measuring economic value

Economists are frequently criticized for failing to include in their measures of output goods and services that have no price. A common example is household services done by parents – or children – without pay. Even worse, cleaning up bads – such as an oil spill – is counted as an increase in national output (GDP). FT columnist Martin Wolf reviews a new book by Italian-American economist Mariana Mazzucato that covers all this and more.

What is not measured does not count. But what is measured does. Mazzucato offers the reader an account of how value is attributed to the activities of banking. Its added economic value is currently measured by the cost of “financial intermediation services indirectly measured” — in other words, by the spread it charges between the cost of borrowing and the rate of interest on lending. The bigger that spread, by assumption, the more value banks are supposedly creating. This is to confuse a cost with a benefit. ….

[This] book has three significant strengths. First, Mazzucato pushes us to get away from the simplistic creed that markets are always good and governments always bad. Second, she offers the Left a positive goal of prosperity-inducing innovation rather than a sterile and ultimately destructive politics of resentment and redistribution. Finally, she forces us to ask ourselves what adds value to society and how to create an economic and social order that promotes that. The book itself adds value by forcing us to confront these points.

Martin Wolf, “Who creates a nation’s economic value?“, Financial Times, 28 April 2018 (gated paywall).

Martin Wolf is reviewing The Value of Everything: Making and Taking in the Global Economy (Allen Lane paperback, 2018), by Mariana Mazzucato.

Ms. Mazzucato (born 1968) is Professor of the Economics of Innovation and Public Value at University College London. She is author or co-author of numerous books, the best-known of which is The Entrepreneurial State: Debunking Public vs. Private Sector Myths (Anthem paperback, 2013). In April 2016 she became the first woman to give the Raúl Prebisch Lecture organised by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).

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