The Sydney Morning Herald has kicked off an interesting ongoing feature looking at replacing gross domestic product as our default and singular metric for national and social progress. It has even commissioned an external consultancy, Lateral Economics, to develop an alternative metric, which they call the Wellbeing index.
Now, there are many ways to render such an index, and I don’t necessarily subscribe to the SMH’s method, but… I wholeheartedly support the notion that GDP is a terrible metric to reflect how our society is benefiting us as individuals. Of course, quantifying things is useful, and GPD is a nice well-defined metric. But as easy as it is to latch on to, it’s just not measuring the stuff that matters. And that’s wellbeing (whatever that is).
I touched on this in my earlier posts about the Occupy Wall Street movement.
The problem, I believe, also runs deeper than just GDP being a convenient quantification of national progress. It’s also tied to the Hayekian brand of free market liberalism that places too much stock in that economist’s Swiss army knife: utility.
If utility really did accurately represent our values and needs, and if we really were rational utility maximisers, and if utility was seamlessly factored into economics as the driver of monetary exchange, then utility really would be an incredibly powerful notion.
Utility, thus rendered, would factor in everything that is important, from material interests to our very moral proclivities. If something was morally repugnant, it would be reflected in its perceived utility, and the market would help eradicate it. Brilliant.
In such a worldview, a free market makes perfect sense. It’s the most potent device for maximising utility, thus its outcomes aren’t only efficient, but they’re morally justified almost by definition.
Sadly, utility just isn’t that perfect. What we perceive as having utility is easily manipulated from what makes us happy. We pursue fleeting pleasures at the expense of long term wellbeing. We pursue them to the point they make us sick, whether it be with stress, obesity or poverty. Information is not transparent, so even when we do have clear moral values, we can’t always choose exchanges that promote them. Instead we’re guided by price, regardless of whether the cheaper product is produced through a more efficient process or made at the hands of child labour.
Utility is flawed. And any system that equates maximising utility with promoting wellbeing fails.
This is why we need a new metric. One that does weave in externalities – positive, like health, education, happiness; and negative, like environmental impact, inequality and stress. GDP will be a crucial part of this metric, but not the only part.
As I’ve mentioned previously, the problem with economics is not it’s too broad, but that it’s not broad enough. The tools of economics are powerful. We just need to make sure we plug in the right variables and have them work for us, not the other way around.