Mismeasuring Our Lives

1. GDP alone is an inadequate measure of societal well-being and progress

Conflating the two can lead to misleading indications about how well-off people are and entail the wrong policy decisions.

GDP's limitations: While GDP is a widely-used measure of economic activity, it fails to capture many aspects of societal well-being and progress. GDP primarily measures market production, ignoring crucial factors such as:

• Income distribution and inequality
• Non-market activities (e.g., household work, leisure)
• Environmental degradation and resource depletion
• Quality of life factors (e.g., health, education, social connections)

Policy implications: Relying solely on GDP can lead to misguided policies that prioritize economic growth at the expense of other important societal goals. To address this issue, policymakers and researchers should:

• Develop and use a broader set of indicators to assess societal progress
• Consider the trade-offs between economic growth and other dimensions of well-being
• Implement policies that promote a more holistic view of societal development

2. Subjective well-being should be incorporated into quality of life measurements

Quantitative measures of these subjective aspects hold the promise of delivering not just a good measure of quality of life per se, but also a better understanding of its determinants, reaching beyond people's income and material conditions.

Importance of subjective measures: Subjective well-being indicators provide valuable insights into people's lived experiences and overall quality of life. These measures include:

• Life satisfaction evaluations
• Positive and negative emotional states
• Sense of purpose and meaning

Implementation and benefits: Incorporating subjective well-being measures into official statistics can:

• Offer a more comprehensive understanding of societal progress
• Highlight discrepancies between objective conditions and perceived well-being
• Inform policy decisions aimed at improving overall quality of life

To achieve this, national statistical offices should include standardized questions on subjective well-being in regular surveys and develop longitudinal studies to track changes over time.

3. Objective indicators are crucial for assessing various dimensions of quality of life

Quality of life also depends on people's objective conditions and opportunities. Steps should be taken to improve measures of people's health, education, personal activities, political voice, social connections, environmental conditions and insecurity.

Key dimensions to measure: Objective indicators should cover a range of crucial areas that contribute to overall quality of life, including:

• Health: life expectancy, morbidity rates, access to healthcare
• Education: literacy rates, educational attainment, skill levels
• Personal activities: employment, leisure time, commuting
• Political voice: voter participation, freedom of expression
• Social connections: social support networks, community engagement
• Environmental conditions: air and water quality, biodiversity
• Economic and physical security: income stability, crime rates

Improving measurement: To enhance the assessment of these dimensions, efforts should focus on:

• Developing standardized metrics for cross-country comparisons
• Investing in data collection and statistical capacity
• Combining objective measures with subjective evaluations to provide a more complete picture

4. Inequalities in quality of life must be comprehensively evaluated

Inequalities in quality of life should be assessed across people, socio-economic groups, gender and generations, with special attention to inequalities that have arisen more recently, such as those linked to immigration.

Multidimensional approach: Assessing inequalities requires examining disparities across various aspects of life, including:

• Income and wealth
• Health outcomes
• Educational opportunities
• Access to public services
• Social and political participation

Comprehensive evaluation: To effectively measure and address inequalities, it is crucial to:

• Disaggregate data by relevant demographic and socio-economic characteristics
• Analyze the intersectionality of different forms of inequality
• Track changes in inequality over time and across generations
• Develop composite indicators that capture multiple dimensions of inequality

By adopting this comprehensive approach, policymakers can better identify and target interventions to reduce disparities and promote more equitable societies.

5. The household perspective is essential for understanding economic well-being

While it is informative to track the performance of economies as a whole, trends in citizens' material living standards are better followed through measures of household income and consumption.

Focus on households: The household perspective provides a more accurate picture of people's actual living standards by considering:

• Disposable income after taxes and transfers
• Consumption patterns and expenditures
• Wealth accumulation and distribution

Improving household measures: To better capture the household perspective, statistical offices should:

• Develop comprehensive household satellite accounts
• Include non-market activities (e.g., household production) in economic measurements
• Account for in-kind services provided by governments (e.g., healthcare, education)
• Measure the distribution of income, consumption, and wealth within households

By emphasizing the household perspective, policymakers can gain a more nuanced understanding of how economic changes affect citizens' daily lives and well-being.

6. Sustainability requires maintaining or increasing various forms of capital

To construct the balance sheet of an economy, we need comprehensive accounts of its assets (physical capital—and probably human, natural and social capital) and its liabilities (what is owed to other countries).

Types of capital: Sustainability involves preserving or enhancing different forms of capital:

• Physical capital: infrastructure, buildings, machinery
• Human capital: education, skills, health
• Natural capital: renewable and non-renewable resources, ecosystems
• Social capital: institutions, trust, social norms

Measuring capital stocks: To assess sustainability, it is crucial to:

• Develop comprehensive national balance sheets
• Improve methodologies for valuing different types of capital
• Track changes in capital stocks over time
• Consider the interactions and potential trade-offs between different forms of capital

By monitoring these various forms of capital, societies can better ensure that current well-being is not achieved at the expense of future generations.

7. Environmental indicators should complement economic measures of sustainability

Physical indicators of this kind can only be identified with the help of the scientific community.

Importance of physical indicators: Environmental sustainability requires monitoring specific physical indicators that may not be easily captured in monetary terms, such as:

• Greenhouse gas emissions and concentrations
• Biodiversity loss
• Water scarcity and quality
• Soil degradation
• Deforestation rates

Developing effective indicators: To create meaningful environmental indicators:

• Collaborate with scientists to identify critical environmental thresholds
• Establish clear, easy-to-understand metrics (e.g., carbon footprint)
• Ensure regular monitoring and reporting of key environmental indicators
• Integrate environmental data with economic and social indicators to provide a comprehensive view of sustainability

By complementing economic measures with robust environmental indicators, decision-makers can better assess the true costs and benefits of policies and actions affecting the environment.

8. Uncertainty and normative choices challenge the creation of a single sustainability index

Can we solve this normative problem? One could attempt to solve it empirically by trying to infer the definition of well-being from current observations of how people value environmental

Challenges of a single index: Creating a comprehensive sustainability index faces several obstacles:

• Technological uncertainties in predicting future environmental and economic interactions
• Lack of consensus on how to value different aspects of well-being
• Difficulties in aggregating diverse indicators into a single measure

Alternative approaches: Given these challenges, more pragmatic solutions may include:

• Developing a small set of carefully chosen headline indicators
• Using scenario analysis and stress testing to account for uncertainties
• Presenting both monetary and physical indicators side by side
• Encouraging public debate on the normative choices involved in sustainability assessments

By acknowledging these limitations and adopting a more nuanced approach, policymakers and researchers can provide a more robust and transparent assessment of sustainability that better informs decision-making and public discourse.

Last updated: October 17, 2024