GDP and its alternatives: which thermometer for wealth and well-being?

“If a man marries his housekeeper or his cook, the national dividend is diminished” wrote the French Economist Arthur C. Pigou in The Economics of Welfare. As we see, measures like GDP, usually taken in Economics as a proxy indicator for progress or the well-being of a society, are not free from critique. Indeed, the validity of GDP as a measure for well-being has being challenged by, among others, the supporters of the threshold hypothesis. The most recent debate about GDP and possible alternative measures is offered by the Report of the commission on the measurement of economic performance and social progress. This report is the result of the 12-month work of the Commission created by the President of the French Republic Nicolas Sarkozy. The final document was presented in Paris last week. The Commission has distinguished members as the two Nobel-Prize in Economic laureates Joseph Stiglitz (president) and Amartya Sen (advisor). The complete list of the members of the Commission can be found here (in French).

The final report of the Commission points out the limitations of the GDP as a measure to account for some social, environmental or even economic phenomena which are key in defining the quality of life in our societies. Some alternative indicators, as the Adjusted Net Savings , are raised and encouraged to be improved. The report is divided in three parts:

1. General GDP issues. Here, no new indicators are proposed but some improvements of GDP are suggested in order to take into account some dimensions as, for example, inequality.
2. Quality of life. In this section, the Commission deals with an extensive range of indicators to measure the quality of life.
3. Sustainable Development and Environment. Some indicators aimed to estimate the degradation of the environment are presented.

As usual in this kind of debates, one man’s meat is another man’s poison. Indeed, critiques points to some problems in the way the report was elaborated (e.g: lack of both public debate and participation of relevant social agents) and in the methodology employed by the commission. Critics denounce an excess of “economic imperialism” in both, the composition of the group and the resulting recommendations. Indeed, it is argued that there is an excessive reliance on “monetarized” indicators without paying enough attention to other aspects in important concepts like “sustainable development” (namely the social and the environmental aspects).

While in my opinion some critiques are misguided (for example, the well-known concept of “externality” shows that  it is not true that, as it is stated by some critics, economists forget the notion of “common good” and the interrelations in our societies when adopting an individualistic approach), the current debate generated by the report  raises some of the big problems faced by Economics in this field: should we go into the –always uncomfortable- field of subjective or normative issues? How to define “quality of life” and “well being” in our pluralistic societies? How to attribute the weights to the dimensions being part of the previous concepts? Should we look for a more interdisciplinary approach to avoid the problems of an “economic imperialist” approach? The report does a great job in laying the foundations of the debate by showing that -maybe- GDP  is not the best indicator in measuring social progress or the well-being of the society. It also presents a vast group of alternative indicators, problems and critiques to be addressed. Unfortunately, as we have seen, some people think that it offers less convincing answers to the previous questions and that it remains somewhat vague when offering concrete alternatives. More work (and more blood, sweat and tears) for economists…