What if we used wellness (Gross Domestic
Happiness) as a metric for prosperity rather than GDP?
Distilling
an economy’s sucess in delivering “prosperity” to a single
number has outlived its purpose. Zachary
Karabell describes the birth of GDP in far less complex times
in (Mis)leading
Indicators: Why Our Economic Numbers Distort Reality (Foreign
Affairs):
A GDP that is growing in sync with expectations
can enhance a country’s reputation and thus its strength and power.
A GDP that is contracting or failing to meet expectations, on the
other hand, can lead to disaster. Yet a hundred years ago, the
concept of GDP did not exist; history unfolded without it. The United
States, for example, managed to win its independence, fight a civil
war, and conquer a continent without any measure of national
income.GDP’s origins lie in the 1930s, when economists and
policymakers in the United States and the United Kingdom struggled to
understand and respond to the Great Depression.
It is not terribly surprising that economists
and policymakers came to favor a statistical technique that helped
the United States survive a depression and win a war. But not even
the economists who invented this metric imagined that GDP would
become so central to every state in the world within a few short
decades.
The problem is this
radical reductionism at the heart of any single measure is
irrevocably flawed:
Leading indicators were invented to measure the
economies of the industrial nation-states of the mid-twentieth
century. In their time, they did so brilliantly. The twenty-first
century, however, is proving more challenging to measure. Industrial
nation-states have given way to developed economies rich in services
and to emerging industrial economies exporting goods made by
multinational companies. The statistics of the 20th century were not
designed for such a reality, and despite the assiduous efforts of
statisticians, they cannot keep up.These shifts have created a
temptation to find new formulas, better indicators, and new
statistics. But the belief that a few simple numbers or basic
averages can capture today’s multifaceted national and global
economic systems is a myth that should be abandoned. Rather than
seeking new simple numbers to replace old simple numbers, economists
need to tap into the power of the information age to figure out which
questions need to be answered and to embrace new ways of answering
them.
The limitations of GDP
are so severe that the number is at best misleading. Karabell
identifies three intrinsic flaws in any single-number scheme to
measure GDP:
1. GDP does not include vast swaths of economic
output and value
2. GDP is useless in measuring real-world trade
3. GDP counts digging a hole and filling it but
not conservation of energy or resources.
If a steel mill produces pollution that then
requires a cleanup, both the initial output (the steel) and the cost
of addressing its byproduct (the cleanup) add to GDP. So, too, would
the cost of health care for any workers or residents injured or
sickened by the pollution. Conversely, if a company replaces its
conventional light bulbs with long-lasting LED bulbs and, as a
result, spends less on lighting and electricity, the efficiency gains
would detract from GDP. Yet few would argue that the pollution
example represents a positive development or that the lighting
example constitutes a negative one.
The simplistic
assignment of “import” and “export” completely misses the
reality of modern manufacture and trade, where
parts come from multiple nations. As Karabell explains:
If trade numbers more accurately accounted
for how products are made, it is possible that the United States
would not have any trade deficit at all with China. The
problem, in short, is that trade figures are currently calculated
based on the assumption that each product has a single country of
origin and that the declared value of that product goes to that
country. Thus, every time an iPhone or an iPad rolls off the factory
floors of Foxconn (Apple’s main contractor in China) and travels to
the port of Long Beach, California, it is counted as an import from
China.A more reasonable standard, of course, would recognize that
iPhones and iPads do not have a single country of origin. More than a
dozen companies from at least five countries supply parts for them.
Infineon Technologies, in Germany, makes the wireless chip; Toshiba,
in Japan, manufactures the touchscreen; and Broadcom, in the United
States, makes the Bluetooth chips that let the devices connect to
wireless headsets or keyboards.
Taking these facts into account would leave
China, the supposed country of origin, with a paltry piece of the
pie. Analysts estimate that as little as $10 of the value of
every iPhone or iPad actually ends up in the Chinese economy, in
the form of income paid directly to Foxconn or other contractors.
I
have addressed this issue for years, for example: Trade
War with China: Who Benefits? (April
11, 2007)
Trade
and “Trade War” with China: Who Benefits? (October 5,
2010)
No single number, regardless of the inputs,
can possibly reflect the real economy.Karabell concludes:
How entrepreneurs run effective businesses; how
individuals buy homes, pay for college, or retire — none of those
decisions should be based on the leading indicators of the last
century. Old attachments to those indicators, and to the myth that
there is something called “the economy” that affects all people
equally, poses a major obstacle to progress.
Karabell also
discusses what I call the propaganda
value of GDP:
These measurements were not invented to serve
as absolute markers of national success or failure or to indicate
whether some governments were visionary and others destructive. But
the transformation of these numbers from statistics into markers of
national success happened so quickly over the course of a few decades
that no one quite noticed what was happening.
I tend to think
political authorities knew exactly what was happening: they realized
that their own credibility could be boosted by a rigged GDP
number. Thus we have the
central government of China issuing blatantly bogus claims of 7+%
annual GDP, as anything less will severely erode their claim of
managerial brilliance.
In our own propaganda-dependent state, GDP is
almost always positive, much like corporate earnings always beat
expectations by a penny.
But we should be paying attention to an even
deeper critique of GDP: that prosperity no longer depends of
the “growth” of consumption, financialization, etc. but on the
Degrowth of narcissistic consumerism and more efficient use of
resources and capital.
What
if we used Bhutan’s guiding national policy of Gross
Domestic Happiness, as a metric for prosperity?
A second-generation GNH concept, treating
happiness as a socioeconomic development metric, was proposed in 2006
by Med Jones, the President of International Institute of Management.
The metric measures socioeconomic development by tracking seven
development areas including the nation’s mental and emotional
health.GNH value is proposed to be an index function of the total
average per capita of the following measures:1. Economic Wellness:
Indicated via direct survey and statistical measurement of economic
metrics such as consumer debt, average income to consumer price index
ratio and income distribution
2. Environmental Wellness: Indicated via direct
survey and statistical measurement of environmental metrics such as
pollution, noise and traffic
3. Physical Wellness: Indicated via statistical
measurement of physical health metrics such as severe illnesses
4. Mental Wellness: Indicated via direct survey
and statistical measurement of mental health metrics such as usage of
antidepressants and rise or decline of psychotherapy patients
5. Workplace Wellness: Indicated via direct
survey and statistical measurement of labor metrics such as jobless
claims, job change, workplace complaints and lawsuits
6. Social Wellness: Indicated via direct survey
and statistical measurement of social metrics such as discrimination,
safety, divorce rates, complaints of domestic conflicts and family
lawsuits, public lawsuits, crime rates
7. Political Wellness: Indicated via direct
survey and statistical measurement of political metrics such as the
quality of local democracy, individual freedom, and foreign
conflicts.
Here in the U.S., we give lip-service to all
these values, but ask yourself: where do we spend most of our
time? Serving our masters in the State/crony-cartel economy,
creating GDP.
Yes, we all still need to earn a livelihood,
but imagine a society constructed around generating Gross Domestic
Happiness instead of GDP. The power structure would collapse
because none of these activities generate enough profits or taxes to
keep the Machine operational.
It is a sad statement that we often only awaken
to real value and meaning when we’ve run out of time to change the
way we “invest” our time.
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