Alternative measures to US GDP to air this summer

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The NYT Magazine section (5/16/10) had a long article describing efforts of economists and other social scientists to develop measures for the US that go beyond GDP.  As many have remarked before, what’s good for the GDP is not necessarily good for the US or its citizens:  post hurricane rebuilding efforts, a crime wave that forces people to buy burglar alarms, clear-cutting old growth forest, are but a few examples of activities that boost GDP but don’t necessarily boost welfare.  The article summarizes this as “High GDP Man” vs. Low GDP Man” with the former engaged in lots of activities that boost GDP (hiring a nanny, running a dryer, commuting to work) but don’t necessarily increase his welfare or happiness.

The article discusses the efforts of Chris Hoenig, spurred by the august National Academy of Sciences and various leading national foundations, to develop scores of alternative measures to the GDP.  His effort, called State of the USA, will go live this summer.

Jon Gertner reports: “Hoenig’s State of the USA will become a national-indicators panel, run by the National Academy of Sciences. Think of it as a report card meant to show a country’s citizens the exact areas — in health, education, the environment and so forth — where improvement is called for; such indicators would also record how we improve, or fail to improve, over time. The State of the USA intends to ultimately post around 300 indicators on issues like crime, energy, infrastructure, housing, health, education, environment and the economy. All areas of measurement will be chosen by members of the National Academy; all will be reviewed for rigor and accuracy by a panel of accomplished experts. With easy access to national information, Hoenig told me optimistically, Americans might soon be able ”to shift the debate from opinions to more evidence-based discussions to ideally a discussion about what solutions are and are not working.”

The article also summarizes the Stiglitz-Sen-Fitoussi Commission, that advised Nicholas Sarkozy, on potential alternative measures to GDP to measure French wellbeing.  Robert Putnam, was on the all-star commission, and was quoted in this article.  [See earlier blog post on blue-chip Sarkozy Commission’s recommendation of measuring social capital.]

Putting a Number on Happiness

As difficult as it might be to compile sustainability indicators, it’s equally challenging to create measures that describe our social and emotional lives. In this area, there’s a fair amount of skepticism from the academic establishment about putting happiness onto a national dashboard of well-being. William Nordhaus of Yale told me that some of the measurements are ”absurd.” Amartya Sen, too, told me that he has reservations about the worth of statistics that purport to describe human happiness.

Stiglitz and his colleagues nevertheless concluded that such research was becoming sufficiently rigorous to warrant its possible inclusion. At first the connection to G.D.P. can be puzzling. One explanation, however, is that while our current economic measures can’t capture the larger effects of unemployment or chronic depression, providing policy makers with that information may influence their actions. ”You might say, If we have unemployment, don’t worry, we’ll just compensate the person,” Stiglitz told me. ”But that doesn’t fully compensate them.” Stiglitz pointed to the work of the Harvard professor Robert Putnam, who served on the Stiglitz-Sen-Fitoussi commission, which suggests that losing a job can have repercussions that affect a person’s social connections (one main driver of human happiness, regardless of country) for many years afterward.

When I caught up with Putnam, he said that the ”damage to this country’s social fabric from this economic crisis must have been huge, huge, huge.” And yet, he noted, ”We have plenty of numbers about the economic consequences but none of the numbers about the social consequences.” Over the past decade, Putnam has been working on measures — having to do with church attendance, community involvement and the like — to quantify our various social links; just recently, the U.S. Census Bureau agreed to include questions of his in some of its monthly surveys. Still, his efforts are a work in progress. When I asked Putnam whether government should be in the business of fostering social connections, he replied, ”I don’t think we should have a government Department of Friendship that introduces people to one another.” But he argued that just as registering the social toll of joblessness would add a dimension of urgency to the unemployment issue, it seemed possible that measuring social connections, and putting those measures on a national dashboard, could be in society’s best interests. As it happens, the Canadian Index of Well-Being will contain precisely such a measure; and it’s very likely that a related measure of ”social capital,” as it’s often called, will become a State of the USA indicator too. ”People will get sick and die, because they don’t know their neighbors,” Putnam told me. ”And the health effects of social isolation are of the same magnitude as people smoking. If we can care about people smoking, because that reduces their life expectancy, then why not think about social isolation too?”

It seems conceivable, in fact, that including various measures of emotional well-being on a national dashboard could lead to policies quite different from what we have now. ”There’s an enormous inequality of suffering in society,” Daniel Kahneman told me recently. By his estimate, ”if you look at the 10 percent of people who spend the most time suffering, they account for almost half of the total amount of suffering.” Kahneman suggested that tremendous social and economic gains could therefore be made by dealing with the mental-health problems — depression, say — of a relatively small fraction of the population. At the same time, he added, new measures of emotional well-being that he has been working on might soon give us a more enlightened perspective on the complex relationship between money and happiness.

Currently, research suggests that increased wealth leads us to report increased feelings of satisfaction with our lives — a validation, in effect, that higher G.D.P. increases the well-being in a country. But Kahneman told me that his most recent studies, conducted with the Princeton economist Angus Deaton, suggest that money doesn’t necessarily make much of a difference in our moment-to-moment happiness, which is distinct from our feelings of satisfaction. According to their work, income over about $70,000 does nothing to improve how much we enjoy our activities on a typical day. And that raises some intriguing questions. Do we want government to help us increase our sense of satisfaction? Or do we want it to help us get through our days without feeling misery? The two questions lead toward two very different policy options. Is national progress a matter of making an increasing number of people very rich? Or is it about getting as many people as possible into the middle class?

While Jon Gertner notes that there is some political opposition to this, Enrico Giovannini, the head of Italy’s national statistics agency, observes that a half-dozen countries, including Germany, the United Kingdom and France, have expanded their “productivity” measures to focus on wellbeing rather than merely economic growth.    The Stiglitz Commission recommended a “dashboard” approach, honing in on a few more critical dimensions; so far in the US, the metrics are diffuse enough that it may be harder to keep one’s eye on all the instrumentation and see how we are doing.

Some fear that while the US looks great internationally on GDP measures (for example, because Americans take very little vacation), it may look less stellar measured in “well-being terms”.  To those who exalt our free markets and entrepreneurship as a singular deity, this is heading us toward troubled waters; to the architects of such a revamped system, that’s exactly the point — we ought to keep our eyes on the prize (our wellbeing) and not be heeding a flawed gauge.

See “The Rise and Fall of the GDP” (NYT Magazine, Jon Gertner, 5/16/10)


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