How Should We Judge our Economy?

Mitt Romney ran for president on a central theme: The economy isn’t getting better. To illustrate this, he pointed to our Gross Domestic Product, or GDP, which measures the output of all goods and services in our economy. By this metric, the economy has been growing, although slowly.

But Eric Zencey, a political economist with the Gund Institute for Ecological Economics at the University of Vermont, wants you to understand just what GDP is actually telling us.

“I think GDP should re-named, so that we don’t mistake it for a measure of well-being. I think we should call it gross domestic transactions,” said Zencey. “That’s all it is, it totes up the monetary value of all the transactions. And if it had that name that would help break the association people have with the idea that more GDP is better. It’s like hmmm, more transactions are better? Well it depends on what you’re transacting.”

For example, the billions of dollars that are pouring into post Sandy clean-up will boost our GDP as money changes hands. Of course, a lot of shuttered businesses will hamper GDP growth.

So does all this adding and subtracting give us a real measure of economic progress? Zencey is part of the movement that doesn’t think so.

“So the movement for kind of a sane approach to the economy is to measure the actual thing you’re trying to do, which is improve the living standards and well-being of people.”

When I first spoke with Zencey a few years ago, he and others like him were largely ignored by mainstream economists and policymakers. They still are. But the movement is gaining some momentum.

This spring, some 600 international scholars and leaders gathered at the United Nations to discuss happiness and well-being as measures of economic progress. The meeting was convened by the kingdom of Bhutan, which is known for its Gross National Happiness index. Several states, including Vermont, have also begun measuring well-being to gauge economic vitality.

Many still dismiss these ideas as flaky, anti-consumer, or radical left-wing political engineering. Still, some big names are giving them credence. Here’s Fed Chairman Ben Bernanke this summer.

But just how do you quantify well-being? Last year, the Organization for Economic Co-Operation and Development, or the OECD, based in Paris unveiled its “Better Life Index.” They have a very cool Web site where you can compare how 36 countries stack up on a variety of measures, things like levels of education, health, and your sense of community.

Anthony Gooch with the OECD said no one country comes off as the overall winner. Determining the strongest economies depends on what you value. If you care about life satisfaction, Denmark is the place to be. If safety is your thing, then it’s Japan.

“The US performs very strongly on quality of housing, on income, it performs strongly on civic engagement,” said Gooch. “It performs pretty well on jobs. There are some areas where it doesn’t do so strongly, for example the sense of work life balance compared to the other 35 countries isn’t strong.”

So where does all of this new economic thinking go from here? I put that question to Eric Zencey in Vermont.

“Yea, what is the path ahead? What kind of strategies are there? And that’s a very difficult question…”

Zencey concedes, it’ll be difficult to get policymakers to subscribe to these new economic measures. But with the campaigns now over, politicians don’t need to worry about every week’s economic indicator. And that might open the door to some new ways of thinking… at least until the next campaign cycle.