GDP may reflect quality of life after all

Justin Wolfers

TEXT OF COMMENTARY

Bob Moon: It was pretty easy to become overwhelmed with all that's happened in the past year. Between financial bailouts and health care reform, 2009 had plenty of headlines to digest. But of course, that wasn't all of it. A lot of other things happened that didn't get the same kind of attention. So we asked a few of our regular commentators to muse on some of those stories. Justin Wolfers points to a report from the French government on gross domestic product, which may have underestimated how powerful a measure the GDP really is.


JUSTIN WOLFERS: When French President Sarkozy became frustrated with measures of economic performance, he responded as any French leader would. He commissioned a panel to investigate.

Sarkozy's commission noted an array of problems with gross domestic product, or GDP. It can grow despite, or even because, pollution is rising, families are falling apart, and violence is escalating. On the flipside, GDP can stagnate as people stop to smell the roses, enjoy more time with friends, and spend less time engaged in GDP-enhancing work. Bobby Kennedy famously argued that GDP, "measures everything . . . except that which makes life worthwhile."

The concern is that if policymakers target what we measure, rather than what is worthwhile, we'll be led astray. It's an important point. At least in theory.

But in practice, gross domestic product has been a remarkable indicator of the health of nations. Betsey Stevenson and I have recently analyzed data across over 140 countries from the new Gallup World Poll. And countries with greater GDP per capita have people who are more satisfied and more likely to report experiencing enjoyment, daily laughter, and being treated with respect. If you live in a high GDP country, you are less likely to feel pain, depression or boredom on any given day.

Beyond these subjective measures, higher GDP also corresponds with more education, and increased life expectancy. In theory, these things aren't counted in GDP. But in practice, the GDP indices paint roughly the same picture as very broad measures of a country's well-being, like the U.N.'s Human Development Index.

And even in this past tumultuous year, the GDP data have given the right signals. The stagnation in GDP that you read about in the business pages is just as evident in the happiness data.

I have mixed feelings about the argument I'm making. I agree with the Sarkozy commission that the official statistics have problems. And no economist would suggest a dogged pursuit of growing GDP at any cost. But it's worth remembering that on the whole, GDP provides a useful barometer of our economic health. And I'm hoping we'll finally see that barometer turn up in 2010.

MOON: Justin Wolfers is an associate professor of economics at the University of Pennsylvania's Wharton School of Business.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...