Great share prices; shame about the calamity

In the absence of systematic targeting of numerical indicators, there is a risk that governments will implicitly, and perhaps unintentionally, target indicators that do a poor job of measuring societal wellbeing. Gross Domestic Product is one such indicator. It fails on many counts: most notably it does not measure environmental or social health; nor does not take into account leisure time. Another dangerous target is the value of leading shares. The Ludwig von Mises Institute brings us this story, from the catastrophe that is Mugabe's Zimbabwe:

Zimbabwe is in the middle of an economic disintegration, with GDP declining for the seventh consecutive year, half what it was in 2000. Ever since President Mugabe's disastrous land-reform campaign (an entire article in itself), the country's farming, tourism, and gold sectors have collapsed. Unemployment is said to be near 80%.

But something odd is happening.

The Zimbabwe Stock Exchange is the best performing stock exchange in the world, the key Zimbabwe Industrials Index up some 595% since the beginning of the year and 12,000% over twelve months. This jump in share prices is far in excess of increases in consumer prices. While the country is crumbling, the Zimbabwean share speculator is keeping up much better than the typical Zimbabwean on the street.

The authors of this report attribute this to the rise in the money supply - and wonder how much of last 25 years' growth in western share markets is a result of similar increases in the rich world, and how much is due to wealth creation. My concern, though, is with the unsystematic use of indicators, that might lead those in government to regard the health of (say) the sharemarket or even 'the economy' (as measured by GDP for example) as accurate measures of society's welfare. In large societies some sort of numerical aggregates are going to have to be measured and targeted: I'd like such indicators to be measured explicitly, and to be inextricably linked to social and environmental wellbeing. In other words: government should aim to achieve outcomes that are meaningful to real people - as distinct from corporations.