How does our GDP complex prevent us from asking ourselves: happiness or growth?

All of this week’s discussions of whether or not the US economy has fallen into recession has overlooked one important consideration: what if the GDP measure we are all focused on is itself vastly flawed?

It is a heretical question, because there is a “GDP complex” at work here.

There is a whole apparatus – economists, bankers, government officials and forecasters – of people whose livelihoods are based on the measurement of GDP, held as the comprehensive method for measuring a country’s economic, or even social, health.

And, of course, GDP growth is never quite “right”. Either it’s too fast or slow and these parts are always ready to help fix things.

Leaving aside the shortcomings of experts in predicting or correcting, by fixing GDP this august group often loses elements such as sustainability and quality of life.

“[GDP] it’s a shortcut, it’s not complete enough, “economist Mohamed El-Erian told me recently.” It’s a cognitive trap. We have all gotten used to measuring things by GDP and we have a big problem getting out of it. The nature of GDP growth is also important. Is it inclusive? It is a useful measure, but it is only a small perspective in an economy. “

Mohamed El-Erian, Allianz Chief Economic Advisor and former President of President Obama's Global Development Council, speaks at the Milken Institute Global Conference in Beverly Hills, California, USA, May 1, 2017. REUTERS / Lucy Nicholson
Mohamed El-Erian speaks at the Milken Institute Global Conference in Beverly Hills, California, USA, May 1, 2017. REUTERS / Lucy Nicholson

“What we are concerned about now has to do with the quality of production in our economy, the quality of the food we eat, the quality of the air we breathe,” says David Pilling, author of the 2018 book “The Growth Delusion,” “who explored our social obsession with economic growth. “The only way to increase the GDP of Beethoven’s Ninth Symphony is to play it twice as fast so you can have more.”

Before you accuse me of giving you crunchy granola, know that in some cases we look beyond GDP.

Example: The fastest way to grow a factory is to keep costs as low as possible, which means dumping toxic waste into the nearby river. Of course we don’t do it today, but we could do a lot more.

But questioning GDP raises an even more fundamental question: Does an economy need to grow? It is a point that has been debated at least since John Stuart Mill in the mid 19th century. More recently Herman Daly, a former senior economist for the World Bank, was a leading voice in the “steady state” movement, with which he spoke in a recent interview with the New York Times.

There are a lot of interesting things from Daly, like: “The Earth isn’t expanding. We don’t get new materials and we don’t export things to space. So you have an Earth in a steady state, and if you don’t, you don’t recognize that, well, c ‘is an education problem. ”

Of course, holistic socio-economic models have not been widely adopted, with some notable exceptions.

In 1972, Bhutan abandoned GDP as a measure of economic progress and replaced it with … happiness. The Guardian reports: “[Bhutan] advocated a new approach to development, which measures prosperity through the formal principles of gross national happiness (GNH) and the spiritual, physical, social and environmental health of its citizens and the natural environment. ”

Much has been written about the Bhutanese experiment (here and here) and there are gaps, but even its critics must acknowledge its successes. New Zealand, for his part, now has a “Wellness Budget”.

British Prince William, Duke of Cambridge stands with his wife Catherine, Duchess of Cambridge in front of Paro Taktsang Monastery, Bhutan, on April 15, 2016. REUTERS / Cathal McNaughton TPX IMAGES OF THE DAY

British Prince William, Duke of Cambridge, stands with his wife Catherine, Duchess of Cambridge in front of Paro Taktsang Monastery, Bhutan, on April 15, 2016. REUTERS / Cathal McNaughton

Vox notes: “For Prime Minister Jacinda Ardern, the purpose of public spending is to ensure the health and satisfaction of life of citizens, and this – not wealth or economic growth – is the metric by which the progress of a country. GDP alone, he said, “does not guarantee the improvement of our standard of living” and nor does it “take into account who benefits from it and who is excluded”.

“The really important thing New Zealand understands is that subjective well-being data can be used to unlock the political situation,” says John Helliwell, professor emeritus at the University of British Columbia.

Some US economists mock Bhutan and New Zealand (or is it Aotearoa?): “Marginal economies”, things like that. These same sad scientists also denigrate Italy, Spain and France, which I believe have been predicting – inadvertently to some extent – in this way for centuries. And as I pointed out, they are also decent places to live.

GDP is certainly not a sacred metric, nor is it infallible.

First, remember that until 1991 we used GDP (gross national product) to measure the economy. As for fallibility, look at Ireland and its episode “Leprechaun economic”, a phrase coined by Paul Krugman after the country experienced 26.3% GDP growth in 2015, the result of massive protection schemes. tax by multinationals, in particular, apparently, Apple.

Two years later, Ireland replaced GDP with modified GNI (Gross National Income).

But the “GDP complex” doesn’t have to resort to such extremes to win this game.

Fixing low or non-growing GDP through fiscal policy (tax cuts) and monetary policy (interest rate cuts) disproportionately helps the shareholder class, which includes the aforementioned economists, bankers, government officials and forecasters. These tools do not directly address life expectancy, infant mortality, drug addiction, homicide and suicide rates. No country is more obsessed with US GDP data, yet our quality of life compared to other countries (see here and here) is a shocking embarrassment.

“GDP is weighted towards the people whose incomes are highest. It is their experience that is dominating GDP,” says Richard Easterlin, professor emeritus of economics at USC. “In the case of happiness, it doesn’t matter if you are a shareholder or a farmer. Each of you counts the same.”

Is it possible to have strong GDP growth and a high quality of life in a society?

Some might argue that we were used to in the United States, even though large portions of our population had a civil rights shortage in those “good old days”. Singapore perhaps, but it also has limited civil liberties.

So which would you prefer: strong GDP growth and poor quality of life for the majority of citizens, or find another measure that helps lift all ships?

I think I agree with the latter.

This article was featured in a Saturday edition of the Morning Brief on July 30, 2022. Receive the Morning Brief sent directly to your inbox Monday through Friday by 6:30 am ET. subscribe

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