How our GDP complex prevents us from asking — happiness or growth?

How our GDP complex prevents us from asking — happiness or growth?

All the hand-wringing this week over whether or not the US economy has fallen into recession lacked an important consideration: What if the measure of GDP we’re all focused on is itself massively flawed?

It’s a heretical question, because there’s a ‘GDP complex’ at work here.

There’s an entire apparatus — economists, bankers, government officials, and prognosticators — of folks whose livelihoods are predicated on measuring GDP, maintained as the be-all and end-all method for measuring a country’s economic, or even societal, health.

And, of course, GDP growth is never quite ‘right.’ It’s either too fast or slow, and these parts are always ready to help fix things.

Leaving aside the experts’ deficiencies in predicting or fixing, by fixing on GDP this august group often misses items like sustainability and quality of life.

“[GDP] is a shortcut, it’s not comprehensive enough,” economist Mohamed El-Erian told me recently. “It’s a cognitive trap. We’ve all gotten used to measuring things by GDP, and we’re having a huge problem getting out of that. Also the nature of GDP growth is important. Is it inclusive? It’s a useful measure, but it is just a tiny perspective into an economy.”

Mohamed El-Erian speaks during the Milken Institute Global Conference in Beverly Hills, California, US, May 1, 2017. REUTERS/Lucy Nicholson

“What we are now concerned about has to do with the quality of the output of 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 ,” which explored our societal obsession with economic growth. “The only way of increasing the GDP of Beethoven’s Ninth Symphony, is to play it twice the speed so you can have more of it.”

Before you accuse me of going crunchy granola on you, know that we do look beyond GDP in some instances.

Example: The fastest way for a factory to grow is to keep costs as low as possible which means dumping toxic waste in the nearby river. Sure we don’t do that today, but we could do much more.

Questioning GDP, though, begs an even more fundamental question: Does an economy need to grow? It’s a point that’s been debated at least as far back as John Stuart Mill in the mid 19th century. More recently Herman Daly, a former senior economist for the World Bank, has been a leading voice in the ‘steady state’ movement, which he spoke to in a recent New York Times interview.

There’s a ton of interesting stuff in there from Daly, like: “Earth is not expanding. We don’t get new materials, and we don’t export stuff to space. So you have a steady-state Earth, and if you don’t ‘t recognize that, well, there’s an education problem.”

Holistic socio-economic models haven’t been widely adopted of course, with some notable exceptions.

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

Much has been written about the Bhutanese experiment (here and here) and there are shortcomings, but even its critics have to acknowledge its successes. New Zealand, for its part, now has a “Wellbeing Budget.”

Britain's Prince William, Duke of Cambridge poses with his wife Catherine, Duchess of Cambridge in front of the Paro Taktsang Monastery, Bhutan, April 15, 2016. REUTERS/Cathal McNaughton TPX IMAGES OF THE DAY

Britain’s Prince William, Duke of Cambridge poses with his wife Catherine, Duchess of Cambridge in front of the Paro Taktsang Monastery, Bhutan, April 15, 2016. REUTERS/Cathal McNaughton

Vox notes: “To Prime Minister Jacinda Ardern, the purpose of government spending is to ensure citizens’ health and life satisfaction, and that — not wealth or economic growth — is the metric by which a country’s progress should be measured. GDP alone, she said, ‘does not guarantee improvement to our living standards’ and nor does it ‘take into account who benefits and who is left out.'”

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

Some US economists scoff Bhutan and New Zealand (or is it Aotearoa?): “Fringe economies,” kind of stuff. These same dismal scientists disparage Italy, Spain, and France too, which to my mind have budgeted—inadvertently to a degree—along these lines for centuries. And as I pointed out, they’re decent places to live too.

GDP is hardly a hallowed metric, nor is it infallible.

On the first count, remember that up until 1991, we used to use GNP (gross national product) to measure the economy. As for fallibility, look to Ireland and its “Leprechaun economic” episode — a sentence coined by Paul Krugman after the country reported GDP growth of 26.3% in 2015, the result of massive tax sheltering schemes by multinational companies, in particular, it seems, 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 at this game.

Fixing low or non-growing GDP through fiscal policy (cutting taxes) and monetary policy (cutting interest rates) disproportionately helps the shareholder class, which includes the aforementioned economists, bankers, government officials, and prognosticators. Those tools do not directly address life expectancy, infant mortality, drug addiction, murder, and suicide rates. No country obsesses more over GDP data than the US, and yet our quality of life relative to other countries (see here and here) is a shocking embarrassment.

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

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

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

So, which would you rather have: strong GDP growth and poor quality of life for a majority of citizens, or find another measure that helps raise all ships?

I think I’m on board with the latter.

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

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