Joseph Stiglitz Broadens the Horizon

Stiglitz broadens the horizon, Online Opinion, 8 July 2014

Economics can be a pretty dry pastime. Economists are in the business of looking at numbers and making sense from them. But numbers can't tell a story or inspire people; they will only ever be part of the picture. A grander narrative is required.

Last week our Prime Minister Tony Abbott delivered a speech at the 2014 Economic and Social Outlook Conference. The speech was essentially a defence of the Budget, and was laden with numbers. All the economic buzzwords were present: surplus, tax reform, trade, competition, productivity. The problem is that it didn't tell a story. This speech might fit the description of an economic outlook, but falls short on the social side. Given the forum Abbott's speech was always going to be economically focused, but he missed an opportunity to place the numbers in a broader, more meaningful context. It is an indication of how narrow our political discourse has become that a Prime Ministerial outlook revolves only around economic buzzwords.

One of the world's most famous economists, Joseph Stiglitz, is in Australia at the moment, and while he has spent a lot of time, unsurprisingly, talking about economics, he is also arguing the case for the broader picture. For a long time, measuring the success of country has been a matter of looking at numbers. Often the calculation of dividing GDP by the population is held up as the definitive picture. It's a neat number, easily compared among countries and across time. But it is a crude measurement, giving a one-dimensional picture of one aspect of a nation's economy. It doesn't come close to illustrating the real state of a nation.

Instead, Stiglitz argues that we need new, better, more sophisticated metrics to measure our economies, metrics that consider the real cost and value of things. Currently we don't measure the full social cost of a government policy. We don't measure things like resource depletion, pollution, the effects of job insecurity, but just because we don't measure them, doesn't mean they're not there.

We have developed a system where only something that has a dollar value gets measured. Even when we try to look beyond this, we still do it through this prism, so we try to put a dollar value on housework or caring, or raising children. We try to shoehorn everything into one economic number, putting a dollar value against everything in our society. This not only fails to provide an accurate picture of our social and economic health, but it is dehumanizing and makes a mockery of things we really value.

The push to move away from costing everything in this narrow approach comes in the wake of what Stiglitz has described as a major shift in economic thinking. We used to think that we had to trade equality for growth. But as we develop a better understanding of how our economies work, and implement better tools for measuring its health, it becomes clear that, not only is this not true, but that it is in fact the reverse. Pushing an inequality agenda can actually hinder growth. Work done by Richard Wilkinson and many others has shown that more equal societies do better. Education, rates of imprisonment, obesity, violence, drug abuse and other health and social problems are all worse in more unequal countries. All these problems have massive flow on costs for society as a whole. The benefits of being able to measure across a broad range of factors becomes obvious.

The neo-liberal approach has always been to cost things too narrowly. This has been on display at the Commission of Audit and in the Budget. Government programs are seen in terms of their dollar value only, or in the dollars they save by cutting it. But this doesn't take into consideration long-term flow on effects of government decisions. If a $7 co-payment discourages a person from seeing a doctor and they develop a chronic disease, or deregulated university fees deter a bright young mind from considering university, there are long-term costs not just to the economy, but in people's life choices.

It used to be that only those interested in social policy cared about social costs, and environmental impact statements were for greenies. But developing broader metrics and indexes to get a full picture of an economy is becoming mainstream. Even the IMF, which Stiglitz points out is not exactly a hotbed of socialists, is starting to use these broader measures to get a better picture of real prosperity and economic sustainability.

If we want to build a fair, inclusive society, then we need to value things beyond their dollar value. We need to be measuring government policies using multiple metrics and indexes to have a full understanding of their social impact. This will not only ensure our continued prosperity, but will enrich our democracy. Our political leaders are more than just bookkeepers for our tax dollars and our public discourse should be about more than economics. We want a real narrative that can inspire us.