Again the dictionary definition of the economic meaning of utility is "the amount of satisfaction or pleasure that somebody gains from consuming a commodity, product or service". However, as we have seen, modern economics only measures this pleasure in relation to items that have a financial value measured at the margin. This is done through GDP. This measure omits many of the elements of life that contribute satisfaction or pleasure but which are not captured by the monetary elements that make up GDP. Hence utility is wrongly recorded.
What can be done in order to measure utility, or life satisfaction, in a more complete way?
There are a whole range of indicators that could be used in order to complement the useful information that can still be gathered from a simple measure of GDP. These range from:
- Amending GDP by adjusting it with other information
- Using GDP as part of an index that incorporates other, easily measurable, indicators of welfare
- Using direct measures of well-being that are calculated using new survey techniques.
The Measure of Domestic Progress (MDP) was designed to factor in the environmental and social costs of growth and, again, highlights how such an Index remains flat over the second half of the twentieth century. However, the MDP can also be criticised as being too negative and ignoring some of the positive by-products of faster economic growth like rising life expectancy.
In terms of taking account of GDP’s inability to reflect the real components of well-being and human flourishing, wider measures of progress than GDP already exist. For example:
- The United Nations Human Development Index (HDI combines GDP per capita with life expectancy and education enrolment
- The Fraser Institute Index of Human Progress extends the basic UN HDI by using 10 indicators across – health, education, technology and GDP p.c.
- The University of Pennsylvania Index of Social Progress includes 40 variable across 10 groupings
- The Economist’s Quality of Life Index includes 9 factors including – gender equality, climate divorce rates etc.
Influential academics are now putting the case for such an internationally recognised measure of national well-being. For example:
- Kahneman et al (2004) have proposed ‘National Well-Being Accounts’ based on time budgets and affective ratings of experience as measured by Experience Sampling Method (ESM), Daily Reconstruction Method (DRM) or Event Recall Method (ERM).
- Diener and Seligman (2004) have proposed creating a national well being index that systematically assesses key well-being variables for representative samples of the population.
As a result Diener and Seligman (2004) acknowledge that it is essential to keep using GDP as a measure but suggest that it should be increasingly used in tandem with well-being measures.
Thus, there is considerable on-going debate around extensions to, or replacement of, GDP as a measure of economic and social progress but little in the way of agreement over the best way to proceed in order to improve or replace it. Nevertheless, it would be relatively easy for any country to begin to consistently measure its relative position and annual advancement based on some of the expanded Indices highlighted earlier.
Copyright: John McLaren, 2006