Wednesday, August 30, 2017

Creating an economic balanced scorecard

The economy is measured using three main criteria, inflation, growth and unemployment rate. However, for many years now, experts have argued that some of these measures are flawed. They explained that growth is the wrong paradigm because a) earth resources are depleting at a fast rate b) current measures of growth tend to measure good and bad growth equally. For example, growth from people buying more sports equipment and growth from more people getting sick and using more medical services are on equal footing. I agree with these shortcomings, still, in the rest of the article I want to highlight deficiencies in the inflation measure and provide an alternative for measurement.
Whenever the economic reports come out, they state that inflation was X%, but how is this number calculated? It turns out that it is based on calculating the change in price of a basket of goods. Alas, this basket of goods only covers less than half of what the average American spends money on. Specifically, it excludes healthcare and housing, combined accounting for around 46% of the economy and both increasing at 10-15% range per year. So if around half of what the average American spends money on inflates at such a high rate, there is no way on earth that real inflation numbers are just 2%. It is possible that real inflation is even worse because for some Americans another 7-8% of their income will go towards either their education or their kid’s education; higher education is more than four times as expensive as it was thirty years ago. Thus, it seems the current way of calculating inflation is flawed.
So what is the “correct” way of measuring the economy? For starters, adjust inflation measure to reflect “real” inflation. Second, if you want to keep some of the inflation paradigm, then one can borrow the idea of creating a balanced scorecard. In business, a balanced scorecard insures that a company did not measure short-term profits, but measured…focus was not only short term and financial performance.  Of course, the balanced scorecard is not without its flaws. Namely, the fact that it morphed into a plethora of things measured and where measurement took so much effort that it created a diversion from the original intent of focused performance. Moreover, a lot of the measures used in corporations were subjective and not properly quantified. 
In any case, what I am proposing is a scorecard that includes the above traditional economic measures, but also things like total waste (measures using the inverse of recycling rate in the US), and poverty rate. Poverty is never reported in economic reports, as unemployment is considered more important. This, however, is flawed logic, it does not matter if people have a job if they continue to be poor. It is often said that what you measure drives your action; reporting poverty rates might spur action towards dealing with poverty. Also, hearing the poverty rate every month, or quarter along with the economic report creates focused attention on the issue, instead of hearing about it once a year. After all, the economy is not an end of itself, as government erroneously sometimes thinks.
John Cullin suggested that we make our tools and in turn our tools make us. This is true in the case of the economy; everything in the US has become in service to the economy.  In fact we do not really need to work for 40 hrs a week, but the real reason we do it is to keep the economy going. Maybe if we measured the economy differently, we would be reshaping our tool, and then, maybe, our tool would shape us into something new. 


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electronic health record system
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