[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Measuring Nonmarket Goods Nonmarket goods and services, such as
housework done by family members, also present problems. The statistics underestimate
the true level of production in the economy, because they ignore such activity.
While GDP is designed primarily to measure only market economic activity,
there are two important exceptions to this restriction. GDP does include a measure
of the value of owner-occupied housing, and it includes the value of homegrown
food consumed by farm families. In general, though, nonmarket activity is not included,
because without prices a value cannot be assigned to the output.
Conclusions GDP provides our best estimate of the level of production for markets.
But changes in the nature of production, from growth in the underground economy
to new technological innovations, can affect the ability of GDP to provide an
accurate picture of the economy’s performance.
MEASURING THE STANDARD OF LIVING
GDP tells us something about the overall level of economic activity in a nation, the
goods and services produced for the market. But it is only a partial measure of a
society’s overall well-being. Literacy rates (the percentage of the population that
can read or write), infant mortality rates (the fraction of infants that die), and life
expectancy are other social indicators that are often employed in attempts to gauge
a nation’s standard of living. Real GDP does not take into account these other important
components. But at the same time, there is a strong connection between high
levels of real GDP per capita and high levels of literacy, high levels of health, and
high environmental quality. People in countries that are rich as measured by real
GDP per capita are able to enjoy better health, longer life expectancy, higher levels
of education, cleaner water, and cleaner air than can people in poor countries.
A GREEN GDP
The national income accounts do not take note of the depletion of the stock of natural
resources or the deterioration in the quality of the environment that producing
GDP may cause. Harvesting a hardwood forest may increase a country’s GDP, but
it decreases the country’s assets. The output is not sustainable—a fact that a “green
GDP” would recognize by subtracting the decrease in the natural resource base
from conventional GDP. Such a measure would better indicate whether an economic
activity is adding to the nation’s wealth or subtracting from it by using up natural
resources. A measure of living standards, unlike a measure of goods and service
produced for the marketplace, should include changes in the quality of the environment,
as well as changes in such factors as levels of health and of crime.
Constructing a means of calculating a green GDP is difficult. Compare the problem
of measuring the value of auto production with the problem of measuring the
value of the decline in the California sea otter population. In the former case, we
can collect statistics on the number of cars produced, and we can use the prices we
observe in the marketplace to assign a value to that production. In contrast, while
MEASURING OUTPUT AND GROWTH ∂ 497