Blogs & Comment

Is GDP's influence exaggerated?

A growing subculture in economics and public policy seeks to replace GDP with new metrics that take into account how happy people are.

Don Drummond. (Photo: Norm Betts/Bloomberg News)

If you read journals like Canadian Business, you’re likely aware of (and quite possibly fed up with) what has been dubbed “a revolution in economics.” I’m talking about the increasing number of apostates who advocate abandoning economic growth (as embodied by that oft-cited yet much-maligned bellwether, gross domestic product) and replacing it with a more comprehensive measure, sometimes called subjective well being (SWB) or simply happiness. Evidence of this ongoing dialogue crop up frequently: Two years ago a group of university economics professors chaired by Columbia’s celebrity egghead Joseph Stiglitz produced a nearly 300-page report for French president Nicholas Sarkozy on why new measures should be introduced to replace or supplement GDP. “What we measure affects what we do,” the report argued, “and if our measurements are flawed, decisions may be distorted.” Statisticians and economists obliged: The French and British are both busily developing new well-being metrics for official use, and the OECD has just introduced its Better Life Index, which allows users to compare well-being across nations. Seldom does a month passes in which there’s not a major conference somewhere on the subject, usually featuring a panel of prominent Perrier-sipping economists prattling on about whether money really can buy happiness.

Behind all this banter lies a big idea: That by de-emphasizing economic growth and considering other things that people value, societies could make much better decisions about how to use their scarce resources. For example, if Canadians considered more closely the environmental and social consequences of harvesting the oilsands, they might go about it differently than if they simply considered how much Alberta’s economy will grow by exporting oil to the U.S. But much of this debate presupposes that politicians myopically focus on enhancing GDP and disregard all else. Do they really?

One needn’t look far for anecdotal evidence supporting this impression. Since time immemorial politicians have supported proposed actions with claims those actions will support economic growth and put more people to work. Newly published GDP figures and forecasts enjoy a wide audience, even though they’re updated more often than antivirus software. Journalists often treat GDP as a way to keep score; Canadian newspapers trumpeted the OECD’s interim economic outlook in April, for instance, which predicted Canada’s growth would be the best in the G7 during the first half of this year. China’s consistently higher growth rates are regarded with alarm by stagnant developed nations. Considered in isolation, such phenomena do suggest many decision-makers and pundits are remarkably preoccupied with growth.

Yet some prominent economists deny the Cult of GDP ever attained religion status. The latest conference to examine happiness economics was the Aspen Ideas Festival, recently concluded in Aspen, Colorado. Justin Wolfers, an associate professor of business and public policy at the University of Pennsylvania’s Wharton School, argued those working in the field of happiness economics mistakenly imagine that the world is run by legions of politicians and economists whose love of GDP approaches religious fervor. (See him here.) “The caricature that economists are obsessed with GDP and we need to move them away from that obsession is a false caricature,” he said. “Nobody ever said we should do the following because it will raise GDP even though it will make people’s lives worse.” Nor do politicians. “I’ve literally never met a politician who says ‘my job is to maximize GDP,’” Wolfers continued. “Politicians love to talk about community, pride, nationalism, well-being, health, all these other fuzzier things. The politicians I know have always been focused on a broader well-being agenda.” He finished off by branding all students of happiness economics—himself included—as appallingly boring.

Wolfers professed his argument novel. But he mightn’t have said that had he attended another conference hosted in Ottawa in December by the Institute for Competitiveness and Prosperity. There, former TD Bank chief economist Don Drummond departed from his usually affable demeanor to castigate those assembled for their arrogance. No one would mistake Drummond (a veteran of both Ottawa and Bay Street) with Wolfers, an Australian whose long blonde locks and demeanor suggest he surfs when not speaking about logarithms. Yet their arguments are nearly identical.

Said Drummond: “You hear the question posed: ‘Should happiness be an objective of public policy?’ I think the question is silly. It already is an objective of policy.” He decried the notion “that somehow policymakers are slavishly adherent to the holy grail of increasing some abstract concept called Gross Domestic Product.” Politicians and bureaucrats authoring budgets and throne speeches invariably seek to maximize happiness, he claimed. “The political system itself dictates that there must be a certain reflection of happiness,” he added. “Try running a democracy in which you just tick off everybody every day and get re-elected.” Also like Wolfers, Drummond blasted “the pretention of those who are advocating this that it’s brand new. I would argue it’s not.” Completing his riposte, Drummond suggested gravely: “If you want people to embrace your ideas, don’t start off by insulting them.”

If it’s neither novel nor revolutionary, is the evolving field of happiness economics at least useful? Wolfers and Drummond agree it is. Wolfers spoke excitedly about the growing assortment of new measures that can help policymakers test their intuitions and better understand the actual consequences of policy decisions. For his part, Drummond pointed to town halls, focus groups, polls and visits to ridings are examples of tools policymakers use in trying to assess how various options influence happiness. But these are not “terribly scientific,” he conceded, and that’s where the rapidly growing body of data on well-being can contribute. “I think this body of work is incredibly important,” Drummond said, “and could be incredibly useful for policy.” But despite its adherent’s best efforts to make it seem momentous and earth-shattering, it may also remain incredibly boring.