Freakonomics Radio: The Health of Nations

Martha Nussbaum, author of author of "Creating Capabilities: The Human Development Approach." (Photo: Robin Holland)

Freakonomics Radio

The Health of Nations: For decades, GDP has been the yardstick for measuring living standards around the world. Martha Nussbaum would rather use something that actually works.

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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:

The GDP of China, Egypt, Iran, Liberia, Pakistan, the U.K., and the U.S. (Image: World Bank Data, compiled through Google Labs)

The HDI of China, Egypt, Iran, Liberia, Pakistan, the U.K., and the U.S. (Image: UNDP)

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


Kim Jong Seok

This is non-sense! You have to compare per capita GDP with HDI, not GDP.

Boris

I'm sorry, but this seems like a strawman argument (and useless comparison table), when you could well have presented a real argument and a useful comparison. Of course raw GDP tells you nothing about how people in a country live! You'd have to look at per-capita GDP to have any hope of seeing that.

Now I agree that a lot of the problems you talk about with "GDP" apply to per-capita GDP, which is why I don't understand why you're presenting overall GDP numbers...

John

What about numbers of abortions in regards to infant mortality? It seems to me that people are much more likely to keep high risk pregnancies. What was that quote about lies and statistics?

linch

Please explain your response...

164

Agreed GDP is an imperfect measure of welbeing, but the HDI factors are not much better. As described, the US would get a near perfect HDI score if the Democratic Party ran the country. How about puting a positive value on being able to live without relying on the government to do things for us?

Ray

@Boris: I´m pretty sure Nussbaum and Sen used GDP per cápita on their research, and still, they reach the same conclusions.

@164: Nussbaum and Sen´s argument goes well beyond the HDI. They know the HDI is not a perfect meassure, not only on technical grounds, but on philosophical ones (there are entire papers written on this matter). And listen more carefully to the podcast: the argument of markets being the end of all problems does not hold in Nussbaum´s opinion. There are issues the markets just cannot solve, and I couldn´t agree more.

Eric M. Jones

I keep pushing my graph of US Wealth Distribution: Wait till you see the graph for 2010. Keep your torches and pitchforks ready. What is happening in Egypt (etc.) CAN happen here.

http://www.periheliondesign.com/downloads/Wealth%20Distribution%202007%20update.pdf

To show what the problem is. And I suspect that unfettered capitalism will always lead to one individual family having all the marbles. The only limiting factor seems to be mortality.

It is intriguing to hear the "Star Trek" quote about--

"The economics of the future is somewhat different. You see, money doesn't exist in the 24th century. The acquisition of wealth is no longer the driving force in our lives. We work to better ourselves and the rest of humanity."--Captain Jean-Luc Picard Star Trek: First Contact

Now, this is obviously a fantasy, as is the Republican's idea about how the economy works...still keep your phasers ready.

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MJones

When I saw this headline, i thought for sure that Bhutan's 'Gross National Happiness' index would be mentioned. I agree with the shortcomings of GNP/GDP per capita. By this measure, Equatorial Guinea should resemble Italy--but in reality it is a kleptocracy with the vast majority of the population in abject poverty, while President Obiang and his son Teodorin are billionaires with chateaux in France, sports cars in South Africa and mansions in Malibu. I heard someone once compare measuring well-being or progress by GDP/GNP to measuring the functionality of a company or government agency by how many calories its employees burned from one year to the next. I think there is a truth in that metaphor.

MB

She spends a lot of time telling us we are dragged down by an abysmal infant mortality rate. I assume she's aware that countries do not report infant mortality in the same way as the US does. European countries, for example, don't count many premie babies that subsequently die as the US does.

Of course according to wiki, the HDI doesn't actually use infant mortality, but rather another metric only partially related to health(care), life expectancy. Still, when looking at LE values, all countries again do not report the same way, which is why infant mortality hurts our stats. We include VERY premature babies in our stats as people (many of whom die at "0" age and really throw the average off) that are simply ignored in the stats for other countries. In terms of what the HDI actually wants to look at, LE is at least a reasonable number, but to be fair we need to know that data for all countries is reported identically.

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Joe Merritt

Martha Nussbaum conveniently failed to discuss that the infant mortality numbers are heavily skewed against the United States. No doubt she is aware that the United States has the strictest measure starting from birth where many of the industrial countries and third world countries begin their measurement. For example in Switzerland "an infant must be at least 30 centimeters long at birth to be counted as living" while other countries don't begin counting until the baby reaches a specific age in weeks. This excludes many of the most vulnerable infants from infant mortality measure. I would encourage Martha to practice full disclosure.
Measuring happiness sounds wonder, kind of warm and fuzzy until you listen about what she is really interested in discussing. "Altruism" rears its ugly head. She wants me to sacrifice for someone else. She wants to put me into slavery. Now the ugly news is out altruism=slavery. She doesn't seem to care about the Constitutional right to private property. It's all about redistributing the wealth. I would encourage Martha to not legally plunder from those that have wealth (under the cover of social justice) but rather work on ideas that help the poor build wealth themselves. Earned wealth does more for self respect and confidence than handouts and welfare programs could ever hope to accomplish.

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Ruth

@ Joe --

Why is altruism so bad? It has brought us products like fire insurance, where people share the risk of the cost of a fire so one individual or family won't be completely impoverished by a house fire.

Redistributing the wealth happens all the time in functional countries. Road construction and neglect of railway roadbeds is an example of redistribution of wealth. But many people would say they are willing to pay taxes to have decent roads. Others are not willing to "subsidize" the railroad business but are happy to subsidize the trucking business.

For years, people understood pooling resources as a way of benefiting all by pooling assets -- and they used taxes to accomplish this. When roads were first built through my state, there were work levies that required men to put in a certain amount of time working on or improving roads. Would you call that slavery? You benefit from many services of government, and if you don't want to pay taxes or benefit from the taxes other people pay, perhaps you should shop around for a different country to live in.

George Washington risked a significant fortune and his private property to help found the United States. His altruism paid off and you benefit.

Meanwhile, if you don't like measuring happiness, then why not come up with a different measure of economic health, such as one that combines GDP, ease of entrepreneurship, cost of bribes and lobbying, per capita GDP, income equality/inequality measures, wage stagnation, unemployment/undermployment, voting participation and rule of law, life expectancy and educational attainment? Those measures are less controversial than the infant mortality measure you object to but might still give a ranking that shows the relative well-being and opportunities for advancement and good health that others advocate.

Also, please remember that if government provided single-payer health insurance, U.S. corporations would be competing on a more equal level with companies in Germany, for example. A lot of the financial burden for U.S. auto companies, for instance, came from health insurance. If the government had taken that burden away in the 1960s or 1970s, would Detroit have been able to keep auto prices more competitive?

Some things that make U.S. society good are because people altruistically share costs (the "thousand points of light"). Other good things come about because people share costs by paying taxes to have services that benefit all (public schools, police, prisons, roads, bridges and a standing military).

Slavery is when an owner strips the slave of all personal property and has no obligation to even feed or clothe the slave. In the U.S., I don't think there are any taxpayers who have 100 percent tax rates, and taxes as a percent of GDP have been shown to be lower than they were when Eisenhower was president.

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Paul

@Ruth

I suspect Joe is using a non-standard definition of "altruism", as in "state-forced altruism", which is (of course) no altruism at all. *True* altruism has been seen decreasing as government has attempted to be more "generous."

Shared risk (e.g., fire insurance) and shared expenses (e.g., roads) are not examples of wealth redistribution, and are not objected to by most. What *is* offensive is the steeply progressive income tax that effectively takes money from one group and hands it over to another (through various "social programs").

As for "single payer healthcare", how would massively increasing taxes and massively decreasing quality of healthcare make U.S. companies more competitive? U.S. auto companies are struggling in large part because of over-zealous unions.

chris

Excellent point, I have master degree but no jobs, as such I had worked as call center rep and census worker.
It is essential we develop tools to measure average Americans live, incorporated foreclosure data, personal bankruptcy data, personal debt data etc.

Vikas

Its interesting that Mrs. Nussbaum talks about India and its dependence on GDP as an measure for constructing policies. I am from Andhra Pradesh and though it is a prosperous state and an example for economic activity, there is a lot of inequality within the state. The dependence on such a short sighted indicator has only been profitable to the elitists, industrialists, & politicians and the Govt. of AP should use a better indicator such as HDI to take the state forward.

Max

The inequality of a distribution is measured by the Gini coefficient.
http://en.wikipedia.org/wiki/Gini_coefficient

Check out the map on that Wikipedia page. Developed European countries have the lowest Gini coefficient, meaning the least inequality, or the most equality. Southern Africa has the highest Gini index, but West Africa is pretty low. The U.S. has a relatively high Gini index, similar to Mexico and China.
I'd rather have inequality where nobody is starving but the rich are very rich, than equality where everyone is starving equally.

You could also simply examine the median income, which is more robust to outliers than GDP per capita.

greg

I was sad when she started to sing. Up to that point I thought I'd stumbled across the only completely useless person on earth.

GDP is a nice measure of what is available for the kleptocrats to apportion for themselves. The higher the GDP, the more the politicians, priests and lawyers can redirect away from those who produce to those who don't.

But as to a measure of the standard of living (consumption based) the level of production is loosely tied.

I think simply rereading the story of the any and the grasshopper would disabuse most people of the idea that output is linked to quality of life.

OddM

As we say in norwegian: This is like studying your own bellybutton. In Norway the media and politicians agree that the UN have declared us "best-country-in-the-world". This is, of course, nonsense. The HDI or HPI is not a tool constructed to calibrate for differences in the use of kindergarden in Norway or USA, although the issue of how data is created in the different countries is a big source of errors. The biggest source is in fact the missing or outdated data on a lot of the variables, especially in developing countries. The point is not for the rich OECD countries to comparing the lengths of their "you-know-what". The HDI, HPI and PPP-adjusted GDP are tools meant for the poor countries, not the rich. When we are compearing fractions, they are comparing large numbers. What is 5.7 infant mortality rate in the western europe to 180.21 in Angola or 151.95 in Afghanistan? The point is not to adress internal political issues, but to work out what the developing countries could do to catch up.

For those who are intrested in these issues, and find stats presented as sportsresults amusing, I recommend the presentations by Hans Rosling on Youtube/TED, and to download the Gapminder from gapminder.com.

Hans Rosling on TEDIndia:http://www.youtube.com/watch?v=fiK5-oAaeUs&feature=relmfu

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Adrian

Worst. Episode. Ever. I expect this borderline socialist crap from (anti) Marketplace... and I get that Freakonomics is nowhere near Hayekian but give me a break. I think I'll go back to Econtalk where serious economic ideas are discussed. This is economics for lefties that will latch onto any shoddy sociology that validates their (failing) ideology. I should have turned it off when I heard "Chicago", "law", and "not an economist" all in the same sentence. In other words the folks who DON'T believe in the basic fundamentals and conclusions of economics are going to tell me what they think about an economic measure. Great. C'mon I'm all ears.

I had a bad feeling when you guys where merged into NPR, now I have proof. I may have to unsubscribe at this point. I'm not looking for balance, I just don't want Public Radio's far lefty political agenda shoved down my throat like every other NPR program I can think of.

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Paul

I agree, Adrian. I don't mind alternate perspectives, as long as they are reasonable and factually-based. When Steve didn't even challenge her use of the apples-to-oranges "infant mortality" statistic, I knew it was more of a puff-piece than the "lets look at the facts and come to the most logical conclusion" Freakonomics podcasts I had grown to love.

Rick

You combined Ren & Stimpy with Opera in a podcast about Economic measurements. You guys *RULE*!

OSCAR A DIAZ

well first of all the laddy is NOT an econimic so how would she expect to know about the economy. but thruthfully we don't care about HDI, and we are trying to measure economy so we go with GDP

sempleyarov

This episode was biased in a very subtle way. Not the way some people rant here stating she's a communist, just asking her to sing. It seems to be kind and respectful at first, but if you think again, it is diminutive. Incompetent as economist, but she is a philosopher and she sings too. It's like asking female politicians about style.

tyler

Nussbaum has a very interesting world view. I agree with her; GDP is an imperfect measure of how well off a country is. And that trying to maximize GDP at the expense of alternative forms of development (civil rights, life expectancy, clean air) is an error.

In essence, economists like Levit say that GDP is good because it allows individuals to maximize their own net-benefits. Nussbaum says that GDP is good because it allows the government to re-distribute a larger amount goods and services to those who need it most (more effectively than if the invisible hand had done so).

It is however, a matter of opinion: there will never be a definitive answer.