Measuring Well-Being

A very interesting guest op-ed in the New York Times today suggested that we should stop using GDP as a measure of economic wellbeing, or at the very least change the name to “gross domestic transactions” to more accurately reflect what it measures.

I thought this was a useful reminder that statistical indexes are not always what they are cracked up to be.  How much economics research is geared toward finding determinants of GDP growth?  The article linked to here suggests all that research may not tell us that much about how well off we are.  There goes a big chunk of World Bank and IMF research.  The UNDP’s Human Development Index is better because it incorporates literacy and life expectancy, but even that does not account for the sorts of environmental factors the author here suggests.

I also wonder about using survey results on Happiness as a way of measuring policy.  After all, Aristotle made the case that all politics is aimed at producing happiness; if a polity fails at that, it fails, regardless of increases in number and size of transactions.

Thoughts?

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About Jake Wobig

I teach international relations and comparative politics at Wingate University in Wingate, North Carolina
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6 Responses to Measuring Well-Being

  1. Paul Krugman’s column the other day tried to balance the measurement of the recession (using GDP or some correlate), and the unemployment measures. He suggested that even though GDP decline is slowing, that unemployment is going to stick with us for a while. This is often how recessions work, so he’s probably going to be right.

    Using multiple objective indicators (e.g. GDP and Unemployment) is likely a better strategy than trying to create a conglomerated measure for all things that make us happy, or all things that are related to economic welfare. This is because any conglomerated measure must have a predetermined weight for each component. These weights are normative choices, and this puts the choice of what is important in the hands of the researchers and not in the polity. In a world of multiple objective measures, each viewer of the numbers can make their own decision about whether 10% unemployment is too high considering a 0.2% growth in GDP.

    Just my $0.02.

  2. Tina M. Zappile says:

    The economic convergence and economic growth literature have a lot to say about GDP/capita as a measure of growth/development. The best argument for GDP/capita (in PPP terms) is that it’s constant across time and space. Tough to argue against that.

    The idea that “healthier is happier” is a good one, but my take on it is that for most people, they have to cross a threshhold of income before that can be true. Up to that point wealth and health (and literacy, etc) are highly correlated. Thus GDP/capita is the best (though not perfect) measure to a certain point but after that other factors also impact well being.

    It’s a messy issue. I have plugged in HDI for GDP/cap in growth regressions without much difference but clearly they are not perfectly correlated. I like to think normatively HDI is better, but I keep going back to GDP/cap (ppp).

  3. Jake Wobig says:

    I think Inglehart has a graph somewhere that shows that happiness is also highly correlated with income up to some threshold as well.

    I’ve been mulling political development for awhile, and I’m starting to wonder how exactly we would measure it, which is why this article stuck out to me. If we (political scientists) were to develop an index of political development from scratch, how would we do that?

    I think Doug is right that this has a large normative component, but that does not scare me so much. For one thing, I think we could use survey research on preferences to guide weights. For another, I think theorists have a handle on “The Good” that would be very useful to this project. I’m thinking particularly of Sen’s “Development as Freedom” here.

    The fact that GDP/cap (ppp) is constant across time and space is pretty potent, but it’s fundamentally an argument that GDP is the lesser of evils rather than an ideal measure. It’s an argument for statistical convenience rather than for the index actually being appropriate. Undoubtedly, current research has to make do with what’s currently available, but it would be nice to come up with a more sophisticated measure.

    I also think the point about correlation of GDP/cap with other measures of wellbeing at low development levels is well-made. However, I wonder about two things – whether this obscures “sustainable development” by hiding the costs of negative externalities like pollution, and whether it would provide cover for authoritarian leaders to create or perpetuate an extractive state by pointing solely at GDP growth. (In this sense, our choice of measure is a normative as well as empirical question). Income HAS to increase in poorer countries for any kind of decent life to be achieved, but it is not the totality of development.

    I also want to make a tie here to the “Governance Rules” view tied to Rodrik and also Sachs, Collier, even in Easterly. Even if authoritarian governments manage to achieve GDP growth at some point, it seems highly unlikely that (long-run) they would be able to restrain themselves from acting in an extractive way – thereby impeding development.

    I’m meandering now, but I have two points to propose for debate:

    1) What is political development? I propose that it is the development of political institutions and culture, domestically and internationally, that tend to promote Sen-like substantive freedom. Thoughts?

    2) If (1) can be resolved, how would we ideally measure it? I mean if we had unlimited resources to come up with the best possible measure. Something like HDI + environment like the author of the NY Times article says? A weighted index of survey results on happiness with theorists’ expectations on happiness and sustainability? Something else?

    This is what I’m thinking about these days.

    Well, that and pizza. I always think about pizza.

  4. Tina M. Zappile says:

    Be careful about the governance issue you mention. There’s a flip side, best written up in “Kicking Away the Ladder” by Chang- that the east asian development model (more authoritarian in nature) is responsible for more wealth accumulation throughout history than the neoliberal/free-wheeling model with a particular notion of “good governance”.

    About question #1- Polity is the standard political development measure in large-N studies, but do you feel the same way about polity as GDP (it’s fast, easy, and powerful to use but not necessarily normatively desirable)? I think Polity is one of the better development measures out there personally. It’s pretty nuanced, as nuanced as you can get with a 20 point scale I suppose. But more thorough than a single number like GDP, no?

    I think I might go to CT’s famous Pepe’s pizza for dinner soon…

  5. Jake Wobig says:

    I guess I don’t buy the “Kicking Away the Ladder” argument. The main reason is that, except for Vietnam, all of East Asia got preferential access to Western markets (for trade and finance) because of Cold War politics, and I think this helped them overcome their political faults. If you look outside East Asia, authoritarianism underperforms democracy in producing economic growth by about 50%. (That’s from a 2004 FA affairs article awhile back by Siegle, Weinstein and Halperin).

    That being said, I’ve only read excerpts of Chang, never the whole thing, so I can’t say I really understand it. Perhaps authoritarian governments are better able to implement export-oriented policy because they can overcome domestic opposition in a way more pluralistic governments cannot? But I still think this is implausible because the temptation to turn predatory is too strong for authoritarian elites. Plus the sorts of arguments you see in, say, North’s “Institutions and Economic Growth” are just so plausible…

    I think the difference between Asian autocrats and African and Latin American autocrats is that – because of the Cold War – they turned to exports as a growth strategy earlier than Africa and L.A., and then spatial efficiencies gave them a decisive advantage in attracting further investment, even after the World Bank imposed reforms on the rest of the world in the 80s and 90s.

    As for Polity, I really need to look closer at that. I know that’s it is more than simply a measure of democracy, but I don’t know exactly how it is constructed. Thanks for the suggestion.

    I have a turkey sandwich for lunch today. (Kicks the ground and looks dejected…)

  6. Tina M. Zappile says:

    Chang’s argument is actually a tad more nuanced- he argues that what is known today as the east asian model is the same development model used by the West during their periods of development. That’s where the “kicking away the ladder” title comes from. The west used the same state-led development “ladder” to develop and then kicked it away in the 20th century. Essentially Chang calls out the West for disallowing states today to use the same policies that benefited them back in the day, masked under the neoliberal policy agenda of the Washington Consensus/WB conditionality/etc.

    Some of Robert Wade’s research compliments Chang’s argument.

    I settled for clam chowda for lunch myself.

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