Tuesday, September 26, 2006

Playing go-between: Mankiw vs. Stiglitz

Economist Joseph Stiglitz uses a green arrow to take aim at the folly of using GDP as the target number for assessing an economy (and yes, I am having fun with this mental image.)

It looks like he’s thinking about some sort of “total cost accounting” that takes in environmental degradation (which he likens to depreciation).

Sounds good to me. In assessing the health of a country’s economy its income shouldn’t be the only thing that is counted, but how it is depreciating its assets.

Fun part about taking an MBA is that I can read statements like this and actually know what the @$@*%#@ he is talking about:

A startup can have no cash flow and yet be creating a software program of immense value. A company with positive cash flow can be running itself into the ground as its capital depreciates.

But speaking of MBA, Greg Mankiw, the author of one of my Econ textbooks, thinks Stiglitz is being “pedantic” and you can color him unimpressed.

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