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Editor's Notes

• #2: In 2008, Nicholas Sarkozy, President of the French Republic, asked prominent economists to improve on the currently available statistics on the economy and society.
• #3: He asked Joseph Stiglitz, AmartyaSen and Jean-Paul Fitoussi to create a commission to address this problem. It was called the Commission on the Measurement of Economic Performance and Social Progress. I will simply refer to it as the Commission. Why should we be concerned about these numbers? We need to be concerned because economic data informs (or should inform) the decisions of our governments. If we are using the wrong numbers or interpreting numbers in the wrong way the decisions we make and our governments make will be flawed. I was once asked, “If these numbers are so important, why do they seem to be so out of touch with reality?” This is a reasonable question. We hear news reports about GDP growth or levels of unemployment and they seem inaccurate. I’ve heard many people respond to GDP growth with comments that can be paraphrased as, “I don’t know how they got those numbers, but they sure haven’t asked me!”
• #4: There are a number of potential reasons for this gap:Concepts may be correct, but the measurement process is wrongThere are debates about what are the right concepts to useCurrent statistics may not capture certain phenomenon that affect well-beingThe way we use and interpret statistics may be wrong
• #5: There is increasing concern about the effectiveness of current measures of economic performance, especially those that are based solely on GDP. These limitations were even recognized by the inventory of GDP: “"The welfare of a nation can scarcely be inferred from a measure of national income."
• #6: Instead, what is needed is to determine current well-being and to place this discussion within a larger discussion and context of sustainability. This doesn’t mean that we dismiss GDP and other measures of production, but that we limit their use to matters of measures and production, not well-being. This means that we must develop a system to measure quality of life that complements measures of market activity. This system needs to capture a plurality of variables – both material and non-material – and we need to understand how these variables are related to one another. Let’s start with the Commission’s thoughts on the material elements of well-being.
• #7: They make five recommendations:We need to look at income and consumption because GDP mainly measures market production and it is dangerous to confuse it with well-being. More accurate measures of well-being are net national income, real household income and consumption.
• #8: We need to emphasize the household perspective because trends in people’s living standards are better followed through measures of household income and consumption. In a number of countries real household income has followed a different path from real GDP and typically at a lower rate.
• #9: We must consider income and consumption with an eye on wealth. A more accurate picture of a household’s balance sheet would provide an accurate picture of wealth and this is necessary to measure the sustainability of well-being.
• #10: We too often rely on average measures of income, consumption and wealth, but they do not paint an accurate picture. When we give more prominence to the distribution of these factors we are able to more thoroughly understand the current state of material well-being.
• #11: We need to broaden income measures to non-market activities because there have been major changes to how households and societies function. In the past, there were certain services family members provided, but are now purchased in the market. When this shift started, it created the false impression of a change in living standards.
• #12: To make this more obvious, I’d like to compare two families. The first family is a two-parent household with two children that earns $50,000 per year. One parent works outside of the home and the other takes care of cooking, shopping and childcare. This means that they do not need to devote any of their income to these activities.
• #13: The second family is again a two-parent family with two children that makes $50,000 per year. However, both parents work. They must pay for cooking, shopping and childcare out of pocket. This means family number two’s income is reduced. Obviously, family number two does not have the same level of material well-being as family number one, but conventional economic measures treat both families the same way. This needs to change. However, as I said earlier, well-being is multi-dimensional. The Commission recognizes that there is more to well-being than monetary and they point to non-monetary subjective and objective measures that we need to know to accurately measure well-being.
• #14: There are three approaches that are useful when thinking about how to measure non-monetary quality of life factors:Subjective well-beingCapabilities approachFair allocations approachAll approaches agree that there are non-monetary factors that affect people’s quality of life. The subjective factors ask people to evaluate the various dimensions of their lives, such as family or work life, and they also assess people’s actual feelings, such as pain or worry. The capabilities and fair distribution approaches identify several important objective non-monetary features of well-being.
• #15: These include the length and the quality of people’s lives.
• #16: Education improves skills and competencies that are essential to economic production. Education matters for quality of life in ways that are independent of income. It improves life evaluations, health, they have lower unemployment, more social connections and are more involved in civic life.
• #17: How people spend their time also matters for their quality of life and, like education, it matters independent of income. We need to understand paid work, unpaid work, commuting time and leisure time.
• #18: When people have a chance to participate in the political process and when the political institutions support and enable this participation they improve quality of life for the people in that country.
• #19: Social connections, or social capital, also affect the quality of life in many different ways: the more social connections, the higher life-evaluation, improved health and a better chance of finding a job.
• #20: Environmental conditions mean more than using our resources sustainably, although that is a part of it. Environmental conditions affect health, people are benefited by having access to clear water and other environmental services, people value environment and this valuation affects their choices and environmental conditions can lead to climate changes and natural disasters.
• #21: Insecurity can be either personal or economic security. Personal insecurity arises from factors that put our personal integrity at risk, such as, crime, natural disasters or other accidents. Economic insecurity encompasses matters like unemployment, illness and retirement concerns.
• #22: According to the Commission, it is also important to understand the variations and disparities in quality of life measures, we need to understand how these factors relate to one another and we need to try to combine these measures in a single indicator in as simple a way as possible.
• #23: Finally, the discussion of well-being must be placed in the context of sustainability. Sustainability means determining if at least the current level of well-being can be maintained for future generations. This involves measuring the future and measuring the future involves many assumptions. The Commission makes several recommendations to help with this process. Sustainability assessment requires a dashboard of indicators that are a variation of some underlying ‘stocks’, such as quantities and qualities of natural resources and of human, social and physical capital. According to the Commission, there is also a need for an indicator of our proximity to levels of environmental damage that will lead to a natural disaster.
• #24: The Commission’s report has confirmed things that many people have intuitively known for some time, for example, that GDP doesn’t measure up as an indicator of well-being. But it has made significant steps forward to identify improve on the material factors of well-being and they have proposed a set of variables that contribute to people’s non-material factors of well-being.