At What Cost

Last summer I was having a conversation with one of my bosses about China’s economic growth and their increasing use of energy. He explained to me that while they do use a good amount of oil and will be increasing their oil use over the next few years, they use a great deal of coal. Additionally, he explained that coal mining accidents happen more frequently than they do in the U.S. and are not well reported. I know nothing about mining coal, but my boss explained to me that strict safety codes and modern techniques make mining coal in the U.S. a relatively safe procedure. In China, despite their growth, they continue to mine coal in many areas using old and unsafe methods. In particular, dangerous gasses can collect in the mines and sometimes cause large explosions taking the lives of many coal miners that the press fails to report (I assume government censorship is to blame for this).

This is exactly what came to mind when reading Stiglitz: “success means sustainable, equitable, and democratic development that focuses on increasing living standards, not just on measured GDP. Income is, of coarse, an important part of living standards, but so too is health…and education”. While China may be increasing her economic power, can we really call this success if she isn’t investing in her own people, if this success is seen in reserves of foreign currency and trade relations and not in the health and educational opportunities of her people? Stiglitz made some very convincing arguments to this effect. While I found his discussion of “shock treatment” versus a more gradual approach of dealing with the economic reform of various nations, it is this larger picture that seems particularly poignant.

We must be careful in our choice of measurements of the wellbeing of a nation, as Stiglitz points out. He gives an example right here in the U.S.: “between 1999 and 2004, average disposable income went up by 11 percent in real terms, but median household income—the income of the family at the center, the true middle middle-class family—fell by some $1,500, adjusting for inflation, or around 3 percent”. What is lost in measurements of GDP and mean averages are issues of equity. There are some compelling and astounding examples of such inequality right here in the U.S.

One may retort that because we enjoy a free market, each of these CEOs is providing a service that the market values at these very high salaries, but I believe that this kind of argument fails to take into consideration some deeply ingrained imperfections of markets. Surely when one takes into consideration the opportunity cost of the money spent on these salaries coupled with the very real possibility that an equally qualified candidate would accept these positions for far less pay, something must be seen as broken (for example, often times overpaying a CEO can act as an expression of the optimistic outlook of the company and its leadership and catch the eye of analysts who may in turn recommend it as a solid investment).