Thursday, 5 August 2010

From homo economicus to homo edoctus: evolution in the information age

Let me start with the proposition which is at the heart of wikiprogress. We get what we measure, and so the indicators we chose to reflect success become the things we strive for. It follows that if we measure the wrong things we may get the wrong outcomes. At the moment GDP growth is the dominant goal of policy makers. But economic growth is not a good measure of success. At best it is partial. At worst it is downright misleading.

So, what’s the problem? All we need do is replace, or at least complement, GDP with another measure or measures that will focus attention on genuine wellbeing.

But of course it isn’t quite as easy as that. Even armed with the world’s most lucid arguments, backed by some of the most brilliant minds, we cannot click our fingers and ‘replace’ GDP. Thousands of policy makers, media commentators and others have jobs built around analysing and using GDP, and much of the architecture of government relies on the figures. So there is a systemic inertia to change …. It reminds me of the old joke about “how many psychiatrists does it take to change a lightbulb?” (one, but the bulb needs to want to change).

It would be a very interesting piece of economic history to chart GDP’s rise to power. Why, despite the warnings of Kuznets and others, did GDP so quickly become the pre-eminent measure of progress? There are many reasons, but the fact that it is just one number is surely among them: relying on a single measure to judge progress is much simpler than trying to analyse several indicators that will often move in different directions. We are busy, we are lazy and we prefer simplicity to complexity. And in this information age the surplus of information creates a deficit of attention. The ideas of using sets of indicators for decision making isn’t new, but one of the reasons the social indicators movement of the 1980s collapsed is probably the lack of any single indicator.

It follows, therefore, that if we want to dethrone GDP, we might have more chance of success if the pretender to the crown is one number rather than a set of them. Of course relying on any single number runs the risk of repeating the problems of relying on GDP. A single measure of progress must be a simplification of that complicated system we call life. Naively charting a course from just one number might lead to distorted behaviour and skewed policies: hitting the target and missing the point. In a perfect world we would rely on a great deal more information – at the very least on a set of indicators. But the world isn’t perfect and if we want to change the paradigm we need to be pragmatic and a single number is the pragmatic choice. I think we could find a better single number than GDP. Perhaps not perfect. But better.

Now, if we want a single measure to replace it then we have two choices. We can create a composite index like the Human Development Index, or we can select one ‘simpler’ measure of something else (eg life expectancy, literacy etc) to summarise progress.

There are lots of good arguments in favour of composite indices and they serve a useful purpose. But ultimately they rely on taking a whole bunch of stuff that is important (education, health, income, happiness, etc) and adding it together. Before you can add different things together you must express them in a common unit of measurement. And that just about always requires some subjective decision about the importance of the components. You can claim everything is equally important and take a simple average (which is the same as saying you have no idea what is most important), or you can weight them together according to their importance based on some underlying theory or econometric model. But there is no single model or theory on which everyone agrees and so often the debate around the indicator will end up revolving, not around the number itself, but around the selection of the weights. Composite indicators can generate more heat than light.

If we don’t want a composite indicator, we must find a single non-composite measure of something that somehow summarises the progress of a society. And increasingly I think the only possibility is a measure of how we feel about our lives (what the experts would define as our subjective wellbeing, and what the media would call happiness). Call it what you will, but an overall measure of life satisfaction must depend – at least in part – on many of the other bits of life that are important and we can measure objectively: our health, our income, our relationships, the quality of our environment. So it is a broad summary measure. It is also readily understandable and resonates with everyone. Parisiennes aside, we all want to be happy.

There are those, like Richard Layard, who argue that just about all government policy can be designed to maximise subjective wellbeing. I can’t imagine this happening, not least because sustainability questions don’t seem to feature very prominently in determining people’s current levels of wellbeing. I’m pretty sure that enforcing a massive cut in CO2 emissions would make most Westerners decidedly less happy at the moment, even if our grandchildren will be a lot happier as a result.

I can imagine a measure of wellbeing being used in two ways: to challenge the economic output is progress paradigm, and to provoke a more informed and intelligent facts-based debate about what matters for policy making. If commentators spent as much time analysing the latest subjective wellbeing figures as they did discussing economic growth then perhaps GDP will be dethroned. Imagine if each and every time a politician discussed the pros and cons of a new policy in terms of its effect on economic output, the press and public answered “So what? What will it do for our wellbeing?”.

There are those who will doubtless criticise the way in which wellbeing is measured and point to all the problems with the numbers and how they are collected. They aren't perfect. But, neither, when you take a closer look at what goes into and what stays out, is GDP. In any case, I’m not suggesting that the measure of wellbeing is picked up and used blindly to set policy. Rather it is a way to change the focus of the debate and ultimately deepen it.

Analysis of the happiness measure would surely lead to a debate about the underlying data. Let’s say that this month’s figures show the subjective wellbeing of middle aged women is suddenly much lower than that of men. The next step would be to investigate differences between men and women across a broad range of socio economic data to see what has happened. Imagine the rich new policy conversations that might start as a result. Then, and only then, might we claim to have moved into the information age. Long live homo edoctus!


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