Measuring everything that matters to all seven billion of us – in one index number

It was interesting to see former New Zealand Prime Minister Helen Clark pop up in the news again this week. I had not realised that she had been taken on as the head of the United Nations Development Programme (UNDP). It appears to be the privilege of the elite band of left-wing politicians whose careers as elected representatives can no longer be sustained to be given a lucrative job in a body that is not remotely accountable to the people it purports to represent. It is, nevertheless, a relief to know that, as prime minister of a country eight times the size of Hull, she managed to become (according to Forbes) the 20th most important woman in the world but now she is in charge of the development of seven billion people across the world in the UN’s third highest position she is only the 60th most important woman in the world.

The UNDP held a forum this week entitled: ‘Beyond GDP: Measuring the Future We Want’. What they actually mean, of course, is ‘measuring the future the UN wants’. The best way to ensure that we get the future we (the people) want is to have a free market, governed under the rule of law, with good protection for property rights (including, where appropriate, property rights for environmental goods). The seven billion people in the world all want a rather different future from each other. We can only achieve those different aspirations if we are free.

That is not to say that an argument cannot be made for the subsidisation of, for example, education and health care for the poor and for other forms of assistance through government. However, the success of the human race as a whole cannot and should not be measured by some kind of unified aggregate index.

Specifically, Helen Clark has proposed that the UN develop an index that combines: ‘Equity, dignity, happiness, sustainability’ arguing that ‘these are all fundamental to our lives but absent in the GDP.’ Just because something is fundamental to our lives does not mean that we need to measure it and combine it with other variables into a single index measure. Relationships are fundamental to our lives, but do we need to measure the success of the relationships of seven billion people and combine that measure with other data into some kind of aggregate index? Indeed, it is interesting that the best conditions for GDP growth in the history of the UK were created before we even started measuring GDP.

It is just about possible, nevertheless, to make a coherent case for measuring GDP. GDP does, at least, make a reasonably rigorous allowance for trade-offs that different people make in their everyday lives. If I give up £1 worth of apples to buy £1 worth of oranges and Mark Littlewood does the opposite, it can (within certain bounds of reasonableness) be said that we both have £1 of utility from the transaction. Austrian arguments can certainly be made regarding the undesirability of aggregating data and the fact that all transactions involve consumer surplus, but there is some reasonableness and consistency there.

We can also look at other statistics such as working hours, travel time, leisure time, carbon footprint (if it is thought necessary), and so on, to obtain a more comprehensive picture if we wish. However, once we try to produce an aggregate index of everything that is important, the index will lose all meaning. How can we trade off a small increase in reported happiness for somebody in Zambia for an extra £500 a year of national income per head in New Zealand? How can we trade off a tiny change in the Gini coefficient in Rwanda with a small change in the stability of marriages in India, and so on? These things have completely different values to different people.

Even trying to track one of these datasets is problematic. As the IEA’s monographs on happiness economics showed, well-being measures are suspect. There is no clear indication of a relationship between reported well-being and almost any other reasonable indicator of social progress.

Overall, we have the biggest folly imaginable: the body that some would desire to be a world government attempting to measure in a single index number everything that matters to everybody. It matters a lot to me that supranational bodies do not do this sort of thing; it also matters a lot to me that retired politicians are not given well-paid jobs in such agencies. Will these things be included in the index? Of course, they will not. Personally, I find the following quotation from Hayek’s Nobel Laureate lecture more convincing: ‘We know: of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information. And because the effects of these facts in any particular instance cannot be confirmed by quantitative evidence, they are simply disregarded by those sworn to admit only what they regard as scientific evidence: they thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant.’

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

2 thoughts on “Measuring everything that matters to all seven billion of us – in one index number”

  1. Posted 22/06/2012 at 14:40 | Permalink

    Philip talks about ‘the biggest folly imaginable’, but I dare say some imaginations could conjure up bigger follies that he can. It might be fun to try to aggregate, and then measure, the collective folly of politicians… though I wouldn’t go so far as to claim that it would be useful. I suppose one problem might be identifying the various follies — since the politicians themselves might well not recognise them. For example, what bright spark ever thought the creation of the euro would be a ‘good’ idea? That might partly depend on how you compare a political aim with economic prosperity, as well as ‘trading off’ (if that’s the right term) a political aim like ‘democracy’ against another political aim like ‘United States of Europe’. Also how could you relate short-term aims and long-term aims, especially in the absence of an undistorted market rate of interest? And how could you include the interests of generations as yet unborn? Even if one followed Helen Clark’s notion of trying to measure and combine in an index things like ‘equity, dignity, happiness and sustainability’ there is the problem of how you weight them? Does dignity matter as much as happiness? Or more? or less? And how much more or less? Or do you weight ‘motherhood’ equally with ‘apple pie’? I think Philip must be at least partly correct: this is a big folly. But one cannot measure just how big it is, nor whether another folly might be bigger.

  2. Posted 25/06/2012 at 16:17 | Permalink

    Ahh Helen Clark who once declared that the role of government is whatever the government defined it to be. Seems her “development index” is constructed with similar rigour.

Comments are closed.