Beyond GDP – Measuring American Well-being after the Economic Collapse of 2008

“The Gross National Product includes air pollution and advertising for cigarettes, and ambulances to clear our highways of carnage. It counts special locks for our doors, and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior…And if GNP includes all this, there is much that it does not comprehend. It does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike…It measures everything, in short, except that which makes life worthwhile.”  — Bobby Kennedy

When FDR was elected president in the midst of the Great Depression, the economic data  available to help him engineer a recovery was limited to stock price indices, freight car loadings, and a few incomplete indices of industrial production.  As a result, in order to get a handle on whether the New Deal programs were having the intended stimulus effects, economist Simon Kuznets of the National Bureau of Economic Research was tasked to develop a new set of national economic metrics.

Kuznets would win the Nobel prize in economics for his efforts and the invention of Gross Domestic Product [GDP] would become the primary measure of economic health for the U.S. and the developed world for decades to come.  As a macro-economic indicator GDP would receive universal praise as an essential tool to help manage the economy and moderate the effects of the “business cycle”.  Although merely quantitative in nature, it would take on a qualitative veneer in hands of economists and politicians who would paint GDP growth as “good” and any contraction as “bad”.

In a presentation to congress explaining his invention, Kuznets would warn that, “the welfare of a nation can … scarcely be inferred from a measurement of national income …”, and yet GDP wrapped around a universally accepted “value of growth as progress”, would evolve to become our de-facto measurement of national well-being.

There have been many comparisons of the economic situation faced by president-elect Obama to the one that FDR faced in the Great Depression.  Although the specifics may differ, the gravity and systemic nature of the economic failures of these two era’s cannot be disputed.  It could also be argued that much like FDR, the Obama administration needs a new set of metrics to engineer a sustainable and equitable recovery.  A set of metrics that measures improvements in our collective well-being as accurately as GDP measures the churn of money through our economy.

GDP is no longer sufficient to measure our nation or any nations progress.  The U.S. economy leads the world in the measure of GDP and yet in many ways our economy and nation acutely lags in the provision of our collective well-being.

  • One in six Americans goes without health insurance (around 47 million people).
  • The U.S. ranks 24th among the 30 most affluent countries in life expectancy – yet spends more on health care than any other nation.
  • The U.S. infant mortality rate is on par with Croatia, Cuba, Estonia, and Poland; if the U.S. infant mortality rate were the same as that of top-ranked Sweden, every year 21,000 additional American babies would live to celebrate their first birthdays.
  • One American dies every 90 seconds from obesity-related health problems.
  • One in seventeen Americans (about 6 percent of the population) suffers from severe mental illness.
  • Fourteen percent of the population – some 30 million Americans – lack the literacy skills to perform simple, everyday tasks like understanding newspaper articles and instruction manuals.
  • More than one in five Americans – 22 percent of the population – have “below basic” math skills, making it impossible to balance a checkbook, calculate a tip, or figure out from an advertisement the amount of interest on a loan.
  • Nearly one in five American children lives in poverty, with more than one in thirteen living in extreme poverty.
  • The real value of the minimum wage has decreased by 40% in the past forty years and wages have been essentially stagnant since the 1970’s
  • More families with children are homeless today than at any time since the Great Depression.
  • The U.S. has 5% of the world’s people – but holds 24% of the world’s prisoners.
  • The U.S. ranks 42nd in global life expectancy and leads the world’s twenty-five richest countries in the percentage of children living in poverty.

“To be a leading democracy in the information age means producing objective, independent, scientifically grounded, and widely shared quality information on where we are and where we are going, on both an absolute and relative basis, including comparisons to other nations.” — David Walker, Former Comptroller General of the United States

“Happiness is very serious business … the dogma of limitless productivity and growth in a finite world is unsustainable and unfair for future generations.” — Bhutan Prime Minister Jigme Thinley

If GDP is not a meaningful measure of a nation’s well-being then what is?  What metrics are needed to gauge the actions and deeds of our elected officials so that we can objectively measure whether government policies add to or subtract from our well-being?  Where would the U.S. stand when compared objectively with the rest of the world?

As it turns out, there is growing interest in providing indexes that transcend economic output and measure the ultimate objective of a nations economy — the well-being of it’s citizens.

The Human Development Index
One of the first metrics to challenge the supremacy of GDP was the Human Development Index [HDI].  The HDI was developed in 1990 by Pakistani economist Mahbub ul Haq and was immediately adopted by the United Nations Development Program [UNDP] in its annual Human Development Report.

The HDI index combines the normalized measures of life expectancy, literacy, educational attainment, and GDP per capita for countries worldwide. It is a standardized means of measuring human development – a concept that, according to the UNDP, “refers to the process of widening the options of persons, giving them greater opportunities for education, health care, income, employment, etc.

The HDI combines three basic dimensions:

  1. Life expectancy at birth, as a proxy measure of a population’s health and longevity
  2. Knowledge and education, as measured by the adult literacy rate (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third weighting).
  3. Standard of living, as measured by the natural logarithm of gross domestic product (GDP) per capita at purchasing power parity (PPP) in United States dollars.

The basic use of HDI is to rank countries by level of “human development”.  This has evolved into a way of classifying whether a country is a developed, developing, or underdeveloped.

According to the 2007/2008 U.N. Human Development Report the U.S. ranked 12th based on the HDI among the “developed” nations.  More troubling is that the U.S. ranking has steadily declined since 1980 when we were ranked 2nd.  This decline happened during a period in which U.S. annual GDP grew from about $5.2-trillion to over $14-trillion dollars.

The Happy Planet Index
In 2006, the U.K’s New Economics Foundation [NEF] published the Happy Planet Index [HPI].  One should not be put off by the somewhat tongue-in-cheek title of this index.  This is a very serious and well researched metric with a serious objective.  In the words of the NEF:

“This report takes a very different look at the wealth and poverty of nations.  It measures the ecological efficiency with which, county by country, people achieve long and happy lives.  In doing so, it strips our view of the economy back to its absolute basics: what goes in (natural resources), and what comes out (human lives of differing length and happiness).”

The HPI combines three indicators to achieve a measure of how well a given country converts the earth’s finite resources into the well-being experienced by their citizens.  As an equation the index can be expressed as:

HPI = (Life Satisfaction x Life Expectancy) / Ecological Footprint

where,

  • Life Satisfaction is derived primarily from the World Values Survey
  • Life Expectance data is taken from the U.N. Development Report
  • and, Ecological Footprint is based on data from the Global Footprint Network

The NEF did not intend the index to be a happiness scorecard.  They stress that:

“It is important to recognize from the outset that the HPI is not an indicator of the happiest country on the planet, or the best place to live.  Nor does it indicate the most developed country in the traditional sense, or the most environmentally friendly,  Instead, the HPI combines these notions, providing a method of comparing countries progress towards the goal of providing long-term well-being for all without exceeding the limits of equitable resource consumption.”

Since the U.S. casts such a huge ecological footprint relative to it’s population, it is not surprising that based on HPI, the U.S. ranks 150th in the world just behind Lithuania.  America’s HPI ranking underscores just how out of sync our nation’s outsized GDP is with our actual well-being and our inefficient stewardship of natural resources.

What Metrics are Needed for a New American Century – A New New Deal?

If the people cannot trust their government to do the job for which it exists – to protect them and to promote their common welfare – all else is lost.” — Barack Obama

The U.N.’s HDI index and the New Economic Foundation’s HPI index provide excellent alternatives to GDP.  These indexes can easily be used in comparison with other countries and help to underscore some of our nation’s weaknesses, but they do not provide the kind of detail needed for policy makers at the local, state, and national levels to make decisions and for citizens to hold those policy makers accountable.

There are two privately funded American initiatives that are aimed at meeting those local, state, and national goals and to forging a more meaningful way of measuring our nation’s progress.

The American Human Development Project
The American Human Development Project  [AHDP] was founded in 2006 and is modeled on the U.N.’s global Human Development Report.  The AHDP’s American Human Development Index [AHDI] combines indicators for the three domains of a long and healthy life, access to knowledge, and a decent standard of living.

With their 2008-2009 Measuring America Report we get a first look at the AHDI index in application and can begin to compare various regions of the country.  At the state level, we find that Connecticut ranks first and Mississippi ranks last.  Among the nation’s 436 congressional districts, New York’s Fourteenth District, in New York City, ranks first, and California’s Twentieth District, around Fresno, ranks last. The average resident of New York’s Fourteenth District earns over three times as much as the average resident of California’s Twentieth District, lives four and a half years longer, and is ten times as likely to have a college degree.

The report’s rich volume of data provides a baseline to measure future progress and a new set of benchmarks for state-to-state and region-to-region comparisons.

The State of the USA
The State of the USA, Inc. [SUSA] is a non-profit founded in 2007 dedicated to providing easy access to anyone interested in finding relevant data about the true state of the nation.  SUSA’s new website will launch in 2009 and include data on an array of topics including:

  • Animals, Plants, and Ecosystems
  • Business
  • Civic Involvement
  • Crime and Safety
  • Ecosystem Goods, Services
  • Education
  • Employment, Labor Markets
  • Families & Children
  • Health
  • Housing
  • Immigration
  • Income & Wealth
  • National Security
  • Population
  • Prices & Inflation
  • Production & Output
  • Research & Development
  • Soil, Water, & Air
  • Values & Culture

SUSA does not provide a new index but rather a high quality public data hub intended to promote informed citizen involvement in government.

A Model Metric for a New American Beginning
If I were going to choose a model for our new government to use as a benchmark for a new American metric of citizen well-being, it would be the Canadian Index on Well-Being [CIW].  Conceived in 1999, the CIW is a partnership of Canadian national leaders, organizations, and grass root efforts across Canada in consultation with international experts.  the CIW’s visions is:

“…to enable Canadians to share in the highest well-being status by identifying, developing and publicizing measures that offer clear, valid and regular reporting on progress toward that goal and well-being outcomes Canadians seek as a nation.”

The CIW challenges us to imagine an index that:

  • Distinguishes between good things like health and clean air, and bad things, like sickness and pollution;
  • Promotes volunteer work and unpaid care-giving as social goods, and overwork and stress as social deficits;
  • Places a value on educational achievement, early childhood learning, economic and personal security, a clean environment, and social and health equity;
  • Values a better balance between investment in health promotion and spending on illness treatment.

After nearly ten years in the making, the CIW index is scheduled to launch in the spring of 2009 and will combine eight indicator domains into a composite index to provide a quick snapshot of whether overall Canadian well-being is improving or declining.  Detailed reports will flush out the composite index and provide trend data and additional information about each of the individual domains.  The eight domains will provide a comprehensive view of Canadian well-being.

  • Living Standards are defined as the quality and quantity of goods and services, both public and private, available to the population, and the distribution of these goods and services within the population.
  • Community Vitality is characterized by strong, active and inclusive relationships between residents, private sector, public sector and voluntary organizations that work to foster individual and collective well-being. Vital communities are those that are able to cultivate these relationships in order to create, adapt and thrive in the changing world and thus improve well-being of citizens.
  • Healthy Populations measures the health of a population in its fullest expression – being alive and well, experiencing disease, disability and delaying death, lifestyles we lead, and care we receive.
  • Educated Populace measures the literacy skills required to function effectively in society, and is aware of contextual situations and systems, social and economic interconnections, current world events, the processes of the natural world, and the influence of current lifestyles on population health and on the choices and quality of life of future generations
  • Time Use measures the use of time, how people experience time, what controls its use, and how it affects well-being.
  • Ecosystem Health measures the state of well-being and integrity of our natural environment.  This includes the sustainability of Canada’s natural resources and the capacity of our ecosystems and watersheds to provide a sustained level of ecological goods and services for the well-being of Canadians and other species in nature. This domain examines both the current state of Canada’s ecosystems and changes over time.
  • Civic Engagement measures the health of our democracy. It addresses three aspects of our public lives and the governance of our society: How engaged are citizens in public life and governance?; Do our governments function in an open, transparent, effective, fair, equitable, and accessible manner?: and Are Canadians, our governments and our corporations good global citizens? Civic engagement includes our electoral processes, and the policy and decision-making processes at all levels of government.
  • Arts, Culture, and Recreation measures culture as a general term covering all forms of human expression. People’s culture is uniquely expressed in their language, and the contours of our multicultural society can be sketched with measures of linguistic usage. What matters to Canadians sometimes matters in different ways to those observing events from different cultural perspectives. Art is a particular type of culture. Art includes performing arts; visual arts; media arts; and facilities like galleries and all kinds of museums, historical and heritage sites.

As we face the greatest economic challenge since the Great Depression, the citizens of America will be poorly served if as a nation, we continue to rely solely on GDP as a measure of our progress.  Obama has promised change, he has promised to “promote our common welfare”, he will need more than GDP to point the way.

The true test of the American ideal is whether we’re able to recognize our failings and then rise together to meet the challenges of our time. Whether we allow ourselves to be shaped by events and history, or whether we act to shape them.” — Barack Obama, Jun. 4, 2005

See Remodelling GDP, Financial Times March 2009

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4 responses to “Beyond GDP – Measuring American Well-being after the Economic Collapse of 2008

  1. Excellent post, there’s something here for more than the US. I think that there are many European countries that could do worse than adopt some of these suggestions.

  2. In answer to the worldwide call for sustainable development to combat the current financial crisis, Sustainable Land Development International (SLDI) respectfully offers a solution that balances the needs of people, planet and profit – for today and future generations.

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  3. Some of this sounds like it ignores certain facts, particularly that of the prison population. Do you intend to include largely populous countries (e.g. China, Iran) where the prison rate is so small because the execution rate is so high, even for convicted non-offenders?

    I can agree with the lack of math skills, though. I teach through a mathematics program in my area.

  4. John, I am doing a PhD investigating opportunities for transition to environmentally sustainable national primary economic indicator(s). I would really appreciate your thoughts on my blog if you are interested.

    Thank you and good luck.

    Kind regards,

    Tani

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