The high-profile economists Amartya Sen and Joseph E. Stiglitz are back in the news. When a pair of Nobel laureates speak up, it is usually worth listening.
Sen and Stiglitz recently released a joint study, just in time for the G-20 summit in Pittsburgh, in which they recommend a drastic revision of the way economists assess societal well-being. The data we routinely collect and analyze provide a seriously inadequate measurement of the full range of human activity, they contend. To continue to focus exclusively on growth in the production of goods and services, as measured by the standard assessment statistics, is to risk overlooking and discounting many dimensions of progress as well as of human hardship.
We did not really need this new report, commissioned by President Nicolas Sarkozy of France, to know that numbers often mislead. Traditional economic indicators are increasingly exposed as unreliable measures of social well-being. Maximizing only quantifiable economic output masks many physical costs of production, such as pollution and resource depletion. It also turns a blind eye to numerous social costs that are difficult to measure, such as the dislocation of families and disruption of neighborhoods and cultures in our rapidly globalizing economy.
The perverse logic of current national accounting procedures has effects on both sides of the ledger. Costs are discounted and contributions are concealed. When an oil tanker spills toxic cargo, the expenses associated with the cleanup actually provide a boost to the national accounts. Nobody wants a hurricane or earthquake to devastate their region, but the way rebuilding efforts temporarily stimulate local economies may cause natural disasters to appear in the account books as blessings. Conversely, many vital and life-serving activities are undervalued or invisible in production statistics. The services of stay-at-home parents or other family caregivers count for nothing in Labor Department statistics. It is only when these same services are outsourced to professionals and pass through a cash nexus that they show up as contributions to the economy.
Albert Einstein reportedly displayed these words on the wall of his office at Princeton: “Not everything that counts can be counted, and not everything that can be counted counts”—a pearl of wisdom for scientists back then and for economists nowadays.
A growing consciousness of how numbers may deceive has prompted many proposals for greater attention to the wider social ecology. One step in the right direction would be the adoption of a more inclusive “genuine progress indicator” to supplement such measures as gross national product or per capita gross domestic product. The government of Bhutan employs an intriguing standard called gross national happiness, which other nations might want to emulate. Social scientists have long advocated a “physical quality-of-life index” that factors into economic calculations items that truly matter to ordinary people: infant mortality rates, literacy achievement and health attainments, measured in objective as well as subjective terms. We are unlikely to muster the willpower to support initiatives that enhance human welfare until we come up with more accurate and thorough social indicators to measure quality of life and describe positive outcomes in detail.
Admittedly, measuring human progress is a dicey proposition, whatever scale is used. No one is likely to come up with a universally acceptable assessment tool for such a subjective thing as personal happiness, much less for a slippery notion like national well-being. America’s columnist John DiIulio Jr. made a similar point in our Sept. 28 issue, when he recounted the perennial difficulties of measuring the complex phenomenon of poverty. Nevertheless, aggregate measures, even if partial fictions, are still essential for setting and evaluating public policies. Since lawmakers and economists will be crunching numbers for the foreseeable future, we all have a stake in insuring that the statistics they analyze relate as closely as possible to lived human experience.
Economics is not the only area of human life where artificial and inadequate goal-setting threatens to warp social priorities and frustrate those who attempt to be good stewards of public trust. Teachers nowadays find themselves under pressure to tailor their instruction to batteries of arbitrary standardized tests. Many instructors have discovered a gap between the knowledge and skills measured by such examinations and what they know to really benefit their students. “Teaching to the test” is often as futile as working to maximize an arbitrary number like the G.D.P. Until there is greater clarity on economic priorities that are truly good for people, as Stiglitz and Sen recommend, we will persist in placing the cart before the horse. Economic growth may be a good servant, but it is surely a bad master.