Limitations of GDP as Welfare Indicator

GDP (and its derivatives) is a measure of economic activity, actually. Narrowly understood economic activity, one should add. However, this does not prevent economists and policy makers from making welfare comparisons across countries and across time on its basis. The argument goes as follows: GDP is a good proxy of the consumption possibilities people have, and consumption is a good proxy of well-being/welfare. Therefore, we allegedly can use GDP per capita for comparing welfare between countries and GDP growth as an indicator of social progress within a society. This may sound compelling to many and, indeed, we are used to this rhetoric from authorities and the media. But it is wrong to assume that GDP or any of its common derivatives provides a measure of social welfare, for a number of reasons. Continue reading

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Stop Debating Growth and Focus on What Is Important

For years already, there is a debate ongoing about the role of economic growth (in terms of GDP and related measures) with regard to well-being and environmental sustainability. While some claim that GDP growth is a well-suited tool for economic policy-making and should not be questioned as a social indicator as well, most see this as problematic. It is widely believed that within the current economic system, economic growth causes disruptions both in social and environmental systems – in the latter particularly. But this let to another debate emerge, regarding whether GDP growth and environmental impacts can be decoupled or whether a transition to a no-growth economy is the only solution of anthropogenic environmental problems. But is this ongoing debate not detracting our attention from more real problems? Continue reading

Ideas Lost in Time

The process of societal change – in attitudes, institutions, values, relationship patterns etc. – is accelerating steadily in modern societies. Their members are losing their ability to accommodate to these changes. Furthermore, since our basic needs are fulfilled, we engage more and more in competition for goods that some can have – but not all at the same time, not without serious quality deterioration at least. Moreover, we are working much to be able to pay for consumer goods that we cannot really consume because our time budget does not allow for it any more. This does not stop us from desiring even more consumer foods and from uselessly working to earn the money we need to pay for them. At the same time, whereas GDP has been growing continuously (with only minor periods of regress) for years, the satisfaction we draw from our lives has been at best stable in that time, since our aspirations change as fast as the economy (and our incomes) grows. Last but not least, this growth in production and consumption, as well as population, has led to a terrible, unsustainable level of use of Nature’s resources and services, which can in effect lead to a break down of the world economy.

What do these insights have in common? They were all made some 40 years ago, and little seems to have changed to the better – rather the contrary. Continue reading

Is Happiness a Good Indicator of Quality of Life?

In 1972 the King of the Himalayan nation of Bhutan introduced a fairly new and unconventional concept of social and economic progress measurement – Gross National Happiness. It is a symbol and a manifestation of the ever more widespread belief that GDP and its derivatives (GNP, GDI, GNI etc.) don’t provide what was long thought they do – an imperfect but nevertheless sensible proxy for a nation’s well-being. However, this raises the question: is happiness a better measure. There are reasons to believe that it is not. Continue reading

Jeffrey Sachs on Economic Growth and Happiness

[H]appiness is achieved through a balanced approach to life by both individuals and societies. As individuals, we are unhappy if we are denied our basic material needs, but we are also unhappy if the pursuit of higher incomes replaces our focus on family, friends, community, compassion, and maintaining internal balance. As a society, it is one thing to organize economic policies to keep living standards on the rise, but quite another to subordinate all of society’s values to the pursuit of profit. [more]

Why Economics of Climate Change?

Anthropogenic climate change is a scientific fact. It may be regarded as the greatest challenge humanity has ever imposed over itself. Yet, it is an extremely complex challenge. It has, of course, a scientific component – without the advances in science, especially in climatology (but also, e.g., physics and geology), we probably wouldn’t be aware of the problem we face. Furthermore, as Kristen Sheeran rightly notes,

[m]any will argue that, at its core, the climate crisis is about ethics, rights, and responsibilities.

But, why is there economics of climate change? Do we need it? And if yes, what for? Continue reading

Living in the Over-developed World

While reading the collection of essays “Economics, Ecology, Ethics” edited by Herman Daly, in “Humanity at the Crossroads” by Paul and Anne Ehrlich I found a very interesting term – overdeveloped countries. Normally, when we speak about, say, the U.S. or Japan or the member states of the European Union, we call them “developed countries” or, as a whole, the “developed world” – in contrast to the “developing world”, consisting mainly of African, Latin American and Asian countries.

Can any country “overdevelop”, as the Ehrlichs implicitly claim? I would argue that yes: not only is this possible – it is actually the reality in many richer societies of this world. So, instead of calling them “developed”, we maybe should use the term “overdeveloped” instead. Continue reading