Credit score and GDP: a master class in how using bad measurements gives you terrible results
Economics is a belief system, not a science, wielding the wrong tools for the job
One way to build something wildly awful is to use the wrong measuring tools. Even the most skilled carpenter in the world will be incapable of building something wonderful if you take away his ruler and replace it with a thermometer. It can be a crazily accurate thermometer, but it will still be measuring the wrong thing to get the job done.
So let’s imagine that what you’re measuring is the economy. If you revisited political discussions about the economy from the 1930s, you would find them refreshingly unfamiliar. You would hear questions like “how well is the economy serving the needs of people living within it?” Governments responded to the Great Depression by building, not by cutting. America instituted its first income tax, and with that money they built a mighty infrastructure of bridges, dams, roads, parks, schools, and libraries, and created an old age pension. Imagine how the right would react if public schools and libraries didn’t exist and you proposed creating them with tax dollars today.
We need to measure the macro — the big picture — and the micro — the individual parts. The way we measure the macro economy is with GDP. If growth gets faster, we call it good news, and if it slows down, we call it bad. Who cares that we’re using up the resources of the planet a lot faster than it can produce them, guaranteeing that we’ll run out? Growth is modern economics’ holy grail. The biggest pile of money in human history must grow ever larger. It is the dominant collective aspiration of our era.
But Gross Domestic Product simply adds together every time that money changes hands. It can’t tell the difference between good news and bad news. Making vaccines, building homes, having babies, and transitioning to clean energy sources grows GDP. Increasing cancer rates, homes burning down, acrimonious divorces, and oil spills grow GDP, too. Your city building a beautiful new recreation centre two blocks from your house gets counted in the plus column, and if a train carrying toxic waste derails in your backyard, your misery goes in the plus column, too. When…