Belfast Telegraph

Sunday 21 September 2014

We'll all be happy when the economy gets fixed

David Cameron prefers to look at overall 'well-being' rather than just the GDP figure

Sad cases, like me, who go to the regular presentations of statistics from Ireland's Central Statistics Office (CSO), often mingle afterwards, over the government-issue coffee, to ruminate on what we have just heard.

One discussion which stuck in my head, at the height of the bubble, was about why there were so many people building houses. Not the number of houses - extraordinary enough - but the number of, mainly foreign, workers constructing them.

Events since have convinced me that our guess back then was correct - the houses were being built largely to avoid tax, and they were being built as quickly as possible to avoid being caught by the abolition of the tax reliefs.

But let's stick with the statistics. The rapid pace of construction was a great boost to economic output (GDP). The increase in GDP, in turn, was seen as a measure of success. It always is, but questions have always been asked as to whether that is entirely wise.

In this particular case, one had to do a second sum, dividing GDP by all those Polish plumbers, Latvian labourers and so on, to see that, while GDP was powering ahead, GDP per worker was not rising particularly fast at all.

That was a sign of trouble ahead, but these are slippery concepts. A policy to maximise GDP per worker can make it sound like employment is not really such a good thing.

Most people would disagree with that proposition. Yet it rather depends on your circumstances. All those not working, whether unemployed or babes in arms, have to be catered for from the production of goods and services - GDP. But the unemployed might prefer less productivity, and therefore more jobs, while the baby is interested only in the cost of milk and other sundry products. The higher GDP per worker, the cheaper they are likely to be.

Such questions have bubbled below the surface for a long time. But when incomes are growing, suggestions that it might be a good idea if they grew more slowly are swept aside in the rush to the shops.

Now that incomes are falling, and don't show much sign of rising in the foreseeable future, the question is being treated more seriously. Is GDP the be-all and end-all, or can we make a better life even in an apparently endless recession?

There are a couple of new books on the subject, and a curious attempt by Britain's Office of National Statistics to measure well-being other than by GDP or personal income. One of the books - How Much is Enough? Money and the Good Life - takes as its cue a famous mistake by the great economist John Maynard Keynes.

In 1930 Keynes predicted, correctly, that by 2000 people would be four times richer and, wrongly, that they would therefore work an average 15 hours a week.

He would be astonished to find that people 40 times richer than the 1930 average income work the same hours as a 19th century mill hand, while even the ordinary working week is still more than twice his prediction. What Keynes did not foresee is the astonishing range of consumer goods and services on which we can now spend our money. Not only can spend, but want to spend. We therefore prefer income to leisure - income which we expect should grow every year.

This is what drives government to try to maximise GDP - the belief that it is what the voters want. The recent publication of Britain's first official 'well-being' survey coincided with other data showing the UK firmly in recession, with a 1% fall in GDP over two quarters.

David Cameron was accused of trying to fudge the failures on GDP with this happiness barometer. That is probably unfair, but not as unfair as the opposition jibe that the survey was a statement of the "bleeding obvious".

Lots of it seemed anything but obvious. Northern Ireland and Scotland had the fewest dissatisfied people and there is less anxiety in the North than anywhere else. But even the stuff that was obvious - the kind of place one lives, whether one owns one's home etc - point to the possibility of policies designed to maximise satisfaction rather than just income.

Statisticians might be able to take the huge range of subjects in the UK database to construct a plausible GSP - gross satisfaction product - but it wouldn't make much difference.

There is another measure in use for some time, published by Bloomberg News: the Misery Index. It combines inflation, growth and unemployment.

It has proved remarkably accurate in predicting whether governments win or lose elections. We may all want to be happy, but in politics it's still the economy, stupid.

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