Gross domestic product is a yardstick that has been used for decades to measure economic prosperity. However, this does not necessarily indicate well-being or broader prosperity. So how can this be mapped out? In an article published by Het Financieele Dagblad, Bas Jacobs, Professor of Public Finance and Economic Policy at Erasmus School of Economics, contributes to the discussion.
The discrepancy between behaviour and verbal expressions
Jacobs has a number of reservations about the way in which others currently measure broad prosperity: 'We need to abandon the one-sided focus on GDP as an indicator of economic well-being. But how to do it is a terribly complicated discussion.' The advantage of GDP is that it is easy to measure, but how do you measure things that have no explicit value in economic terms? Jacobs: 'For example, you can measure the inconvenience caused by an airport by the lower house prices in the neighbourhood. The reverse is true for a train station. But for many other things it is more complicated. You can ask people how much they are prepared to pay for clean river water. But do they really want to pay that?
Professor Jacobs' point is that people's behaviour is much more revealing than their own statements. That is why political and ethical judgements are often needed to weigh up different aspects of prosperity. How much is better healthcare or more security worth to us exactly? It is not always possible to give an objective, scientific answer to that. Also, one of the problems Jacobs raises is that the marginal utility per euro is not the same for every individual. 'For a poor person €1 is worth more than for a millionaire. But how much more? So you cannot simply add up individual wealth. So a weighing is needed. That also requires a judgment.'
Two systems
The United Nations Human Development Index uses three variables to arrive at an expression of broad prosperity. Jacobs points out that these three variables, namely income, years of education and life expectancy, all count equally. The question he poses in this regard is obvious: who decides that these variables should carry equal weight?
Statistics Netherlands measures dozens of indicators in their Broad Prosperity Monitor project. 'They are on the right track', says Jacobs. 'But it does seem as if Statistics Netherlands is not making choices and is measuring as much as possible. That is a Pandora's box. Why do we need to look at certain variables? What is their relationship with prosperity? Are we not measuring some things twice? Not enough thought has been given to that.'
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You can download the full article from Het Financieele Dagblad, 3 February 2022, above.
