>Capability vs. GDP

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Goals are important. They give us something to strive for, get us to make the tough decisions that life requires to accomplish them, and in an ever complicated world, can help keep us focused on what is really important. For public policy purposes though, determining how to assess goals can be controversial. How can you count for hundreds of millions of people, and still implement public policies without interfering on what those same people want to accomplish for themselves?

Coincidently, in a time where many people are saying how economists are failing us, I completed my thesis on how new economic methods need to be used to assess a countries development. What economists are currently accounting for are inputs and outputs, how much it costs to produce the product, and how much money can be made by selling it. I don’t want to say this is a bad thing. There are legitimate arguments out there on why these numbers are important. For businesses to hire people, they need an estimate how much they are going to make, and how much of a loan they need from a bank.

But while the Great Recession has been over for a year, the poverty rate in the United States has dramatically increased. The organization that punched these numbers is highly respected, and all they did was their job. They saw Gross Domestic Product (GDP) went up three quarters in a row and declared everything was fine. Unfortunately, there are millions of people out there who would tell these economists differently.

GDP only accounts for the health of businesses, not the population that keeps them thriving. Instead of assuming that if businesses are prosperous the people are too, economists need to develop new goals that take into account for what people need in order for them to achieve what they are working towards. My thesis focused heavily on the work of Amartya Sen and his Capabilities Theory. This theory focuses on human development, bringing it back to the basics of education, health care, housing, freedom, democracy, and other factors, in order to ensure people are given a chance to accomplish the goals they set for themselves.

In his recent struggles to get the democratic base out to the polls, President Obama stated that during the Bush administration personal family incomes had fallen. But still, most economists thought the economy was good because GDP was going up. The fact is recessions happen, whether in a time of strong regulations or weak ones. You just have to hope they’re not as bad as the one we are in now and they don’t turn into a depression. What is great about the Capabilities Theory is that when recessions do happen, policies are already in place to make sure people are protected. By having economists measure basic goals that all people need, individuals will still have the opportunity to decide what they want to accomplish for themselves because they were given the capability to do so.

Of course, while democracy is a important for the Capabilities Theory, there are numerous examples that can be used to show how politics can be really stupid. Gail Collins had a good piece today on how some of the major races in the coming election have been outright dirty, where the candidates have resorted to political mudslinging. While the politicians and their advisors may see attack ads necessary to get their base out, it turns just as many people off, and doesn’t get any more people to vote for the person who put out the commercial. Even the numbers that economists come out with are at times manipulated to further a public officials agenda. But if new assessments of goals based on the Capabilities Theory were implemented, it would be harder to spin how many people are receiving a strong education, living in a safe neighborhood, and have what they need to support their families.

Elected politicians don’t get reelected on what they say about their opponent, it’s on their own record. By focusing on the people, instead of the corporations, elected officials will know what areas to focus on and try to do something about it. Then, it would be a lot harder for their opponent to come up with legitimate attacks.

This post may seem like a utopia to some people, but I am well aware there will always be socio-economic differences. But when I first learned about the Capabilities Theory, it was one of those things that just made sense, and hopefully after going through this tough time, more people will think it makes sense as well.

 

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Filed under Amartya Sen, Capabilities Theory, Economics, Politics, President Obama, Public Policy

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