Composed primarily of consumer, business, and government spending, the Gross Domestic Product is our main well-being metric. While its originator just wanted a money measure of the goods and services we produce, his yardstick has become much more. Because we “treasure what we measure,” lawmakers target GDP components for their policy initiatives.
But is that what we should treasure?
The St. Louis Fed suggested that we consider the Human Development Index, the Better Life Index, and the Genuine Progress Indicator:
The Human Development Index (HDI)
The UN’s HDI emphasizes health, education, and the standard of living. For health, they selected life expectancy as their metric. With education it’s years of school while the standard of living, rather like the GDP, takes them to a per capita measure of the Gross National Income.
The skeptics of the HDI suggest it excludes some important indicators like inequality and security, and takes a traditional view of education that excludes other forms of learning.
In case you are curious, as was I, the GDP and HDI track somewhat similarly:
The Better Life Index
Meanwhile, the OECD’s Better Life Index gives us a choice. At their website, you will see 11 variables. Linked to each indicator is a description of the precise standards that compose each one. The key though is you can decide what you value. With a “toggle” you can input your quality of life priorities:
Here, the downside relates to time. The Index won’t facilitate a look at progress and setbacks.
The Genuine Progress Indicator (GPI)
Varying among its users, the GPI facilitates a cost benefit perspective. Through its economic, environmental, and social categories, it is supposed to approximate a Gross National Happiness Index. While segments of the GPI are subjective, still it is (supposedly) quantifiable. Maryland tells us that it measured a $7 billion GPI increase between 2018 and 2019.
In the U.S., Maryland, Vermont, and Hawaii use the GPI. Below Maryland presented a graphic of its approach:
Our Bottom Line: GDP
In 2008, French President Nicholas Sarkozy asked Nobel Prize winning economist Joseph Stiglitz to chair a commission that reconsidered the GDP. The result was a report that concluded, “…the time is ripe to shift emphasis from measuring economic production to measuring people’s well-being.” (Italics are from the report.) If leisure, for example, were a positive economic variable, then fewer workdays would not be (statistically) punished through less output.
So, if a yardstick from the Stiglitz Commission became the norm, more leisure would be a plus and maybe even a government goal. Seeing we had inadequate leisure, they could respond with extra work holidays.
Knowing all of this, I still have a GDP preference. In addition to its quantifiable strenths, I also like that, as a flow, the GDP has numbers that we can record quarterly. Those numbers become our financial headlines that become policy decisions. They enable us to treasure what we measure. Your preference?
My sources and more: Looking for GDP alternatives, a good starting place is a St Louis Fed Paper: “Beyond GDP: Three Other Ways to Measure Economic Health.” From there, the possibilities multiplied. I went to the Stiglitz Report, to the HDI, the Better Life Index, and the GPI. (Please note that several sentences in “Our Bottom Line” was in a past econlife post.)