Eighteen years ago, before he became a Nobel laureate, Professor Joseph Stiglitz was the chairman of the Council of Economic Advisers to the Clinton administration, and he had an idea.
During a discussion with filmmaker Ramin Bahrani before an audience at New York’s Columbia University last night (US time), which followed a screening of Oliver Stone’s 1987 classic Wall Street, Stiglitz told us the story of how he wanted to create a ‘Green GDP’ all those years ago.
"What we would do is take the ordinary GDP and make a couple of modifications; the degradation of the environment and the depletion of our natural resources,” said the 70-year-old economist.
"I knew I’d found something important when there was a large group from Congress that said, ‘If you continue to work on this we’ll take away all your money’.”
Naturally, they were political proxies for the private coal industry.
While the global energy sector is routinely and sometimes unfairly tarnished by environmentalists for certain crimes, it’s a simple matter of record that the prosperity generated by its activities is reflected in gross domestic product measures, but its inherent unsustainability and environmental damage are not.
GDP is a default setting for measuring a country’s progress and value around the world. But Stiglitz is one who believes that it’s a flawed way to measure just about anything, let alone value.
Watching Michael Douglas as Gordon Gekko with that giant cellphone is indeed an exercise in time travel, but much of Wall Street remains a metaphor for our times, especially in the land of the free.
Gekko’s remarks to the Teldar Paper shareholder meeting about the United States becoming a "second-rate power” with trade and fiscal deficits "at nightmare proportions”, serve as a flustering reminder of how much trouble the US is in compared to generations past.
But the story, and another specific Gekko comment outside the ‘greed is good’ mantra, are still brutal comments on how poorly defined the concept of value is.
The protagonist Bud Fox (played by the now less respected Charlie Sheen) loses his way so terribly as he earns more money, while the airline mechanic father figure (played by the ever-more respected Martin Sheen, Charlie’s actual dad) has a thorough understanding not just of opportunistic market predators like Gekko, but also the inherent value that his own job has over his son’s idol.
It should not be surprising that Stiglitz is much more inclined to side with Bud’s dad, Carl, than Gekko, who says that Wall Street is a "zero sum game”.
"Somebody wins, somebody loses,” says Douglas, who won an Academy Award for his turn in the flick. "Money itself isn't lost or made, it's simply transferred from one perception to another.”
Stiglitz contested, as many have, that Gekko was hardly channelling Adam Smith, but ventriloquising him, adding that in his belief, "It’s actually a negative sum game”.
"In the process of one person trying to steal money from the other, it actually destroys value. That’s something that economists have understood much more clearly in the last 30 years.”
While the US sub-prime mortgage crisis has undoubtedly been picked up in the GDP data, unlike America’s declining coal reserves (or it’s gradually realised shale reserves, mind you), Stiglitz has been arguing for some time that it’s a terrible metric.
Just how do we measure value? What the hell does that word even mean to individuals or to governments?
Stiglitz recently testified before the Scottish parliament about this very subject, telling the New York audience that the Scots are taking broader measures of wellbeing and attempting to inject them into public policy, rather than leaning on just GDP and unemployment.
He added last night that including other "valuable elements" like the environment for his Green GDP plan, is "not that difficult”.
Even basic happiness is pretty straightforward. As the evening’s filmmaking host Bahrani pointed out, the US recently slipped out of the top 10 happy nations on the Legathum Prosperity Index. Australia came in fourth, behind Norway, Denmark and Sweden. What is it about those damn Scandinavians and Australians, the rest of the world must be asking.
Many Business Spectator readers will be thinking this is either hippy-tomfoolery or simply too hard to execute. To some extent, Stiglitz agrees with the latter.
For example, he pointed out that US life expectancy has been increasing in the last few decades. But most of that growth has come from upper-socio-economic demographics. Americans that didn’t graduate from university, especially women, are seeing their life expectancy decrease.
How do you incorporate a misleading metric into GDP? It’s tricky, but it’s worth trying and it’s better than sticking with the existing useless formula.
"This work has gotten enormous resonance around the world, less so in the United States than other countries,” laughs Stiglitz, only slightly masking an obvious sense of disappointment.
The next US GDP numbers are due in three weeks. Will they be up or down? Does it really matter? The entire country is less happy this year than last. This is a lesson for all users of GDP.
Sure, we can continue making a fuss about how we’re benchmarked against an utterly meaningless set of economic data points. It’s like making Oslo your destination and only following the compass north.
Or we can focus on evaluating more of the things we truly seek as individuals and all of the assets we value as societies. Let's find some numbers that actually mean something.
Alexander Liddington-Cox is Business Spectator’s North America Correspondent.