Genuine Progress ?

New Matilda is running a fairly standard piece [subscription required] about the inadequacies of GDP as a measure of wellbeing. It all goes off in the predictable directions – we’re getting richer but no happier, we’re getting more selfish, less community minded, we’re running down our environmental assets. Etc etc. Why is it that people who put forward such important arguments mess them up so much?

I mean it’s a pretty serious subject – so you’d hope that it would involve more than the simple recipe of “take your standard prejudices (if necessary, go next door and borrow some from your neighbour) add and stir”.

Since it’s behind a subscription wall, here are some extracts:

Even as Australia’s economy continues to grow strongly there are deep currents of unease disturbing our enjoyment of the bounty. With the gleaming prize of prosperity comes also the insecurity of large mortgages and a flexible labour market. Long working hours intrude on home and family life. Symptoms of affluenza such as depression, obesity and the use of drugs, both sanctioned and illicit, continue to increase, most alarmingly amongst our children. Self preservation increasingly trumps community involvement and social concern. Behind these everyday concerns lurks the threat of global warming. Our wealth has supposedly doubled since the 1970s but we report feeling not much happier nor more satisfied with life. . .

the paradigm of ever-increasing GDP, unregulated market forces, consumerism and materialism can be challenged quite fundamentally in every respect. As more of us come to understand this, the political feasibility of change will emerge. . . .

A more sensible approach is used in the calculation of an alternative measure called the Genuine Progress Indicator. The GPI uses a proper balance sheet, crediting the good, debiting the bad and calculating the total. The GPI also includes environmental costs such as the loss of soil and forests, oil depletion and climate change. The result of this more sensible accounting is salutary for many Western countries the GPI increased steadily through the 1950s and 1960s but has been pretty stagnant since the 1970s.

Anyway, I wrote the following in the comments thread of the piece.

I guess the GPI is a Good Idea. Unfortunately its biases are all too apparent. I spent some time checking this out a while back and I can’t remember all the details but generally speaking, pretty much any opportunity to reduce the index figure is taken. Thus for instance it gets reduced for depletion and environmental amenity – though many environmental indicators have improved. What does the GPI count for increases in life expectancy? Correct me if I’m wrong but I think ‘zip’ is the technical term.

And here’s a another question. The GPI counts the cost of resource extraction on the assumption that extraction is depletion (there’s an argument there because the known reserves of most resources continue to grow as they are extracted (with oil being the major exception). But what does it count for the immeasurably (well I exaggerate – massively) greater economic value of the property bequeathed by one generation to another? That includes structures etc, but mainly intellectual property like patents, software, blueprints, and of course Marx Brothers and Woody Allen movies. Zip.

New Matilda emailed me and asked for a more extended treatment which I’ll try to give them when I get back to my notes on the subject back at base camp. But the last point about intellectual property has always worried me.

One of the things that worries me is how rarely we see it. What are its implications for the ageing debate for instance? Should we be putting aside a ‘future fund’ or trying to reduce our foreign debt for the benefit of people who we know already we’ll be donating all our IP to? My answer is yes, but equity   is the least of my reasons. If Australia is not funding unusually large amounts of investment I like the idea of it being more self sufficient in the supply of its own capital.   The world is a dangerous place.  

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10 Responses to Genuine Progress ?

  1. phil says:

    Nicholas – I agree. I think that part of the problem in getting traction for alternate measures is that the GDP crowd has the game sewn up. Treasury analysts, the ratings agencies, politicians all use the same measure, which is I suspect often the same as their general world-view. It takes a lot of effort to sell a more complex message. That said, if the alternate measure was fairly developed, it would include any identified pluses as well as the minuses. On your point about more known reserves of non-renewables, wouldn’t any such measure have to take account of the increasing cost of extraction as well as any additional environmental risk (like drilling for shale oil on the Great Barrier Reef, to take an obvious example).

    I’m not sure about your last point on IP. That’s where the value is increasingly made, of course. Are you saying that we in Australia either need to be producing and protecting more of our own IP? And if we don’t do this, we need to be investing because the cost of the future foreign IP we’ll have to pay for will skyrocket? Protecting our own IP is a problem as I see it because of the difference in scale – we might be able get the invention but in a hi-tech world, the cost of commercialisation inevitably means foreign capital and, consequently, loss of control.

    Anyway, I look forward to your more detailed analysis.

  2. Phil – I’m not saying we need to produce more IP and generally speaking stronger IP protection is not in our interests or anyone’s much except for IP producers (though it’s sometimes not even worth it for them).

    I’m saying that in return for increased extraction each generation bequeathes to the next it’s IP (you can’t take it with you). And remember IP is a broad concept – including ‘knowhow’. Non-patentable improvements in the way we lay out our factories is every bit as much IP as a new, patentable invention and all of them will be donated to the next generation. (One doesn’t even need it to fall out of patent or copyright for it to be donated to the next generation – all that’s necessary is for the IP title to pass to the living).

    This, far more than the increase in captital (which generations also donate) is what increases productivity. So the exchange between the generations is unequal with each generation giving far more to the next than it takes. This has been true for hundreds and, with some hiccups, thousands of years. So if each generation depletes some non-renewable resources, good luck to them. This argument does not justify this generation wrecking things for which there is no commensurate value – like the Great Barrier Reef, but it does justify purely economic depletion which extracting all the oil involves.

    Regarding your point about the increased price of extraction, well I hadn’t noticed the price of commodities falling (at least until China and India decided to massively increase demand for them), but yes the argument may be beginning to be relevant for oil.

  3. Tom N. says:

    Nice work Nicholas. One of the NM comments I would take issue with is its statements about “the paradigm of ever-increasing GDP, unregulated market forces, consumerism and materialism can be challenged quite fundamentally in every respect.” This sounds like a Pussey-esque strawman argument – I know of very few policy economists, for instance that subscribe to such a paradigm: certainly I know none that advocate ‘unregulated market forces’, and few who think that ever-increasing GDP should be a goal of policy, as Clive characterises it (even if its likely that GDP probably will increase continuously should efficiency-based policies be adopted).

  4. Yes, I agree Tom – I don’t know any econocrat who believes in “unregulated market forces” – perhaps the author of the piece could suggest some reference where “unregulated market forces” are proposed in a general sense (since that’s the sense in which it’s proposed).

    This is echo-chamber polemics. It’s a pity.

  5. FDB says:

    I think the extent to which “this is echo-chamber polemics” is largely a function of the lack of serious consideration and engagement with the concept at a high level. If politicians, business/community leaders, academics etc. got together and treated this seriously, we might begin to see a really useful picture emerge of what actually does influence well-being in society.

    And I agree that this picture needs to look at more of the positives. It is much too simplistic to put GDP on all alone one side of the equation and try to knock it down with the other.

    Often that will just require re-framing the values in the debate – whereby instead of saying “more old-growth logging is bad because the money to be made doesn’t outweigh the environmental damage”, you say “our old-growth forests are an asset, intrinsically and in terms of ecosystem services”. Then the forests sit squarely on the same side of the ledger as GDP.

    Re: IP – for whatever reason, Australia is historically piss-poor at capitalising (on) our own IP. There’s no major change required to how we look at well-being indicators – we’re just a nation of unimaginative, risk-shy investors who need to get with the program.

  6. FDB says:

    Moderated?

    What did I do wrong?

  7. FDB says:

    Wait, now it IS there. Sorry, I think my browser is playingup.

  8. Gaby says:

    Interesting stuff Nicholas. But I’m confused about the last para. See what? And how your pointabout the future fund relates to the discussion. I’m missing your point.

  9. “See what” How often have you seen my point about IP being made in discussions of intergenerational equity.

    “Future Fund” is something which this generation effectively bequeaths the next. It is suppressing it’s own living standards to improve the living standards of the next generation. Is that fair? If there is a way for this generation to live beyond its means – which it can do for instance by borrowing abroad and in effect passing the repayments on to those who come after, those who come after will be economically better off, so where’s the inequity in that?

    Where’s the inequity in the baby boomers having enjoyed free uni, health etc now changing the game on the Gen X’ers and Y’ers. I’m not actually defending them – because I think it’s a natural and right ethical response for each generation to want to leave its kids better of. But I’m not sure that this kind of generational thievery is inequitable

    (I conceded that a lot of the debt you get into you’ll pay yourself (because it takes you a few decades to depart the scene) but I guess I’m just pointing out how rarely we see any of this in popular (or often even quite expert) discussions of intergenerational equity.

  10. Gaby says:

    Thanks for the clarification Nicholas. Dense of me. I wasn’t sure what the “it” was referring to. And the reference to “equity” confused me too. I understand now that you are not arguing for a “futute fund” etc on equity grounds but I suppose on a prudential basis. Very good points and much appreciated.

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