At Coyote Blog, Warren Meyer points out that we do not have a useful way to measure prosperity:
GDP growth and unemployment reduction are terrible measures. Just to give one example, these measures looked fabulous in WWII. But the average person living in the US had access to almost nothing — they couldn’t buy anything under rationing, they couldn’t travel for leisure, etc. GDP looked great because we were building stuff and then blowing it up, the economic equivalent of digging a hole and filling it in (but worse, because people were dying). And unemployment looked great because we had drafted everyone and sent them off to get shot.
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How do we take into account that even if a person has the same income as someone in 1952, they are effectively wealthier in many ways due to access to medical procedures, travel, entertainment, electronic devices, etc?
Somehow we need to measure consumer capability — not just how much raw money one has but what can one do with the money? What is the horizon of possibilities? Deirdre McCloskey tends to eschew the term capitalism in favor of “market-tested innovation.” I think that is a pretty powerful description of our system. But if it is, we really are only measuring the impact of productivity and cost-reduction innovations. How do we measure the wealth impact of consumer-empowerment innovations like iPhones? Essentially, we don’t. Which, by the way, may be one reason our current crappy metrics say we have growing income inequality. With our current metrics, Steve Jobs’ increase in wealth is noted in the metrics, but the metrics don’t show the rest of us getting any wealthier by the fact that we can now have iPhones (or the myriad of competitors the iPhone spawned). The consumer surplus from iPhones undoubtedly dwarfs the money Jobs made, but it doesn’t show up in any wealth calculations.
