steady in traffic jams, spewing fumes, they boost U.S. GDP. When comparing health care systems, the one in the USA, with a worse outcome, costs twice, per capita, what the French health care system costs. Still, the contribution to "product" should be the same, or more exactly, the contribution to "product" of the system in the USA, per capita, should be redefined so that it is lower than the French one. The end product of the task should be the production of the task, not the inefficiency polluting the achievement of the task.

I agree that this is not how economists have learned to think, but more as physicists have learn to think, more than two centuries ago (Lagrange, d'Alembert). Grounding all of physics in the concept of energy (and work) allowed to make physics more rigorous, and universal. The idea would be to do the same in economics. Thus economics would switch from the subjectivity of money to the objectivity of work, as defined in physics . That would ground economics with energy, just as physics is (and the lagrangians used in generalized economics would be more general than in physics!).

Only then could we compare exactly the productivity of different economic systems...

Patrice Ayme
http://patriceayme.wordpress.com/