Economic Pulse: What’s wrong with GDP, and what could we measure instead?

Overseas, governments and multinational bodies like the EU and OECD have recently begun to put more focus on such measures.

But replacing GDP is far from easy. The myriad of measures proposed instead, including the Happy Planet Index, suffer from a perceived lack of rigour. And anyway, their lack of broad acceptance makes international comparisons more difficult.

The common criticism of such attempts to replace GDP is that none of the proposed alternatives have the rigour or broad acceptance GDP does.

Marks acknowledges these criticisms, but doesn’t think they should be fatal to the idea.

“It’s obviously easier to measure your pulse rate or your body mass index rather than other, more subjective measures of your health. But that doesn’t mean those other measures are unimportant,” he says. “Should we only measure and focus on things that are easy to measure? That seems ridiculous to me. You should measure what’s important to measure.

“I know that’s a challenge to statistics agencies around the world. But there is a lot of interest in this today from statistics agencies in the OECD, the UN, and in Britain. This idea isn’t going away.”

At the end of the day, Marks says, he and most other advocates of these ideas operate from tiny, underfunded think tanks. They can show the way, but they can’t bring the rigour that a fully financed national statistics agency can to their figures. “It’s no good shouting at us and saying, ‘oh, your data isn’t rigorous enough’. We need nations to do this stuff. We’re happy to let it go. We just think it should be what’s being talked about. And, happily, that’s what’s starting to happen.”

If something like the Happy Planet Index did become how we measured the development of countries, our global league table would look nothing like it normally does. While countries like Australia typically achieve quite robust measures of wellbeing, we use a lot of resources to get there. Plenty of other countries in the world achieve similar levels of happiness and health, but use far fewer resources. If we went by the policy prescriptions implicit in the Happy Planet Index, the model for development, Marks says, would be Costa Rica.

This all begs a deeper question, which is what we’re doing placing a profoundly economic measure as the principle marker of the success of our nation-states. Fundamentally, Marks says, there’s too much economics in our society.

“Think of the global financial crisis. That’s been the most expensive experiment in financial engineering ever attempted. It’s caused huge distress in the population, but the people responsible aren’t even in jail.

“Economics isn’t good at preventing and responding to these sorts of things. What we need is more psychology in public life, more sociology, more ethics, and more philosophy.

“If we had less economics, that’d be good. I’m not saying no economics. But it needs to be brought down a peg or two.”