Naked Economics Wheelan, Charles (books to read for 13 year olds TXT) 📖

GDP growth in 2004 was really closer to 7 percent when the $64 billion in pollution costs are taken into account. Green GDP has an obvious logic. The Wall Street Journal explains, “While GDP looks at the market value of goods and services produced in a country each year, it ignores the fact that a nation might be fueling its expansion by polluting or burning through natural resources in an unsustainable way. In fact, the usual methods of calculating GDP make destroying the environment look good for the economy. If an industry pollutes in the process of manufacturing products, and the government pays to clean up the mess, both activities add to GDP.”4

There are no value judgments whatsoever attached to traditional GDP calculations. A dollar spent building a prison or cleaning up after a natural disaster boosts GDP, even though we would be better off if we did not need prisons and if there were no disasters to clean up after. Leisure counts for nothing. If you spend a glorious day walking in the park with your grandmother, you are not contributing to GDP and may actually be subtracting from it if you’ve taken the day off to do it. (True, if you take grandma bowling or to the movies, the money you spend will show up in the GDP figures.) GDP does not take into account the distribution of income; GDP per capita is a simple average that can mask enormous disparities between rich and poor. If a small minority of a country’s population grow fabulously rich while most citizens are getting steadily poorer, per capita GDP growth could still look impressive.

The United Nations has created the Human Development Index (HDI) as a broader indicator of national economic health. The HDI uses GDP as one of its components but also adds measures of life expectancy, literacy, and educational attainment. The United States ranked thirteenth in the 2009 report; Norway was number one, followed by Australia and Iceland. HDI is a good tool for assessing progress in developing countries; it tells us less about overall well-being in rich countries where life expectancy, literacy, and educational attainment are already relatively high.

The most effective knock against GDP may simply be that it is an imperfect measure of how well off we really consider ourselves to be. Economics has an overly tautological view of happiness: The things we do must make us happy; otherwise we would not do them. Similarly, growing richer must make us better off because we can do and have more of the things that we enjoy. Yet survey results tell us something different. Richer may not be happier. Remember that robust growth of the 1990s? It didn’t seem to do much good for our psyches. In fact, the period of rising real incomes from 1970 to 1999 coincided with a decrease in those who described themselves as “very happy” from 36 percent to 29 percent.5 Economists are belatedly beginning to probe this phenomenon, albeit in their own perversely quantitative way. For example, David Blanchflower and Andrew Oswald, economists at Dartmouth College and the University of Warwick, respectively, found that a lasting marriage is worth $100,000 a year, since married people report being as happy, on average, as divorced (and not remarried) individuals who have incomes that are $100,000 higher. So, before you go to bed tonight, be sure to tell your spouse that you would not give him or her up for anything less than $100,000 a year.

Some economists are studying happiness directly, by asking participants to keep daily journals in which they record what they are doing at various times and how it makes them feel. Not surprisingly, “intimate relations” is at the top of the list in terms of positive experiences; the morning commute is at the bottom, lower than cooking, housework, the evening commute, and everything else.6 The findings are not trivial, as they can illuminate ways in which individuals think they are making themselves happy but aren’t really. (Yes, you should see the influence of the behavioral economists here.) For example, that long commute may not be worth what it buys (usually a bigger house and a higher salary). Not only is the commute unpleasant, but it often carries a high opportunity cost: less time spent socializing, exercising, or relaxing—all of which rate as highly pleasurable activities. Meanwhile, we quickly become inured to the benefits of the goods that we previously coveted (kind of like getting used to a hot bath), whereas the happiness generated by experiences (family vacations and their lingering memories) is more durable. The Economist summarizes the prescriptions of the research so far: “In general, the economic arbiters of taste recommend ‘experiences’ over commodities, pastimes over knick-knacks, doing over having.”7

If GDP is a flawed measure of economic progress, why can’t we come up with something better?

We can, argues Marc Miringhoff, a professor of social sciences at Fordham University, who believes that the nation should have a “social report card.”8 He proposed a social health index that would combine sixteen social indicators, such as child poverty, infant mortality, crime, access to health care, and affordable housing. Conservative author and commentator William Bennett agrees with half of that analysis. We do need a measure of progress that is broader than GDP, he argues. But ditch all that liberal claptrap. Mr. Bennett’s “index of leading cultural indicators” includes the kinds of things that he considers important: out-of-wedlock births, divorce rates, drug use, participation in church groups, and the level of trust in government.

French President Nicolas Sarkozy instructed the French national statistics agency in 2009 to develop an indicator of the nation’s economic health that incorporates broader measures of quality of life than GDP alone. Two prominent economists and former Nobel Prize winners, Joseph Stiglitz and Amartya Sen, chaired a panel convened by Sarkozy to examine a seeming paradox: Rising GDP seems to come with a perception that life is getting more stressful and difficult, not less. Sarkozy wants a measure that incorporates the joys of