Adapted from a European Tribune story
Take a look at this fascinating note from the research team of Deutsche Bank, the well known hippies: Measures of well-being - There is more to it than GDP (pdf, 10 pages)
GDP only measures the market value of all final goods and services produced within a country in a given period. It is the most widely followed metric for assessing an economy's performance. However, GDP includes many items that do not help well-being: depreciation, income going to foreigners, and regrettables like security expenditure.
Economic well-being is a broader concept, but still restricted to material aspects. It is influenced by parts of GDP, by non-market activity, leisure and wealth. Unemployment and income inequality tend to reduce economic well-being. The Centre for the Study of Living Standards sees the highest economic well-being in Norway, France and Belgium.
Individual living conditions also include non-material aspects such as health, life expectancy, education and the state of the environment. The Weighted Index of Social Progress sees Sweden, Denmark and Norway on top, while the Happy Planet Index sees Colombia and Costa Rica among the leaders.
Happiness, as the ultimate goal, requires the most encompassing measure. This happiness depends primarily on family, friends, work satisfaction and activities. Income does not play a major role.
The note is a quick and easy read, and an excellent introduction to the whole topic of alternative ways to measure things, and I can only encourage you to read it all.
This graph above shows that you can have quite divergent measures of econompic performance, but neither seems to have much influence on our overall happiness - which seems remarkably stable and similar in France and the USA, for instance.
The analysts at Deutsche Bank have a list of suggestions as to what can help improve happiness, from their review of the relevant literature:
Some of the policy conclusions drawn by researchers in the happiness field differ significantly from those in standard economics.
1. Measure well-being. To know what is important and to be able to influence it, societies have to measure well-being, happiness and their components.
2. Reduce unemployment. Unemployment has a major negative effect on well-being both for those directly affected and for all other citizens.
3. Foster happiness-boosting use of time. People tend to work too much because they overestimate the impact of income on happiness. Taxing income improves work-life balances, although
it is unlikely that the optimal tax rate lies above those in continental Europe.
4. Strengthen civil society and active citizenship, participation and engagement. Foster interaction among friends and family; contain geographic relocation, which hurts social interaction with friends and neighbours.
5. Limit materialistic advertisement. Research shows that people who watch a lot of TV feel poorer. Comparison with the pretty, successful and happy but artificial individuals in commercials makes one's own weaknesses visible - especially for children and teenagers. Sweden has banned advertisements targeted at children below 12 years of age.
6. Focus the health sector on complete health. The WHO defines health as "a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity". This includes a stronger focus on mental illness and on longevity.
Beyond this advice, I'd like to focus again on one concept which I find quite enlightening and which is really important to understand the economic "policies" of the Bush administration: that of "regrettables":
GDP includes many items that do not boost human wellbeing.
If a hurricane or an earthquake destroys an entire region, the reconstruction effort is counted as a boost to GDP - even if it only replaces something that was there not long before. Likewise, expenditure on crime prevention and security adds significantly to GDP in many countries - but only restores a safe environment. Medical expenditure as a result of air and noise pollution also adds to GDP as do diet classes, antidepressants and a sizeable list of other items.
However, taken to the extreme this line of reasoning would imply that basic food and clothing also should not be included. This again highlights some of the arbitrariness of the different measures.
In a word, it can be hard to draw a clear line between wasteful activity (repairing something broken) and necessary work (say like cleaning your house every so often).
But it remains important to note that some activities do not create real value. The line is hardest to draw for things like security and insurance, which are necessary for other activities but often appear as wasted when they are not needed - and vital when they are. But you can distinguish 4 different kinds of activity in that respect:
- minimizing the risk, via smart design or planning. Civics education, healthy diet, bumpers and stronger car bodies, not building cities in dangerous zones.
- preventing the risk from happening. Police forces, regular exercise, prudent driving, levees.
- reacting quickly if the risk does happen. Emergency services. FEMA.
- repairing or compensating for the damage if it has happened. Jail. Hospitals. Mechanics. Reconstruction
These 4 types of activity are in decreasing order of utility for our societies, but pretty much in increasing order of contribution to GDP. They are also in increasing order of priority of the Bush administration, except for prevention, which they like - except that they apply it to non-existent threats (terrorism) or which they execute in ways that tend to actually worsen the underlying problem (the invasion of Irak), but in each case which allow for nice, fat contracts to go to friends - more military toys, more useless homleand security spending, and more unsupervised mercenary hires in the sinkhome of Iraq. All of these create GDP, but no obvious wellbeing (except for a few privileged middlemen) and no lasting impact - even though their cost, in the form of debt towards not-so-friendly regimes and death, chaos and mayhem in various places, is very real.
The Bush economy is based on the economics of regrettables - it looks good, but it actually destroys the real economy. It certainly does not improve the wellbeing of Americans. The only silver lining is that it is unlikely to have much impact on their happiness - sadly, of course, other aspects of this administration's policies may do that, but that's another story...