16 October 2014

GDP versus mental well-being

I posted recently about how a the framing of healthcare issues as medical problems can lead to sub-optimal outcomes, drawing on the work of Dr Jocalyn Clark. I suspect it's symptomatic of a broader problem.

Western societies are built around the assumption that a healthy economy will either solve all our problems, or allow us to do so. In this sense, we are framing all our problems as economic. Now a successful economy does actually solve many of our problems, but there are parts of our economy that if successful, actually are in conflict with our goals as human beings.

Part of the problem is the definition of success that we use. Almost always we mean the accountants' definition of success: economic activity: Gross Domestic Product, which is equivalent to the volume of money times the velocity of circulation. GDP, or GDP, per capita has become the de facto goal of society. A higher GDP means a higher potential to achieve all our goals, we reason. Even if much of its gains are concentrated in relatively few pairs of hands, and even if certain generators of GDP create negative impacts, a higher GDP means we can compensate the losers - even if we don't actually do that.

There's a big flaw in this, similar to that which Dr Clark identified: we are framing all our social problems as economic ones. Very often this framing is not explicit: it's part of who we are and the society we live in.

In my work on Social Policy Bonds, I've attempted to make clear that economic growth is not actually an end in itself, but a means to various ends that it would be more efficient to target directly. If, for instance, we want to reduce crime, then we'd do better to reward people for reducing crime rather than simply increasing the funding of bodies that are supposed to be fighting crime. The Social Policy Bond framing allows for all sorts of experimentation with non-conventional ways of reducing crime. Under our current system there are few funds systematically given to help people run youth centres in areas of high youth unemployment. Under a bond regime, people would have incentives to fund such centres in places doing so would maximise the reduction in crime per dollar outlay.

So far, so (relatively) conventional. But suppose our problems have little to do with resources, or even with the allocation of scarce resources, but with economic activity itself? Take the recently highlighted (in the UK) studies showing that loneliness is a big and growing problem for both young and old. Loneliness and alienation are to some degree a product of our economic system, which is entirely dependent on specialization of labour. As well, consumption of goods and services is, along with government spending and investment, one of the drivers of GDP. We have a society with an over-arching, and not always explicit, imperative to buy things. We maximize GDP by buying things for ourselves, rather than sharing. Government can also contribute to social alienation by, for examples, subsidising environmental destruction, or encouraging without consulting the public mass unselective immigration with a view to keeping wages low and property values high (or to help it retain power or simply out of spite). Government looks at its own accounting flows, and knows well that increasing economic activity raises its tax revenues.

Our current system, then, is inherently geared to the monetisation of just about everything. A Social Policy Bond regime could actually subvert such a system. It could undermine the transactional way of conducting our affairs, and encourage other, less mercenary activities, where those would be the most efficient and effective ways of reaching our actual, explicit, goals. Doing so would not be its goal, but it could arise out of the goals we specify which would, one hopes, be more congruent with society's real goals than our current implicit goal of ever-increasing economic growth. There's an obvious paradox: a bond regime would pay people to achieve our goals, but if achieving our goals requires the cessation of payments and the ending of a transaction-based activity, then under a bond regime that is exactly what will occur. Bondholders have incentives to look for the most efficient ways of achieving our goals, regardless of whether they involve money flows or not. Under the current policymaking system, with its perverse incentives and its over-arching goal of maximising the number of transactions (so raising GDP), it is extremely unlikely to occur. The bias under the current system is always towards more transactions, more money flows and so more alienation and loneliness. And what is our society's default response to loneliness and depression? To increase economic activity still further: by manufacturing and marketing powerful drugs.

A well-specified Social Policy Bond regime would target for improvement reliable indicators of mental well-being. The effects of doing so, we cannot anticipate. But the possibilities are as immense as they are apparently paradoxical: the bonds, utterly dependent on financial flows as they are, could reverse the extreme specialisation of our society, the extreme individualistic nature of our consumption patterns, and the entirely transactional way in which we more and more see the world.

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