Tag Archives: Joseph Stiglitz

New measures of national well-being are moving towards mainstream

Alternative measures of national well-being are moving further towards the mainstream.

Economist Joseph Stiglitz writes in the Financial Times about a report, commissoned by the President of France he lead.   President Sarkozy, established the International Commission on the Measurement of Economic Performance and Social Progress, which produced a report on the measurement of economic performance and social progress.  Stiglitz writes about the report in the Financial Times article – Towards a better measure of well-being.

National income statistics such as GDP and gross national product were originally intended as a measure of market economic activity, including the public sector. But they have increasingly been thought of as measures of societal well-being, which they are not. Of course, good statisticians have warned against this error. Much economic activity occurs within the home – and this can contribute to individual well-being as much as, or more than, market production.

There are concerns, too, that a focus on the material aspects of GDP may be especially inappropriate as the world faces the crisis of global warming. Should we “punish” a country – in terms of our measure of performance – if it decides to take some of the fruits of the increase in productivity from the advancement of knowledge in the form of leisure, rather than just consuming more and more goods?

What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which most citizens have become worse off. We care, moreover, not just for how well off we are today but how well off we will be in the future. If we are borrowing unsustainably from this future, we should want to know.

Flawed statistics may also lead us to make incorrect inferences. In the years preceding the crisis, many in Europe, focusing on America’s higher rates of GDP growth, were drawn to the US model. Had they focused on metrics such as median income – providing a better picture of what is happening to most Americans – or made corrections for the increased indebtedness of households and the country as a whole, their enthusiasm might have been more muted.

… Advances in research across a number of disciplines enable us now to develop broader, more encompassing measures of well-being. Such measures recognise that unemployment has an effect that goes well beyond the loss of income to which it gives rise. Health, education, security and social connectedness all are important to quality of life – but are not adequately reflected in GDP.

Newsweek reports:

The report recommends shifting economic emphasis from simply the production of goods to a broader measure of overall well-being, which would include the benefits of things like health, education, and security. It calls for greater focus on the effects on income inequality, as well as new ways to measure the economic impact of sustainability (climate change specialists like Nicolas Stern are members), and recommended ways to include the value of wealth to be passed on to the next generation into today’s economic conversation. What it didn’t do is come up with a quick and easy new way to tabulate a new measure of wellbeing. Some of the necessary yardsticks already exist; others still need to be invented.

Still, Sarkozy said he plans to shop the report all over the world. “France will open the debate on this report’s conclusions everywhere. It will put it on the agenda of every international conference, every meeting, every discussion where building a new economic, social, and ecological order is the objective,” he told the Sorbonne crowd. “France will fight for every international organization to modify their statistical systems by following the commission’s recommendations. It will propose to its European partners that Europe set the example by putting them into action. [France] will adapt its own statistical machinery in consequence,” he promised. Even the commission’s rapporteur admitted he wasn’t expecting Sarkozy’s strong reaction.