The Foreclosure Crisis Calls for a Revolutionary Change in Measuring Prosperity
The strong message that the foreclosure crisis has called for a revolutionary change in prosperity has been highlighted in a report released by two Nobel Prize winning economists Joseph E. Stiglitz and Amartya Sen. By using the GDP as an yardstick the policies undertaken by governments have been erroneous causing the worst crisis since the 1930’s.
The financial crisis was preceded by the booming zoom in the real estate market. This happened because of the lopsided concentration on economic growth. It led to overbuilding and over investment in real estate. Stiglitz argued that this pin pointed focus on development allowed the policy makers of America to rest on a deceptive sense of security that their policies were on the right track. Thus they did not oppose the financial entities from directing literally limitless amount of dollars into the real estate market. This led to the stacking up of consumer debts piling up at an unheard of speed.
Free flow of credit made spending possible; spending began to transform into speedier growth. There was a feeling of bonhomie that this was basically good without thinking of how long it would last and what convulsions would follow it as easy money would slow down to a trickle.
The national policy that focused on this type of growth encouraged the house owners to borrow in a manner as if repayment would never be required. Industry churned out products on the assumption that actual pollution cost was zero explained Stiglitz. He said, “We looked to G.D.P. as a measure of how well we were doing, and that doesn’t tell us whether it’s sustainable. Your measure of output is grossly distorted by the failure of our accounting system. What began as a measure of market performance has increasingly become a measure of social performance, and that’s wrong.”
For real socio-economic welfare the focus should shift from measuring goods and services that is produced to the material welfare of typical persons. Their income and consumption should be measured; so too should be calculated the health care and education facilities.
Theoretically the proposals are revolutionary and hopeful. But how to turn these general rules into actual measuring tools? That is the crux of the problem now. The report states that the two economists agree on the overall picture but they differ on the methods that are to be applied for measuring for instance education and clean skies.
Whatever the shortcomings of the report, undoubtedly the old method of measurement has taken a back seat although the new one has not yet taken on the driving wheels.
