Moving towards an economy of well-being

COMMENT | Some weeks ago, I wrote a column about the limitations of GDP as an indicator and predictor of national progress, due to its exclusion of important aspects that contribute to life satisfaction and well-being in a society.

This criticism of the shortcomings of GDP were deemed by some commenters as impractical. One likened it to "criticising oranges for not tasting like oranges," pointing out that, after all, its function is explicitly to measure economic output rather than act as a 'tell-all' indicator of national progress.

Another stressed that the GDP and other economic measures "are but some indicators to consider when making informed decisions, the granularity of indicators being really more nuancedly interpreted for the discerning analyst."

These comments are not necessarily wrong, but, as I will respectfully argue, they may perhaps have misconstrued the point that I was trying to make.

Firstly, to put things into context, it is useful to have a brief background of how the GDP evolved to become so widely used in the first place. In its modern form and concept, GDP was developed in the United States during the interwar period.

In 1934, under a directive to “report estimates of the total national income of the United States,” Simon Kuznets, a Russian-American scientist working for the US Department of Commerce, designed a metric to capture the total value of output produced by the national economy, in terms of productive activities involving money exchanged for goods and services.

The main impetus for developing this metric was to provide policymakers with a tool that could empirically measure economic production, in order to analyse the war programme’s burden on the economy, and to justify policies and budgets aimed at increasing government wartime spending.

At the same time, the 1930s marked a time of great social and economic uncertainty. The world was just beginning to recover from the shocks of the 1929 Great Depression and economic collapse.

For the US government, it was equally important to have a reliable economic measure that could guide fiscal policies towards better protecting citizens’ economic welfare. Historical context informs us that the GDP’s metrics were designed for a specific purpose: to measure...