Home > Behavioural Economics, Growth > Measuring Wellbeing

Measuring Wellbeing

This has become popular with a lot of governments worldwide especially in the UK and USA. Late last year I attended a conference at the University of Waikato and Professor Les Oxley took a session entitled

“Is GDP an appropriate measure of wellbeing?
….. and is anything else better?”

Traditionally we have used Gross Domestic Product as it measures:
– The total value of final goods and services produced in the economy
– The total of incomes earned in producing that output
The final purchases by households, business, and government by summing consumption, investment, government spending, and net exports

Historically origins of GDP

In the 1930’s, in response to the information gap revealed by the Great Depression, Simon Kuznets developed a set of national income accounts.

In the 1940’s, World War II planning needs were the impetus for the development of product or expenditure estimates (gross national product); by the mid-1940’s, the accounts had evolved into a consolidated set of income and product accounts, providing an integrated birds-eye view of the economy.

In the late 1950’s and early 1960’s, interest in stimulating economic growth and in the sources of growth led to the development of official input-output tables· In the late 1960’s and 1970’s, accelerating inflation prompted the development of improved measures of prices and inflation- adjusted output.

However there are negatives to GDP as a measurement which was outlined by President Kennedy in 1968.

“The Gross National Product counts special locks for our doors and the jails for those who break them … the destruction of the redwood and the loss of our natural wonder in chaotic sprawl … Yet (it) does not allow for the health of our children, the quality of their education, or the joy of their play … the beauty of our poetry or the strength of our marriages … it measures everything, in short, except that which makes life worthwhile.” President Kennedy 1968

Les Oxley produced a comparison of wellbeing between the USA and France – Are GDP and other measures highly correlated?

France USA wellbeing

Conclusions:

* GDP was not designed to measure wellbeing, especially at the individual level
* We continue to use it because we can measure it quite easily and use it for comparisons over time and space
* BUT it can mislead and potentially lead to mismanagement
* There are alternatives to complement GDP
* The complements are not freaky or the realm of weirdos in and out of economics – they are becoming more mainstream and the problems of using GDP for purposes for which it was not intended are becoming public
* Some of the best minds are trying to shift us away from SOLE use of GDP as an INDIRECT measure of wellbeing

I am off to the beach again for a few days – back again on 19th January.

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