Some excerpts from Freefall

04 Jul 2012

Economist Joseph Stiglitz wrote a book called Freefall, and I found many ingenious thoughts from this book, therefore I decided to take a few excerpts from this book and share it here:

‘The irony of the way the model of American individualism worked in practice was that people took credit for successes but showed little sense of accountability or responsibility ofr the failures or the costs imposed on others.’

‘In Japanese society, a CEO who was responsible for destroying his firm, forcing thousands of workers to be laid off, might commit harikari. In the United Kingdom, CEOs resigned when their firms failed. In the United States, they are fighting over the size of their bonuses.’

‘In a performance-oriented society such as ours, we strive to do well - but what we do is affected by what we measure. If students are tested on reading , teachers will teach reading - but will spend less time developing broader cognitive skills. So too, politicians, policymakers, and economists all strive to understand what causes better performance as measured by GDP. But if GDP is a bad measure of societal well-being, then we are striving to achieve the wrong objective. Indeed, what we do may be counterproductive in terms of our true objectives.’

‘Measuring GDP in the United States didn’t really give a good picture of what was going on before the bubble burst. America thought it was doing better than it was, and so did others. Bubble prices inflated the value of investments in real estate and inflated profits. Many strived to imitate America. Economists did sophisticated studies relating success to different policies - but because their measure of success was flawed, the inferences they drew from studies were often flawed.’

‘Our economic growth has been based too on borrowing from the future: we have been living beyond our means. So too, some of the growth has been based on the depletion of natural resources and the degradation of the environment - a kind of borrowing from the future, more invidious because the debts we owe are not so obvious. We are leaving future genrations poorer as a result, but our GDP indicator doesn’t reflect this. There are other problems with our measure of well-being. GDP per capita (per person) measures what we spend on health care, not the output - the status of our health reflected, for instance in life expectancy. The result is that as our health care system gets more inefficient, GDP may appear to increase, even though health outcomes become worse. America’s GDP per captia appears higher than that of France and United Kingdom partly because our health care system is less effiecient. We spend far more to get far worse health outcomes. As a final example (there are many more) of the misleading nature of our standard measures, average GDP per capita can be going up even when most individuals in our society not only feel that they are worse off, but actually are worse off. This happens when societies become more unequal (which as been happening in most countries around the world). A larger pie doesn’t mean that everyone - or even most people - gets a larget slice. As I noted in chapter 1, in the United States, by 2008, the median household income was some 4 percent lower than it was in 2000, adjusted for inflation, even though GDP per capita (a measure of what was happening on average) had increased by 10 percent.’