For decades, Gross Domestic Product (GDP) has been a standard yardstick for measuring living standards around the world. (The U.S., at $14 trillion, remains far above any other single nation in GDP.) Martha Nussbaum would rather use something that actually works. This is the topic of our latest Freakonomics Radio podcast. (You can download/subscribe at iTunes, get the RSS feed, listen live via the link in box at right, or read the transcript here.)
Nussbaum is a philosopher by training and a professor of law at the University of Chicago. In her new book, Creating Capabilities: The Human Development Approach, she argues that we should listen less to economists who tout GDP as a valuable measure of human welfare and look at all the things that GDP fails to capture — like what sort of opportunities are available to people, or as she puts it, “What are people really able to do and to be?”
Here is the meat of Nussbaum’s argument about the shortcomings of GDP:
Even if you were absolutely determined to have just one number, it wouldn’t be the best single number. Average household income would be a much more pertinent number because that’s a number about how much money is staying there, doing things for people in that country. The problem with GDP is that the profits of foreign investment often go out of the country back to the investing country, and so GDP doesn’t even tell us what’s happening for those people in that country. [But] there are some more serious problems. Distribution. We want to know how people at the top are doing and how people at the bottom are doing and what levels of equality that society has attained. GDP is an average, so it doesn’t tell us whether there’s a large number of people who have very miserable lives. In the days when that was used as the main measure, South Africa under apartheid did very well in the development tables, because there was a lot of stuff around there in South Africa, but never mind that it didn’t go to enrich the lives of a vast majority of the people there. And then, third thing, is that if we think about the different things that are involved in a human being having a good life, and those things are plural. There are things like health, education, the quality of race relations. So think about South Africa. All those things are huge, and they were part of the apartheid system, there was inequalities in health and education. Now it turns out that GDP is not very highly correlated with some of those important things. There’s a lot of empirical work by now that’s been done on whether improving GDP translates into improvements in health and education. And it turns out that actually doesn’t, in the absence of direct government action focusing on those things. So it’s just not a very good proxy for a lot of those things that are very important to people.
Nussbaum has been collaborating for years with the Nobel-winning economist Amartya Sen to develop a new framework for assessing — and increasing — human welfare around the world. Nussbaum admits that the measurement that they’ve been promoting, the Human Development Index, is hardly perfect, as it’s not such a simple thing to quantify freedom and well-being. But because the HDI at least factors in things like healthcare and education, Nussbaum feels it does a better job than GDP. And the HDI has gained much acceptance in development circles. You can find worldwide GDP rankings here and HDI rankings here; to get a brief sense of how the GDP* and HDI rankings can differ, here is the Top 10 of each:
Here‘s a fun HDI tool to play with, and here’s how a handful of selected countries look on the GDP and HDI rankings:
In the podcast, Nussbaum also talks about quantifying happiness, her quarrels with her economist colleagues at the University of Chicago, and how she likes to relax at the end of a long day: by singing. Yes, you’ll get to hear her perform a bit.
*International Monetary Fund ranking
The Health of Nations
Stephen J. DUBNER: When economists talk about the standard of living in different countries around the world, they often use a single yardstick: GDP. And since economists use it -- they’ve been using it for decades -- we use it too. Even if a lot of us don’t quite know what it means. GDP. Do you know what it means?
Yeah, that’s right -- GDP is the total market value of all the goods and services produced within a country over a year. That certainly sounds like a reasonable way to measure a country’s wealth -- and, by extension, its standard of living, right? But let me ask you another question: what does GDP not include? And once you know what it doesn’t include, are you sure you still want to use it to measure something as important as living standards?
Those are the kind of questions Martha Nussbaum likes to ask. She is, importantly, not an economist. But for quite a few years, she has been collaborating with an economist, the Nobel laureate Amartya Sen, to find a better, smarter, fairer way to measure living standards around the world.
Martha NUSSBAUM: Okay, I’m Martha Nussbaum, and I’m a professor of law and philosophy at the University of Chicago. And so I teach courses on social justice and sometimes law. But I recently wrote a book about development economics and a kind of philosophical criticism of standard models of development economics. And it’s called “Creating Capabilities: The Human Development Approach.”
DUBNER: If you had to give yourself a one-word title, description of what you are, what you do, what is the—is it philosopher? What is the one word?
NUSSBAUM: I would say philosopher, yeah.
DUBNER: Perfect. Even people who don’t know what GDP stands for know that it’s the measure that we use to sort of take a country’s temperature, to see how well that country is doing. So Martha Nussbaum, what about you? What do you use to take that measure?
NUSSBAUM: Well, I think GDP is a very obtuse measure. And what I want to look at is what are people really able to do and to be?
DUBNER: Excellent. Now where do you think—if you had to choose—is the best place in the world to live?
NUSSBAUM: Hmmm, well, you know, I think in terms of equal distribution of all the good things in life, I personally have thought Finland is a pretty good place.
DUBNER: How good are we at measuring happiness?
NUSSBAUM: Well you know, I don’t think we even ask hard enough what happiness is. Now what I think happiness is is not just a single feeling of pleasure or satisfaction, but when a person is happy, that means they are living a flourishing and productive life. So I think of it like Aristotle as a way of being active, a way of having a full, rich, and good life. And that is hard to measure, because you have to measure many different things, you can’t just measure one thing. And so we are developing ways of measuring the crucial ingredients of happiness, but we have to be aware of how complicated that is.
DUBNER: So you’re basically saying, Wait a minute, wait a minute, for decades we’ve gotten it wrong. We’ve relied primarily on economists who use primarily this one big measurement tool of GDP, and it just doesn’t really—and that produces all kinds of negative consequences including a worship of this metric that just isn’t really, very valuable for a lot of people and it doesn’t reflect people’s true happiness. And you’re saying we need to do something very, very different, and you prescribe what’s called the capability approach. So in a nutshell, what is it? What is the capability approach?
NUSSBAUM: Well, the capabilities approach holds that they key question to ask when comparing societies and assessing them for their basic decency or justice is, “What is each person able to do and or to be?” So in other words, this approach takes each person as an end, as a goal of the development process. Asking not just about totals or averages, but about the opportunities available to each person. And it is focused on choice or freedom, so the goal is capability or opportunity, not actually having the government dragoon you into behaving in a certain way. So the idea is that a good society should be promoting a set of opportunities or substantial freedoms which people then may or may not exercise in accordance with their choice.
DUBNER: In the, what I think of as the mission statement, you write that the key question is what is each person able to do and to be? And within that aim, you focus on a number of important pieces of framing to be done. So a focus on freedom and choice, pluralist values, attacking social injustice and inequality, and that the government must enact all of the above. Now a lot of this doesn’t sound too different really from what Milton Friedman has written. Which would not be the first person who came to mind when I started to read your book. I’m curious to know what you think of Friedman and how what you have written fits into the—what most people have come to think of as the Chicago school of economic freedom to choose.
NUSSBAUM: Well of course I have all these debates with these Chicago school economists all the time. And my colleague Richard Epstein likes to say that we agree about ends totally, and we disagree about means. Now I think that might be a little too simple, but I think he’s got a lot right. That is to say Richard just thinks the government doesn’t do a very good job at achieving the things that he and I both want, and therefore we should rely on the market to produce a lot of these things. But I think there’s more disagreement than he thinks there is because of the role of law. I mean, I really do think that constitutional law and that other aspects of law play a big role in making these opportunities real for people. And that we wouldn’t have the religious freedom that we have in the US today if there wasn’t a First Amendment and it wasn’t enforced through the courts. And a Freedom of Speech and so on. And then I think we wouldn’t have meaningful equality and an end to discrimination without law taking a very active hand. Now Richard has of course written a whole book saying that he thinks that the market would solve problems of discrimination. I think that’s not realistic. I think people are motivated by hatred and disgust with other people, and there are a lot of bad motives. My other main area that I work in as a philosopher is the emotions, and I think that the Chicago school’s big failing is not having a rich enough and deep enough account of human nature and the human emotions. They leave out certain very bad motives that interfere with the competitive market process, and then they also don’t give people enough credit for altruism and compassion and so on. And so I think that’s my main beef with the Chicago school.
Okay, well the Human Development Index, which is always on page one of the human development reports of the United Nations development program, is a weighted average that factors in GDP, health, and education. There’s a mathematical formula that’s very complicated, that’s been much disputed and so on. And nations are then ranked. Approximately 180 nations are ranked in accordance with their achievement on this metric. But then what happens next in the reports, which are often very long, is that then there are other measures that are introduced. Then we see what happens when you adjust it for gender. We see what happens with you focus particularly on the situation of the poorest. And then finally we break it down. We don’t just stop with a single number. We say, “Well, let’s then look at the health data themselves. Where are the problems? There’s an infant mortality problem, a maternal mortality problem. And so if you want to figure out why the US ranks so relatively low in the index on page one, where it really comes, I mean, different years, different places, but always much lower than one might predict in the list of the developed countries, well the way it falls down is in areas like infant mortality. An astonishingly high rate of infant mortality in the US, which of course there are various explanations which you can find for that, such as a lack of available prenatal care to people living in inner cities and so on. So there are many things that we would ask after we see the single number. So I think that the single number is just the starting point. It’s fun. It gets people’s attention. But where the action is is later on, when we really start to break it down into different specific things.
DUBNER: Right, and as you mentioned, the single number is what gets people’s attention and gets them talking and paying attention to the issue. And you also mention that the US does relatively poorly all things considered. Number one nation in GDP, but last year was only number 12 on the human development index. But then this year, in the new numbers, it looks like the US has shot up to number four? Did we get so much happier, so fast? How did we—how did our single number jump up 8 places?
NUSSBAUM: I don’t know what happened there. I think that the course of the economic crisis has thrown off these things in a way that’s unstable and we may see something that’s completely different the next year. If you go behind it, I’m sure we haven’t jumped up to a new level on infant mortality and on all the other things that drag us down. And so I think it may be a result of a lot of nations cutting back on health and education because of their economic problems, or whatever. But we would have to deconstruct it before we would be sure that we had the answer to that.
DUBNER: When I look at the top ten countries in the new HDI, I see Norway, Australia, New Zealand, US, Ireland, Lichtenstein, Netherlands, Canada, Sweden, and Germany. So plainly, not uncorrelated with GDP. Shouldn’t we expect a little bit more divergence, however?
NUSSBAUM: Well, it couldn’t be uncorrelated, because GDP is part of the number. It’s a big part of the number if you look at the formula. So it’s set up to be correlated with GDP, because the belief that I share with the other people who work in this and among them is that it’s a good thing to increase GDP. It’s a very good thing. Because if there’s more money around, then there’s more for politics to do for people. So of course you should do that among other things. It’s just that it doesn’t—the correlation doesn’t hold up all down the line, because then if you look at education, you look at health, there’s really not a very good correlation between increases in GDP and improvements in those areas. One of the things that [Amartya] Sen did was to do field studies of the different Indian states. And that’s really fascinating because it’s like a laboratory. Because the Indian constitution leaves health and education to be state-managed subjects, and there’s tremendous divergence. So some states have gone for a GDP policy. And so Andhra Pradesh, Gujarat have said, “Well, we’re going to improve people’s lives, just by improving GDP.” And you can look and ask, “Did the lives improve?” And the answer is, “Well, some lives, but not others.” And certainly rural poverty has not been touched and literacy rates have not risen, and so on. Then you look at other states, like Kerala, particularly, which for a long time has had the idea that we really must focus on literacy, and what we want is that every single person should be literate, and we want an adequate public system of healthcare, which is something that basically no other Indian state has. Well, the health achievements of Kerala as a state, and it’s a very poor state in India, are the same as those of Harlem in New York. Now that’s really shocking when you think of it. That a very poor Indian state should be at the level of a part of the US, which is so much higher, just incomparably higher, in GDP. Well, how did they do that? They did it by distribution. By making sure that healthcare facilities and healthcare were available to everyone. On education? Kerala has got 99% male and female literacy, in a nation in which 50% of women, on average, can’t read or write. And only 65% of men can read or write. So Kerala has done something extraordinary in the Indian context. How did they do that? Well that story has actually been told. They did it by having flexible school hours so that working children could go to school. They did it by serving a nutritious mid-day meal in the school, so that parents wanted to send their children in the school rather than having them work, because it was better for the family income. And actually the Supreme Court of India by now has ordered all schools in the whole nation to serve that mid-day meal, with 300 calories and 18 grams of protein. So that’s judicial activism for you. But so that’s the kind of thing that makes us think that these are important differences, that GDP does not deliver these other good things. In fact, Kerala did very little for GDP. In fact, they should be criticized for that. They’ve allowed labor to drive up wages so high that they labor market has fled to other states. So that’s something that they should be criticized for. But on the other hand, it’s clear that the states that have done better with GDP have not done better on the things that Kerala does well.
DUBNER: Let’s discuss happiness for a moment. So a lot of economists in the last 10 or 15 years have really tried harder to study not just people’s financial well-being and so on, but try to get at their emotional well-being in some quantifiable way. What’s your view of the relationship between wealth and happiness?
NUSSBAUM: It’s all a question of what you think happiness is. And this is a question that philosophers have asked for centuries. And the minute that Jeremy Bentham said that we should look at happiness in terms of pleasure and satisfaction, John Stuart Mill immediately said, “Now wait a minute, it’s better to be Socrates dissatisfied than a pig satisfied.” And so he then insisted that we had to think about happiness as containing many different kids of experiences, many different kinds of activity. And well, Mill wasn’t the first to say that. He was really getting all of that from Aristotle. So I’m with Mill, and I think that the Bethamite approach, where we just think of happiness as a single feeling, has got very little going for it. If you just think about a daily experience, the pleasure I get from writing is very different from the pleasure that I get from going out and buying a very nice dress. They’re just very different things. And the pleasure that somebody might get from bringing up a child is different again. So I think that’s not a good idea. And I think we should have a much more Millian rather than Benthamite conception of happiness. And if we have that, well, then the question comes, what’s the relation of wealth to that? Well, it’s certainly a necessary condition for many parts of it. Parents want to be able to give their children the good things in life. They want to be able to give them healthcare when they’re sick. They want to be able to take care of their aged parents. So up to a certain threshold level of adequacy, I think wealth is enormously important. Now then the question is, is it important above that? Are luxury goods important? Now, it’s clear that people are envious. That they do feel dissatisfaction when someone else has a better car than they do, or a better house. But that’s different from feeling an urgent need for things of basic human importance. And so what I try to say is we should ask, “What is a life that’s worthy of human dignity?”
DUBNER: Very good. So I realize that I’ve taken up all your time, but just in the last couple minutes, if I may, I understand that you sing, yes?
NUSSBAUM: Yes, yes, I do.
DUBNER: You sing every night, or everyday?
NUSSBAUM: I try to sing everyday. Yeah, I try to sing at least 45 minutes, an hour everyday.
DUBNER: I see, and what about when you’re just at home, when you’re alone, puttering around at home. Are you singing?
NUSSBAUM: Oh sure, no that’s where I do my practicing. And I, yeah, I’m always working on a couple of things. Classical music. And I work on either Handel and Mozart are great favorites, and now I’m working on some things from Massenet’s Werther. And I’m enjoying that enormously. It’s just a very different kind of thing. So, yes. I’m an old actress. I was a professional actress before I went into the academy. And so I like things that I can interpret musically as an actress.
DUBNER: I see. So since you’re a former actress, and since you have a microphone in front of you, I’m sure you won’t mind. Will you sing for us, just a little something?
NUSSBAUM: Oh, well, uh, gosh. [Singing.]
DUBNER: That was lovely.
NUSSBAUM: I haven’t warmed up of course, so you’re just asking me cold. And I would usually warm up for a half hour before I would do that but—
DUBNER: That was absolutely lovely. Martha Nussbaum, thank you so much. It was a pleasure to speak with you.
NUSSBAUM: Thanks very much, Steve.