January 19, 2014

Costanza and index fetishism

In Development: Time to leave GDP behind Robert Costanza and coauthors (thereafter Costanza), published in Nature, write:
[S]ince the end of the Second World War, promoting GDP growth has remained the primary national policy goal in almost every country 1.
The only support for this assertion is that number 1, a reference to the paper The GDP paradox by Jeroen C.J.M. van den Bergh. But van der Bergh does not argue or give any evidence that promoting GDP growth has ever been "the primary national policy goal in almost every country." Van der Bergh only says that politicians, journalists and commentators talk a lot about GDP, and that central bank managers, business managers and consumers use GDP data to inform their decisions. Neither talking about GDP nor reacting to GDP data make promoting GDP growth "the primary national policy goal in almost every country." Van der Bergh decries the fact that "rigorous empirical studies of the influence of GDP information on the economy are lacking" and adds:
Anyway, readers who are not convinced by the arguments in this section and feel that GDP information does not have much impact on the economy at large should really be sympathetic to reducing the role played by GDP information in the public sphere, as it serves no purpose while its provision is costly.
I am one of those. Provision is costly and I shouldn't be forced to pay for it. And I also think that political talk about GDP is as useless as political talk generally is.

And I also think that political talk about some other quantitative measure of what Costanza calls "national success", and intended to replace GDP, would be as useless as political talk about GDP. Not so Costanza. He doesn't dislike political talk, or the ideas of "national success" or "the primary national policy goal" or their quantitative metrics. He just dislikes GDP.

He wants to make well-being the "primary national policy goal." What is well-being? I don't know whether Costanza tries to be comprehensive or not, but he is clear that his concept of well-being is not related to income but is inversely related to crime, divorce, drug use, pollution, natural resource use and envy about income ("income inequality"). People who are not happy with their spouse or who enjoy drugs will probably disagree. People who are envious of the beauty, dancing skills or wisdom of others will probably feel excluded.

How is well-being to be measured? Costanza discusses two ways. First, one can quantify things like envy of the wealthy, drug use and natural capital and combine them to produce a single metric like the Genuine Progress Indicator. Everybody, including drug users and fed-up spouses, will agree that "genuine progress" sounds better than "gross product." Second, one can ask people how happy or satisfied they are. He admits that one problem with this is that people often don't know what policies make them happy. In fact, people often support policies that ultimately make them unhappy. Politicians who win elections and thus end up managing "the primary policy goal" happen to navigate these problems and paradoxes more skillfully than failed politicians. An important skill in this regard is the ability to interpret opinion surveys. In the end, Costanza is either trying to do the same thing, but as an amateur, or just airing his political views on drug use and the wealthy.


  1. The Employment Act of 1945 made economic growth the goal of economic policy in the U.S. This law has not been repealed.

  2. That doesn't make economic growth "the primary national policy goal in almost every country." Not even in the US.