Tag: human capital

The health of an economy is generally measured in terms of the growth rate in GDP. A healthy economy is portrayed as one that is growing. Declining GDP, by contrast, is seen as a sign of economic malaise; not surprisingly, people don’t want rising unemployment and falling consumption. The recession of 2008/9 has generally been seen as bad news.

But is GDP a good indicator of human well-being? The problem is that GDP measures the production of goods and services for exchange. True, such goods and services are a vital ingredient in determining human well-being. But they are not the only one. Our lives are not just about consumption. What is more, many of our objectives may go beyond human well-being. For example, the state of the environment – the flora and fauna and the planet itself.

Then there is the question of the capital required to produce goods and maintain a healthy and sustainable environment. Capital production is included in GDP and the depreciation of capital is deducted from GDP to arrive at a net measure. But again, things are left out of these calculations. We include manufactured capital, such as factories and machinery, but ignore natural capital, such as rain forests, coral reefs and sustainable ecosystems generally. But the state of the natural environment has a crucial impact on the well-being, not only of the current generation, but of future generations too.

In the video podcast below, Professor Sir Partha Dasgupta, from the Faculty of Economics at the University of Cambridge and also from the University of Manchester, argues that the well-being of future generations requires an increase in the stock of capital per head, and that, in measuring this capital stock, we must take into account natural capital. In the paper to which the podcast refers, he argues “that a country’s comprehensive wealth per capita can decline even while gross domestic product (GDP) per capita increases and the UN Human Development Index records an improvement.”

Nature’s role in sustaining economic development (video podcast) The Royal Society, Partha Dasgupta
Nature’s role in sustaining economic development Philisophical Transactions of the Royal Society B, vol 365, no. 1537, pp 5–11, Partha Dasgupta (12/1/10)
GDP is misleading measure of wealth, says top economist University of Manchester news item (21/12/09)
Economics and the environment: Down to earth index Guardian (28/12/09)

Questions

  1. Why might a rise in GDP result in a decline in human well-being?
  2. In what sense is nature ‘over exploited’?
  3. What is meant by ‘comprehensive wealth’ and why might comprehensive wealth per capita decline even though the stocks of both manufactured capital and human capital are increasing?
  4. What is meant by ‘shadow prices’ in the context of natural capital?
  5. How might economists go about measuring the shadow prices of capital?
  6. What factors should determine the rate of discount chosen for projects that impact on the future state of the environment?

In 2010/11, government funding for UK universities will be 7 per cent less (£518m) than in 2009/10. This has led to calls for substantial increases in student fees in order to stave off a serious funding crisis for many universities. One such call has come from David Blanchflower. As the first article below states:

“A leading economist has called for students from well-off families to be charged the ‘market rate’ of up to £30,000 a year to go to university. David ‘Danny’ Blanchflower, a former member of the Bank of England’s monetary policy committee, said the “poor have been subsidising the rich” for too many years.”

But just what are the arguments for and against a substantial rise in fees and who should pay any rise in fees? Should it be only students of very well-off parents or should it include middle-income parents too? Or if student loans are available to cover higher fees, why should not the same fees apply to all students? Then there is the question of who benefits from a university education? How much should external benefits be taken into account?

Call for universities to charge well-off students £30,000 a year Observer, Anushka Asthana and Ian Tucker (27/12/09)
A rise in fees would make university education fairer Observer (27/12/09)
Who wants a two-year degree? Independent on Sunday, Richard Garner (27/12/09)
Briefing: University funding Sunday Times, Georgia Warren (27/12/09)
Universities face £500m cut in funding Financial Times, Nicholas Timmins (22/12/09)
The nightmare before Christmas: grant letter announces £135m cut Times Higher Education, John Morgan (27/12/09)
Fast-track degrees proposed to cut higher education costs Guardian, Polly Curtis (22/12/09)

Questions

  1. Why is the government planning to make substantial cuts to university funding?
  2. What are the arguments for and against the university sector bearing a larger percentage cut than most other areas of government expenditure?
  3. Should any rise in fees be born by parents or by students from future income?
  4. Identify the external benefits from higher education? How does the existence of such externalities affect the arguments about the appropriate charges for higher education?
  5. What are the economic arguments for and against moving towards more two-year degrees.
  6. Discuss the case for and against increasing the participation rate in higher education to 50 per cent of young people.
  7. Is higher education a ‘merit good’ and, if so, what are the implications for charging for higher education?