A captain steers his ship using a compass. If the compass has become magnetized and no longer points north, the ship is likely to get lost. Likewise, governments use metrics and indicators to adjust policy to try and steer their economies. They depend on these metrics for reliable and meaningful guidance toward the direction that serves the greater good.
Gross domestic product (GDP), which measures the overall level of economic activity, has been the key indicator of growth which has long been considered the goal of economic policy. In recent years though, with multiple crises impinging on our world, many of which were created by ourselves, thoughtful people have suggested that maybe our course needs correction and maybe GDP growth no longer reflects what is most needed in our quest for economic progress. What kind of world are we striving for, and what measures can help us identify whether we are moving closer or further away from that goal?
What is it exactly that we are trying to grow? To what extent does GDP growth measure well-being, and what other metrics might more accurately reflect it?
The fact is, GDP makes no distinction between activities that enhance quality of life and those that diminish it. For example, expenditures related to recovery from a disaster or a crime are included as part of GDP, while all activities that take place within households, as well as actions by volunteers are excluded. It also includes the depletion of natural capital as income.
In 1972, Bhutan made Gross National Happiness its key indicator. Results are compiled by means of a nationwide survey.
Last week, a group of Nobel prize-winning economists met, for the fifth time, in the German town of Lindau near the Austrian and Swiss border. This year’s meeting featured a special guest, German chancellor Andrea Merkel. Joining the notables are young economists from 80 countries, hoping to learn, become inspired, and perhaps reflect deeply on what role their science might play in shaping the future. Click to continue reading »
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