Abstract
To be sure of hitting the target, shoot first, and call whatever you hit the target.
Ashleigh Brilliant.
The financial crisis and global warming have resulted in a crisis of confidence in our traditional ways of measuring wealth because these methods do not take speculative risk and environmental costs into consideration. A number of alternative indexes have been proposed that would measure people's well-being and the environmental sustainability of the planet.
There are several problems with using GDP, with both what it measures and what it fails to measure. There are quality problems with the data and a lot of guesswork is involved. Using it as the only yardstick to evaluate our societies would be bizarre. But finding problems is one thing. If we were to replace GDP with some sort of well-being index, we would have to come to an agreement on what well-being is, and there is a risk that governments would be tempted to find a one-size-fits-all standard and try to make us all wear it. For example, the Bhutanese Gross National Happiness index has been used as a rationalisation to force minorities to live in the preferred way. Admittedly, this is an extreme example, but it is interesting that it is so often used as a positive example by those who seek to dispense with using GDP.
In fact, GDP growth even correlates with happiness. The latest research shows not only that rich countries are happier but also that countries grow happier as they become richer. An even stronger argument for sticking with GDP is that it is pluralistic and well adapted to societies in which people have different goals and the role of government is to help them achieve their diverse goals, rather than to determine what these goals should be. The advantage of GDP is that it is a narrow and value-free measure. It tells us what we can do, but not what we should do, and it does not even try to define well-being. It fits liberal, pluralistic societies in which people have different interests, preferences and attitudes towards well-being. Our present environmental and financial problems can and should be solved within the intellectual framework of economic growth.
Footnotes