Money isn’t everything we are often told, and occasionally tell ourselves. Just occasionally we might believe it, and then get right back to flogging our guts out to earn as much as we can to buy a bigger car, a bigger house, fancier phone or any number of other trinkets that we choose to adorn our lives with and to show to the greater world how successful we are. If you are reading The Islander there is a good chance that you may well be loaded yourself, or spend your days working on the nautical trinkets of someone who does. There is nothing remotely wrong with any of that, well done you, but increasingly these days our pile of wealth and toys is becoming the only way we choose to value success. Not only is this notion inaccurate, but it has a detrimental effect on the direction of our collective endeavours, and it might well be leading us up the garden path.
Gross domestic product (GDP) is a pretty crude figure, first calculated on the 1930’s as a way of establishing how quickly the USA and UK were dragging their economies out of the mire of the great depression. It is a relatively simple calculation, namely the sum total of the value everything the economy produces, from tons of coal, to cruise liners, loaves of bread. It also includes the price of services, from insurance, to banking, construction, marketing, web design and so on. It’s pretty easy to measure the physical stuff, and in the 1930’s that was a high percentage of everything, but in the intervening nine decades many developed economies have moved their economies towards a service model, which is way more complicated to accurately value, hence the figures these days are generally accepted to be more of an educated guess than anything more accurate.
Despite reservations over accuracy, GDP remains the hill we live or die on. Politicians and economists literally define growth or contraction on it, we measure our success as a country on it, we set our national debt targets on it, money supply and interest rates are adjusted according to this spurius figure. The fixation is that if this number is going up, things are going well, if it is going down, we are all doomed.
It gets worse, however, as with the opening paragraph, we all kind of know that money isn’t everything, but that is literally all GDP is measuring. As an example, if your house burns down you are adding to GDP, the money the firemen, insurance investigators, carpenters and builders earn all have a positive effect on GDP. Digging up and burning coal adds more than not burning it. It is estimated that the Gulf of Mexico oil spill in 2010, the largest of all time, added some 90 billion dollars to the US economy. It makes no measure of social value, just dollars and cents. In GDP terms alone Cristiano Ronaldo adds more to society than 950 teachers every year. He’s great at what he does, of course, but in terms of value to society it looks like our focus is way off.
They say that we value what we measure, and if the yardstick by how we judge our success is by how much money we make then that inevitably ends up being where our efforts and resources are targeted. Extracting and burning fossil fuels has a bigger, and more immediate return on GDP than energy saving or long term investment into alternatives. Treating sick people with drugs in hospitals is more preferable than investing in a healthier population that doesn’t get sick in the first place. Digging up a recreational area to build something on it is also better for GDP. There is a trickle down effect of this mentality. If we see our governments behaving like this, we tend to mirror this behaviour ourselves. How many of us have been guilty of working like crazy to earn a bigger number to buy things we don’t need as a way of measuring our personal success? It is easy to see the logic in this, if wealth is the best measure of success then the richest among us should also be the happiest, and when was that ever true?
So what can we do about it? Last month New Zealand announced that it was ditching GDP as a measure of how best to apportion public expenditure and shape government policy. Favouring instead a ‘wellbeing index’ a complex measure of human capital; social capital; natural capital; and financial and physical capital. The Welsh regional government is trialling a similar scheme, and no doubt more are mulling it over. It’s not easy of course, it’s easy adding up a balance sheet, or weighting tons of coal, not so easy to measure happiness, or social worth to two decimal places, but it’s about time we had a try, before we end up collectively being the richest guy in the graveyard.
By Phill McCoffers
The Islander Economics Correspondent