Tuesday, February 20, 2007

Shortcomings of GDP

We recently talked about the shortcomings of GDP as a measure of economic well-being. One of our points was how GDP does not account for environmental effects. Chip suggested this article that discusses that very issue with China. The overall point is that China is growing very fast, but you should decrease that growth rate to account for the effects of its high levels of pollution.

The article discusses the example of the Shanxi province:

These are boom times for Shanxi province in northern China. The province produced 25% of the country's coal in 2005 at a time when coal prices were soaring. Shanxi's economy grew by 12.5% in 2005, well ahead of even the astonishing 10% growth for China's economy as a whole. Or maybe not.

The province is home to Linfen, Yangquan and Datong, the three most polluted cities in China. Life expectancy in Linfen is 10 years below the Chinese national average. Unchecked coal mining -- the province closed 4,800 illegal mines in 2005 -- and the drilling of illegal wells for water have created a chronic water shortage and a steady loss of farmland as it subsides into underground mine shafts and drained aquifers.

If you subtract the costs of air and water pollution from Shanxi's growth rate, local officials have told Deutsche Bank, the province's real economic growth rate is close to zero.

The article also references research that applies that method to the country as a whole and argues that Chinese economic growth should be revised to be closer to 7% or maybe even as low as 0%, as opposed to the current figure of 10%. The author is a little too Malthusian in some of his predictions for my taste, but he still discusses the point that just looking at GDP figures does not give you the whole picture of how well a country is doing.

(Source: Chip B.)

Monday, February 19, 2007

Live Classes & Guest Speakers

Two related questions from Marginal Revolution and Greg Mankiw:

1. Why do people pay exorbitant amounts of money to see a guest speaker at a conference when they could see them on TV or read their book for significantly less?

Similarly, people are willing to pay a lot more to see someone speak live than a videotape of a speech. Tyler Cowen suggests that it is a signalling problem: "The quality of the speaker signals the quality of the event, and most of all the quality of the other attendees. Wealthy people and successful people don't want to go to an event full of losers, why should they? So the organizers seek quality speakers, so as to attract quality participants."

2. You can buy mp3's or CDs of economics lectures by talented economics professors here for a few dollars per lecture. On the other hand, tuition at highly-ranked private universities is about $30,000 a year, which works out to a lot more than a few dollars per lecture. Why is there such a discrepancy? Why not just pay for the lectures and save thousands? (Note: this is not a suggestion, just a question for thought)

What are your thoughts on either of these questions? Why are live performances worth so much more?