The idea that GDP does not capture everything that contributes to community well-being is pretty old-hat these days. And there have been lots of attempts to provide alternative measures – Ken Henry was a bit of fan and even the ABS has had a go – but many of these alternative measures simply cycle with GDP, so it hard to escape the conclusion: “what is the point”.
My particular favourite is Bhutan’s index of happiness – because we are all dying to migrate to the Kingdom of Bhutan.
And then there is Joe Stiglitz and Amartya Sen persuading Sarkozy to adopt measures other than GDP to measure economic performance, because the French economy is doing so well and we will all be copying that one too.
But now the team of Gittins, Irvine and Gruen have decided to collaborate to produce a quarterly measure of wellbeing which takes into account health, education, job satisfaction, environmental degradation and the like, as well as the traditional economic measures.
WELLBEING grew twice as fast as gross domestic product in the September quarter thanks to a big rise in national income from the boom in commodity prices and cheaper imports.
The Herald/Lateral Economics Index of Australia’s Wellbeing rose 2.2 per cent in the quarter, outstripping GDP growth of 1 per cent.
The index is a Herald initiative that adjusts GDP for changes in the nation’s physical, natural and human capital, and in health, income inequality and job satisfaction.In other good news, the pace of deterioration in our physical and mental health eased slightly in the September quarter. But the erosion of our natural environment continued to be a small – but growing – negative for wellbeing.
The negative impact on wellbeing from job dissatisfaction grew 2 per cent, due to a slight rise in the jobless rate around mid-year.
But our human capital – the knowledge and know-how of our people – grew 1.4 per cent in the quarter, adding to wellbeing. However, human capital was up only 1.7 per cent over the entire year, due to a fall in the proportion of school students staying to year 12.
I thought the whole point of these exercises was to show that GDP overstates our economic welfare but on this measure, the reverse is true.
The key reason seems to be that the index uses Net National Income, which takes into account the TOT while deducting off overseas liabilities. This measure will be absolutely overwhelmed by movements in the TOT.
It is also hard to avoid the conclusion that there is lots of double counting in the measure: expenditure on education is in GDP but is augmented for higher school and university participation (even when it is wasteful, like those pointless university degrees). And mental health is in (query: accuracy of measurement) but expenditure on mental health is already in GDP.
The fact that we are all fat and getting fatter – as a negative – is somehow included. (Don’t tell Reubens.)
And job satisfaction is in – again, query measurement (according to HILDA data, we are pretty happy with our jobs, as well as our lives) but if unemployment goes up, job satisfaction goes down. Hmmm … wouldn’t being unemployed mean that you don’t have a job to be satisfied or dissatisfied about.
And as for inequality? Well, surely, that is just a value-based inclusion. If Bill Gates moves into your suburb and observed inequality increases, is that a good thing or a bad thing?
As long as the high returns earned by the lucky few are not a result of rents arising from uncompetitive or monopoly arrangements (themselves generally the result of bad government policy) but rather hard work and risk taking, then observed inequality is neither here nor there, particularly with an aggressive redistributive tax and transfer system we have in Australia.