Measuring Well-Being

How can we tell if the human condition is improving or deteriorating?

Two things are needed to answer this question:

1) A clear idea of our goal.

2) Measures by which to assess our progress.

If the goal of society is the well-being of present and future generations, all is not well in its pursuit.

At present the measurement of an increasing Gross Domestic Product (GDP) is said to represent well-being. This indicator has been used increasingly since World War II. It has proven effective at stimulating economic activity but, as annual volumes of activity grow to enormous proportions, a number of side-effects are becoming serious problems:

• the accumulating total impact over the years is increasingly disruptive in terms of pollution and the depletion of natural resources.
  
  
• many people are falling into hard times as the process of wealth begetting wealth moves toward its natural conclusion.
  
  
• much important work is being depreciated because GDP does not recognize its value.

If we feel these side-effects are unacceptable, we have to acknowledge them and include them in the system of accounts by which we measure well-being.

In the following section, some of the roots of these problems and how they are overlooked because decision-makers pay attention only to the measure of GDP will be examined. Later, some specific areas of concern will be discussed.

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Goals and Measures

Goals are closely associated with how they are measured. In many games, the word 'goal' is synonymous with the line, posts or target which measure successful play. In other sports, the goal is actually defined by the last best measurement of speed, distance or height.

Because we tend to work toward goals by watching the measure of achievement, it is important to make sure that our measuring techniques do in fact measure what we want to accomplish.

Mistaken measurements can lead us astray. A compass that reads North when it is pointing North West would lead us to the left of our goal. It could take more than one misguided journey and perhaps misfortune before we suspected the compass. However, once the measuring device was replaced with an accurate one, travel would become safer and more direct.

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GDP - The Present Measure

GDP is the combined total of all financial exchanges. By this measure, most years, we achieve a rating higher than ever before in history, making it sound as though we are doing very well. However, with GDP it is not the historical achievement that indicates well-being, but the amount by which the new record exceeds the old. This exponent is the measure of well-being ­p; the percentage by which total economic activity has grown compared to the previous year. Over the decades this exponential growth of annual totals has reached staggering proportions.

Respect for the GDP measure has grown along with the understanding and appreciation of the almost magical way in which markets accommodate the economic process. The process incorporates the perception, skill and ingenuity of hundreds of millions of people into a resilient system of mutual aid.

Herman Daly and John Cobb note in their book For the Common Good: "The most important insight that economists have to convey about the market is how independent, decentralized decisions give rise, not to chaos, but to a spontaneous order."

This critical functioning of the market has contributed to the belief that the more market activity there is, (Gross Product), the better off we are. The GDP measure says we are on the right track. Unfortunately, larger and larger additions are needed each year to stay a couple of percentage points ahead of the previous year's record. Increasing GDP now seems to require cutting back on services which society has deemed worthy of support in the past. Education, health care, environmental protection, pensions, and anything else that doesn't directly produce monetary return are considered irresponsible expenditures in the pursuit of well-being as represented by GDP. At the same time, all the record years together are having a cumulative impact on the natural world.

Some feel that the loss in services and increased environmental stress indicate that we are less well than we have been. Enough concern has been expressed to warrant serious review of our goals and how we measure them. There is much that is worth preserving in the present order of things but the problems cannot be ignored. Our measure of well-being must acknowledge these problems if we are to steer our course away from disaster.

The economic playing field remains level as long as the rules are the same for everyone. By including the broader context of environmental sustainability and social health in systems of national accounts, we can raise the playing field to a high level for the good of present and future generations alike.