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New Zealand’s focus on wellbeing, rather than GDP, may have the best of intentions. But if GDP does not increase, there will be less funding for its grand schemes, less overall wellbeing, worse environmental performance, and weaker human capital

New Zealand’s focus on wellbeing, rather than GDP, may have the best of intentions. But if GDP does not increase, there will be less funding for its grand schemes, less overall wellbeing, worse environmental performance, and weaker human capital

New Zealand is being lauded for introducing the world’s first Wellbeing Budget, which aims to shift the focus from GDP toward the “wellbeing of people.” Those with a grudge against the GDP indicator – in particular greens, who blame economic growth for harming the environment – see this as an exciting new opportunity to stop chasing dollars and start caring about people.

The pursuit of higher GDP is easy to malign. The measure was invented during the industrial era, and includes many things that are obviously not beneficial. As Robert F. Kennedy pointed out a half-century ago, GDP “counts special locks for our doors and the jails for the people who break them,” yet “does not allow for the health of our children, the quality of their education, or the joy of their play.”

Yet GDP nonetheless remains the single best indicator to guide government policies. Ignoring it in favor of alternative measures of wellbeing is likely to lower people’s overall quality of life.

True, New Zealand’s new focus on wellbeing feels right: the government will spend more on key priorities such as mental health, for example. But unless its entire economic pie grows – as reflected in higher GDP – New Zealand will have to cut back on other important priorities. Without more money to spend on desirable policies, only good intentions will remain.

GDP matters first and foremost because economic growth has lifted more than one billion people out of extreme, grinding poverty. One recent study of 121 countries showed that the average incomes of the poorest 40% of the population grew as fast as overall national incomes over the past four decades. Increasing GDP therefore helps the world’s poorest.

But GDP’s importance extends far beyond income. As countries become richer, people live longer, child mortality decreases, and governments can spend more on health care. Likewise, higher personal incomes enable people to buy good food for themselves and their children, and to make healthier choices in general.Furthermore, higher GDP helps to improve education, because countries and parents can afford better teachers and more educational resources, and enable children to remain longer in school. This is why countries with higher GDP per person generally score better on the United Nations Human Development Index (HDI), which measures longevity, education, and the standard of living.

Increases in GDP per person have dramatically reduced malnutrition around the world over the past three decades. Economic growth has also allowed poorer people to use cleaner fuel for heating and cooking, and to access infrastructure services such as water, sanitation, electricity, and communications.

The manifold benefits of economic growth are not limited to the world’s poorest countries. Richer economies, too, have further improved their HDI scores in recent decades as continued GDP growth allows their citizens to lead better lives.

There is even a strong correlation between GDP per person and a country’s environmental performance on a wide range of indicators. Indoor air pollution, for example, is one of the world’s biggest environmental killers, claiming millions of lives each year because poorer people burn dung and wood in the home. But as societies get richer, people can afford cleaner technology. In 1990, indoor air pollution caused more than 8% of all deaths worldwide; now the figure is nearly half that.

Outdoor air pollution, meanwhile, gets worse as societies leave extreme poverty – but then decreases markedly as higher incomes allow policies and regulations to become more stringent, and environmental considerations take priority over immediate survival concerns. Deforestation follows a similar pattern: rich countries are increasingly preserving forests and reforesting because of higher agricultural yields and changing attitudes.

Of course, different countries can spend GDP in slightly better or worse ways. For example, Greece scores higher on the HDI than Russia, although it has about the same GDP per person. But countries have only a tiny amount of leeway, because available resources matter so much: both Greece and Russia rank higher on the HDI than Brazil and China, which have lower GDP per person, and much better than Tanzania and Mozambique, which are even worse off.

Perhaps most important, GDP per person is very good at capturing subjective wellbeing, which is at the core of human welfare. When researchers compared per person Gross National Income (GNI, a close cousin of GDP) with five alternative “beyond-GDP” indices, GNI predicted subjective wellbeing better than most of the other measures did – and the only one that slightly outperformed it relies on a complex array of 50 indicators. The researchers concluded that “economic activities and the affluence they create actually do make life worthwhile for a huge majority of people.”

The truth is simple: more money buys more opportunities. New Zealand’s focus on wellbeing may have the best of intentions. But if GDP does not increase, the government will have less money for its grand schemes. And compared to what it could have had, the country will have less overall wellbeing, worse environmental performance, and weaker human capital.

Bjørn Lomborg, a visiting professor at the Copenhagen Business School, is Director of the Copenhagen Consensus Center. His books include The Skeptical Environmentalist, Cool It, How to Spend $75 Billion to Make the World a Better Place, The Nobel Laureates’ Guide to the Smartest Targets for the World, and, most recently, Prioritizing Development. Copyright: Project Syndicate, 2019, and published here with permission.

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Well of course we want our citizens to have the best quality of life possible , but that's a Social Development issue , ( a soft issue if you like ) way outside the hard issue of the Budget , the economy , growth and hard work .

This wishy-washy nonsense in the budget is just an annoyance and a distraction from reality .

And GDP growth is the driver of our wellbeing and success , like it or not , so we need to get it right

Productivity is the driver of our wellbeing and success, not GDP.

Labour can't meet hard targets such as 100 000 affordable homes .... so now they're pitching at soft targets such as " well being " ... 'cos how can they be caught out , when there is no clear objective , just a feel good wishy washy pile of hot air ...

Would our GDP have been higher or lower if we had not focused on real estate for the past two decades, to the primary benefit of a few sectors of the economy.? As a nation would our wellbeing be better or worse if house prices and their increase not dominated our economy during those two decades.?

We focused on Real Estate because exponential growth demanded ever-more transacting, and nothing else was big enough. Even while trending to obesity, for instance, there is a limit to how much food a person/society can consume, RE was the last biggie standing. The telling metric, is that we used it to increase the 'value' of existing items, then used the numbers to justify our continued repression of others - who éarn' less but who make our stuff and inherit our pollution.

Lomborg avoids that - in the same way the late Bob Carter (climate obfuscator) did with the last slide in his 'presentation'. As to whether we'd be 'better off'- the answer isn't in GDP, it's in reality. And the answer is 'Ýes'. We've wasted those years sh-----g in our own nest.

"The truth is simple: more money buys more opportunities."

This is a fact that cannot be ignored no matter how lovely a "well-being" sounds. We need money to spend on the things we want and need. Warm and good feelings don't pay the rent no matter how good one's intentions.

It has become fashionable (and that's all it is, nothing serious) to denigrate GDP and money making, and the men and women who do the work, to promote a fantasy. if a country doesn't want to grow its economy then that country doesn't have much of a future.

To posit such nonsense, this late in the game, astounds me.

Let's do it again. From the top. Simply. We extract, from a finite planet. We consume. We excrete - high-entropy wastes. That's a linear process, one-way traffic. With me? And it was expanding exponentially.

Atop that, we set up an accounting system which.......... didn't. It takes no account of depletion, nor of pollution, meaning no account of either end of that linear process. Clearly, GDP counts the proxies we hold, that we think we will be able to cash-in for stuff which has been extracted. Clearly, an ever-bigger collection of proxies facing an ever-smaller pile of extractables, was going to result in mass disappointment. It's hardly rocket science.

And it's not 'men and women who do work'. They contribute less than 1% of the work - the vast majority is done by fossil fuels. And on the contrary, if you continue 'growing your economy' at the expense of resource draw-down, there is only one possible ecological result - collapse.

We shouldn't still be having this debate - we needed to be past it 40 years ago.

Interesting, innit, to see the old Physiocrats arguments recycled as rebuttal to Lomborg's reasoning. In essence, because Land was seen as Finite, and Agriculture the key to all other activities, Land and its use, taxation and productivity was seen all that mattered.

But the Physiocrats erred in multiple ways:

  • Mining (to produce the metals needed for Agricultural implements, which had (vide Jethro Tull) greatly increased production) did not fit their theories at all, but had to be shoe-horned in to their theories as a highly specialised form of Digging the Land.
  • They did not contemplate the possibility of non-zero-sum products (like the Interwebs, whereby one's use of a web page to ascertain prices, buy and sell, and generally lower the friction of transacting, does not decrease anyone else's usage of the same resource
  • Adam Smith pointed out that, unlike the Physiocrats' assertions, human nature shaped systems rather than the reverse: and had an amusing excursion in 'The Wealth of Nations' into the relative characters of the Scots (then in a feudal state) and the Dutch (the ultimate mercantilists)
  • And last but not least, they completely ignored Manufacturing which, by processing raw materials into finished goods of well higher value, generated greater from lesser value.

GDP is certainly not the ultimate measure, but then nor is anything else. Let's not let the Perfect get in the way of the Good here - and remember the fate of the Physiocrats. They ignored the forces that eventually led to the Revolution, to La Guillotin, and to their own demise, almost to a man.

Human nature....messy, but ultimately the most powerful force. And not particularly Finite....

Quite capable of rendering the tenure of its species finite, though.

And 'value added' requires something to add to.

... true ... we cannot face the hard reality that NZ has been sliding down the OECD rankings for decades ... so we can obscure the fact that Australia is pulling farther away from us on GDP per person , by using snuggly feel good terms such as well-being ...

We're accepting and settling for mediocracy... easy peasy , everyone wins , we all get a medal , we all feel good .... SIGH !

GBH - who reminds me so much of Wally (didn't he shift to Wellington)?

Here's this from David Chaston, this evening:
"In Australia, they have posted another record trade surplus on the back of strong iron ore prices and shipments. The May surplus is +AU$5.7 bln, smashing the previous record of +AU$4.8 bln set only a month prior".

They're turning their real wealth into magic beans. Thank you - both - for the clear example.

.. magic beans ... they sound like a great accompaniament to magic mushrooms .... lucky Aussies ...


Your non-de-plume is accurate-no facts.

The key issue is GDP per capita, not GDP as the headline suggests.

We could continue the insane immigration rate, have increasing GDP but still drive the GDP per capita through the floor.

The wellbeing budget is the right approach, but has too many indicators.

The other key metric is GINI. Pointless having GDP per capita growth with high GINI (inequality).

It still fascinates me how much we've having to clean up the GDP mess left by nine years of the previous National government, where they were happy to just sell off NZ to the highest bidder. Putting too much focus on gains through property prices, creating a false economy whole dependent on overseas money coming in to NZ and therefore selling out a whole generation of citizens. Yes agreed we do need to focus on rebuild our real economies for stable GDP growth, that in turn will help over all well being of NZ.

cj099 - read this carefully.

note that neither left nor right are correct.

Seems rather out of date and hasn't taken in to account what's happening now.

Try thinking. You have $1000 in an account, and you withdraw $1, $2, $4, $8 - doubling each time you make a withdrawal. Ten withdrawals, and you've halved your bank-account. PDK tells you that one more withdrawal will empty it completely. You say my information 'seems a little out of date'???????????

Try this:

The only thing 'happening now' is 'more extraction, more consumption, more excretion'.

Why do you keep posting out dated articles? We know what happened to our GDP and why it happened.

Happening. Not happened. Happening.

Why do you need to avoid the present tense?

Here in NZ we have fake GDP any way. Simply add more and more people, and voila, GDP goes up. Of course everyone's livng standards decline, nobody can afford to buy or rent a house, they are stuck sitting in traffic for hours, and public transport collapses every time there is a weather event. The number that counts is GDP per capita - which measures whether we are individually better off or if we are sharing an ever declining amount of resources amongst an ever increasing population.

I will refrain from Calling Lomborg a liar,but if the cap fits.......

Those who doubt this should read an article published on 30th Aug last year by the London School of Economics and the Grantham Research Institute on Climate Change and the Environment.

As for GDP itself, I encourage people to read both the Growth delusion by David Pilling and Doughnut Economics by Kate Raworth. Infinite growth on a finite planet is not possible.