The perils in the search for the perfect GDP alternative

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As Europe was miserably shivering with thermostats turned down and energy costs surging during the winter of 2022-23, the good news was that we in Britain were boosting net inclusive income per head. Everyone in the country moaning about broken public services is mistaken — their quality has been improving. And for almost two decades, the “inclusive” measure of capital (the nation’s wealth including human, natural and fixed capital) has not changed more than 2.1 per cent from its 2005 level in the face of global financial crises, pandemics and periods of austerity.

If you think these statistics are irrational, irrelevant or even nonsense, do not take it out on me or the UK’s Office for National Statistics, which produced these official figures earlier this month. The guilty party is those that hold the very popular view that we must ditch headline measures such as GDP and aim to rectify all the long known faults with this statistic.

Ever since Robert F Kennedy senior castigated GDP in 1968, saying “it measures everything . . . except that which makes life worthwhile”, statisticians have wanted to create holistic measures of wellbeing that included not only material market outcomes, but the quality of public services, unpaid household chores, the pollution of the planet’s air and waterways, cultural ecosystems, intellectual property and the degradation of our atmosphere by greenhouse gases. This, proponents have argued, would force politicians to have the right priorities and create a better society.

Well, in the UK, the results are in and they are, frankly, a bit of a mess. The ONS has attempted to measure all of these things, attach financial values to them and create measures of gross inclusive income, net inclusive income, and inclusive capital.

The statistics agency describes how some measures have gone up, some gone down and some (inclusive capital) stayed the same in a release with seemingly random numbers akin to the fictitious TV maths quiz Numberwang. Dig into the details and you find nuggets such as the supposed rise in the quality of public services on an annual basis from 2005 to 2020.

I have no criticism of the ONS or their attempt to undertake this work. It is painstaking and difficult and will inevitably involve seemingly arbitrary decisions about many non-market goods and their weights in the overall inclusive wealth and income accounts. There is already quite a bit of imputed and seemingly difficult to understand data in the existing measures of national income and wealth.

The problem lies with those thinking that the world would be different, and that their priorities would become national priorities, if we ditched GDP and measured something else instead.

By far the most important priority for national statistical agencies is to produce figures that are broadly accurate, tangible and understandable. That means GDP and other measures of paid activity in the economy are extremely valuable as a gauge of how money flows and the resources available for households and government to consume and to invest. It means making sure your statistical quality does not degrade to the extent that everyone treats official UK labour market data as a bit of a joke. It also means putting in effort to measure and understand pollution, cultural capital, perceptions of public services, human loneliness, unpaid household work and all the other things that matter to us.

A much lower priority, however, is to seek to add them all up by imputing values and creating a single index of everything. Doing that creates an index of nothing or statistics that are so difficult to understand that they have little value. Ultimately, it is not the job of national statistical agencies to weight the values of good and bad in society. That is the role of democracy.

chris.giles@ft.com

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