Early in Measuring What Counts the authors, led by Nobel winner Joseph Stiglitz, state, “What we measure affects what we do. If we measure the wrong thing, we will do the wrong thing.” This is a book about economists using the wrong measure, GDP, as an indicator of how well a national economy is doing, some of the effects of that problem, and how to fix it.

A national economy is not an extra-human system. It’s not a solar system that is merely studied but never altered. An economy is a tool, created by humans, presumably to benefit humans. And there is no arguing the fact that that the state of the national economy matters in the lives of people. But does this imply that a strong or expanding economy is good for people? The only honest answer is a disappointing, “It depends on what you are measuring.” And what you measure depends upon what you want your economy to provide. 

Suppose we grant, very broadly, that what we want from our national economy is at least that it (a) provides sufficient goods and services that (b) are fairly distributed. This seems unobjectionable, since it leaves sufficiency and fairness open for argument. GDP is the most widely circulated measure of how well the national economy is doing. Yet GDP is a notoriously poor measure of the degree to which the national economy actually serves the interests of citizens. So, what alternatives are there to GDP? These are the questions that Measuring What Counts takes up, and they are issues that are riddled with moral, political, economic and statistical judgments. Just as war is too important to be left to the generals, so the economy is too important to be left to economists alone.

Gross Domestic Product is the sum of the value, let’s say in dollars, of all: household purchases, business investment, government expenditures and exports-minus-imports. Some examples of its limitations as a measure of human well-being within a national economy are: (1) Expenses that degrade well-being often improve GDP. For example, GDP measures the purchases from coal mines that pollute rivers and then the money spent cleaning the rivers, leaving the possibility that the GDP increase is a net decrease in human well-being. (2) It ignores patterns of income distribution.  As the authors note, GDP increased steadily after the 2008 crash, yet from 2009-12, 91% of the income gains went to the top 1% of earners. (3) It does not measure sustainability, ignoring dwindling resources. GDP is no indicator of future developments, including the state of the planet as it affects future GDP. (4) Job security, an effect of the economy, is a key aspect in family well-being, with increased rates of suicide, addiction, divorce, etc., following wide lay-offs. GDP does not measure job security. (5) Social trust, the idea that the system is fair rather than rigged, is an important consequence of economic fluctuation. GDP does not measure that. (6) Equality of economic opportunity is crucial to fairness and to trust, GDP does not measure that. (7) GDP will include wages to childcare workers but not to caregiving by parents, or other volunteers. In fact, when parents leave the workforce to care for children, it is represented as a reduction in GDP. (8) GDP will include the amount spent on healthcare but not the health of citizens. (9) The focus by politicians on GDP growth undercuts environmental concerns. The authors note that the Clinton administration attempted to counter this by proposing an altered “Green GDP” measure, but the attempt died under pressure from lobbyists, primarily for the coal industry.  

Of course, GDP was not created to measure how well the economy serves the interests of citizens. It was created by an act of Congress in 1934 as a narrow measure of economic growth amidst efforts to escape the great depression. However, it has since been used for other means, including how “well” the economy is doing. Put starkly, if increases in traditional manufacturing were to ultimately render the planet unlivable, it is difficult to argue that increasing the traditional manufacturing component of GDP is a human benefit. After all, intentionally increasing cancer rates, by promoting cigarette smoking for example, would boost health expenditures and thus GDP. If we want to understand how “well” the economy is doing, in the sense of serving the interests of (present and future) citizens, we need to look elsewhere. Where is that?

The authors discuss creating a “dashboard” of possible measures that could be integrated into a more valid indicator of how the economy is serving the interests of citizens. (“Dashboard” is an analogy from, say, and airliner in which a limited number of gauges indicate how well the flight is going.) The issue is not simply what should be included as an economic indicator, but what’s the best way to measure it. Measure it badly and you’ll adjust badly. Below are several phenomena that it would make sense to use in a system of indicators of economic health.

Inequalities: The present income and wealth distributions within developed economies today is clearly neither just nor sustainable. A different issue, the inequality among (rather than within) economies (e.g., Sweden vs. Somalia) is a separate issue. A just distribution does not, in itself, imply an outcome of equal distribution of wealth any more than a justly designed 1500 meter race implies an equal outcome of the time for every runner. But both require an equal opportunity. Outcomes and opportunity are separate issues.

The authors write, “A society in which most people were doing poorly, but a few were doing very well, was not, in a fundamental sense, a well-performing economy, even if GDP was increasing, possibly even rapidly.” (Page 66). And they note that inequalities must include not only wealth but also, “… every other aspect of well-being, health, education, political voice, insecurity, access to justice, opportunity.” (Page 67). They make an interesting point about data on inequality, by the time it is reported, it is water under the bridge. In addition is the question of how to measure inequality. The usual concept is between the upper classes and the lower classes, or “vertical inequality.” But there is also inequality within economic classes; men vs. women, minorities vs. majorities, between families vs. within families. 

Opportunities: Few will argue with the idea that equality of opportunity (financial, educational, competitive, etc.) is fundamental to fairness. But how does opportunity get measured? Degree of economic mobility makes sense, yet children of the wealthy seldom fall in class. Wealth or income correlations between children and their parents makes sense, but has flaws.

Subjective Well-Being: There has been significant growth among research psychologists and economists in the measurement of how satisfied citizens are with their lives. Denmark, then Finland turn out to have the most satisfied citizens (this is often referred, unfortunately, as the happiest citizens.) Arab spring countries showed a sharp decline in perceived well-being prior to the Arab Spring, while the economies’ GDPs were growing rapidly. Unemployment and economic insecurity have direct effects upon subjective well-being. The authors discuss some of the technical difficulties in measuring subjective well-being.

The Relativity of Well-Being: One of the interesting social psychological results is that subjective well-being, how satisfied a person is with his life or some aspect of it, is a strongly relative concept. If a person has X amount of wealth and that person has more than others in the town, they will be happier than if they had the same wealth but were at the bottom of the income level. It is easy to see that this complicates the measurements, but it may go some way toward explaining why economies that are regulated toward equality of outcome consistently score well on measures of subjective well-being. The book briefly surveys ten countries that are implementing subjective well-being measurements for the purposes of policy making. The authors go on to discuss measurements of economic security and of economic and environmental sustainability. 

This is an important book, and will likely be more so if some of the progressive politicians in countries such as the US find themselves in decision-making positions.

Ⓒ 2020 John Mullen

John Mullen is a philosopher and writer living in Gloucester, Massachusetts. His book, Kierkegaard’s Philosophy: Self-Deception and Cowardice in the present Age is widely read. His novel, The Woman Who Hated Philosophers was published by Swallow Tail Press in 2017 and his stories are scattered about various literary journals, mostly on the web. 

Categories: General

Keywords: well-being, economics