What is prosperity??

Money is decisive, just like GDP, it only depends on how it is calculated

"Prosperity for all" Ludwig Erhard demanded in 1957 and the roughly announced Agenda 2010 is intended to do nothing less than ensure the prosperity of us all. But how is prosperity actually defined? Can prosperity be measured or compared, and if so, by which method?? And how it feels?

The prosperity gap between the GDR and the Federal Republic was precisely 1.2 centimeters. For decades, differences in the supply of food, the quality of medical services and other economic and social influences had ensured that the average West German outweighed the average East German by the length of a sugar cube. At least this is what the physician Michael Hermanussen found out in 1992 when measuring several thousand 19-year-old conscripts. In the meantime, this gap has shrunk to 0.4 centimeters and has obviously decided to slowly but surely say goodbye to it altogether.

However, the comparison of the average body size is only of limited use as a measure of the respective prosperity of a people, which is why the economic growth forecasts of the six wise men are still not given in millimeters.

Everything in the bag

In economics, gross domestic product – or GDP for short – is traditionally used as a measure of prosperity. According to the textbook, GDP measures "the total of all goods and services, valued at market prices, produced by an economy on an annual basis". The Federal Statistical Office expresses itself in a much more complicated way, but in essence it means the same thing and publishes the corresponding figures every quarter. GDP is thus a rough bag into which every newly built expressway to the newly developed industrial park in Oer-Erkenschwick, every visit to a movie theater in a multiplex, every Olympic bid by Stuttgart or Dusseldorf, every commercial for sanitary napkins, every package of fried potatoes from the Tute, every ton of lignite from Garzweiler II and every vegetable slicer purchased from the Fubganger zone of Darmstadt are stuffed.

After a fixed period of time, this bag is finally tied and weighed, and then its weight is expressed in money. It is as simple as this. If you divide the weight of the bag by the number of noses in a nation, you get the ‘gross domestic product per capita’, which is used to compare the economic productivity of different countries.

As is well known, many crude inventions are based on relatively simple ideas. Does this mean, however, that a simple idea inevitably becomes a crude invention??

Perverse economic successes

Measuring wealth by the bag principle carries some dangers and can lead to serious misinterpretations and misinterpretations. GDP does not evaluate, does not judge and does not distinguish. It only pays together what flows through official monetary flows. Whether an economic activity will increase prosperity in the long term, such as an innovation in the field of energy saving, or will make life considerably more difficult for future generations, such as excessive exploitation of nature or waste of raw materials, is completely irrelevant here.

The capture of GDP does not know the future or the past, it is a snapshot of the momentary economic productivity. A government that plunders its country’s resources, pollutes the air it breathes and the water it drinks, and makes its inhabitants sick, can, under certain circumstances, boast a considerable domestic product on paper. It is questionable whether the burgers of this country would still perceive this as prosperity.

And it gets even more colorful: According to this calculation method, the elimination of environmental damage, the treatment of occupational diseases, the disposal of hazardous waste, the removal of contaminated sites and the hospitalization of traffic accident victims also end up on a company’s credit side. Everything in the bag, everything weighed. According to a Postbank report, the 2002 flood disaster in southern and eastern Germany and the management of its damage increased the nation’s popular gross income by 0.3 percent. It is perhaps better not to ask the people concerned what they think of this increase in prosperity.

Clifford Cobb and Ted Halstead in one of their works once gave the example of a cancer patient in the last stage, who just divorces and on top of that changes his residence. The sum of economic activities, which he is doing, makes the poor guy quickly become an ‘economic hero’, although he was hardly allowed to enjoy it.

Future viability as a yardstick

But what falls into the bag too much of the one kind and is happily weighed, that falls from the other kind unnoticed beside it and does not appear in the calculations at all: honorary work, family and community work, self-sufficiency barter and moonlighting. In many countries, however, these are often crucial economic contributions that deserved to be weighed in.

Already in the seventies, some clever people started to eliminate the weak points in this system. William D. Neuhaus and James Tobin (yes, the one with the speculation tax) developed with the ‘Measure of Economic Welfare’ (MEW) a kind of net social product, which approached the bag criteria in a much more differentiated way.

State and budgetary expenditures, for example, which had only a preliminary or corrective character, were excluded. Repairs to the system could therefore no longer be disguised as productivity without any problems. In addition, they deducted an item that included all the disadvantages of urbanization and sprawl, such as environmental degradation, air pollution, and accidents. And for the first time, they finally included parts of services that are not monetized, such as household production or the value of leisure time. The sum of these calculations thus gives the Mab of the long-term possible prosperity.

On this basis, both the current level of prosperity and the future viability of a society can be determined. Not much remained of the snapshot character of GDP. And already there were significant discrepancies between the official GDP and the MEW.

Market economies degenerate into their own repair shop

In 1989, Herman E. Daly and John B. Cobb Junior refined this calculation system to the ‘Index of Sustainable Economic Welfare’ (ISEW). The ISEW takes into account costs for the loss of arable land, ozone depletion, car and industrial accidents, unemployment, values unpaid housework and child rearing and already carries in its name the target of these calculations: Sustainability.

Ed Mayo, the director of the New Economics Foundation in London, published in 1997 a couple of interesting graphs, which contrasted the domestic product of highly developed countries with the corresponding ISEW chart. The result has been astounding: while GDP and ISEW both rose steadily from the 1950s to the 1970s, by the mid-1970s they had completely decoupled and ISEW was falling steadily, even as GDP continued to rise. In the U.S., for example, while gross domestic product nearly doubled between 1950 and 1990, the ISEW fell from 5.800 to 4.500 dollars per head. In other industrialized nations the picture is similar.

The conclusion from these figures is as simple as it is fatal: for some time now, the advanced market economies have been degenerating into their own repair shop. Increasing expenditures to repair self-inflicted damage and to secure the basic functionality of the economic system may look nice on paper, but in fact they reduce social prosperity and the general quality of life.

Prosperity and quality of life

Quality of life. After 1.021 words or 7.721 strokes (including spaces and without editorial interventions such as intertitles) it is finally there: the magic word. Quality of life is what we mean when we say prosperity.

Perhaps it really is simply a confusion of terms? The English term ‘welfare’, which was also used by Tobin and Nordhaus for a good reason, means that we.a. also welfare or common good. The German word ‘Wohlstand’, on the other hand, dates back to a time when a person’s ‘status’ played a significant role. At that time, quality of life was only available to people of high status (‘respectable people’) and was by definition identical with wealth.

This is exactly the casus knacktus: both linguistically and intellectually, a definition from the previous century is mercilessly adhered to, although the world has changed massively in the meantime and it should be clear to anyone with a bit of common sense that something can’t be right here and that we can’t get any further with this anachronism.

Ludwig Erhard may be forgiven for this equation, since his quote comes from a time when the individual economic needs of the population were anything but secure and the primary task of his economic policy was to create the basis for this.

And today? Sure our standard of living is important to us, but what is it worth to us??

The perceived prosperity

What is the use of a nice home, if around it a four-lane highway is built after the other, or artificial river straightening the little stream in front of the garden fence every winter swell so much that the Christmas tree is under water? What is the use of a permanent job that provides me with financial security but makes me ill in the medium term?? Is it worth it for me to take a new job that will pay more but also cut my free time in half?? Has the settlement of the industrial enterprise been profitable for the place where I live?? The company has brought a lot of jobs with it, but the quality of the water has since declined noticeably and the municipality has been forced to build a new clearing plant. Has prosperity increased?

Quality of life is the true prosperity, loosely based on Kachelmann: the perceived prosperity. And if we want to fill the quality-of-life bag, we need a lot more ingredients: opportunities for education and training, cultural offerings, free media, free time, good friends, a happy partnership, health, a satisfying job, the choice to raise children or not, good food, cool beer, nice weather, exciting soccer games…..

Wait a minute, haven’t we gone a tiny bit too far away from economics and ended up with ‘make a wish’??

Back to money

Not quite. If we don’t want to equate prosperity with bank balance, we can’t avoid factors that influence well-being and general satisfaction. Progressive economists discovered this several years ago and now set out to evaluate intangible influences and life circumstances. But how can we formulate the impact of increasing air traffic alarms or the high inflation rate on our well-being?? Quite simply, answer economists like the Briton Andrew Oswald: in money. More precisely: in the amount of money necessary to forget the negative impact that the flight alarm or the high inflation rate has on a life.

Oswald and his colleagues ame that almost every positive or negative circumstance in life can be expressed in hard cash. At first glance a daring hypothesis, but the closer you look at the idea, the more impressive it becomes. Here no cynics are at work, who want to make us clear around behind that evenly nevertheless everyone has its price, but okonomen and psychologists, who did not love themselves from the ‘money does not make happy’ of the popular mouth to deter, several thousand persons asked, which evaluated results and afterwards evenly their conclusions drew. As scientists are wont to do.

What is the cost of happiness?

Oswald and his colleague Andrew E. Clark published a paper in 2002 in which they gave concrete figures for the first time. The loss of the job strikes there for example with 22.500 euros. Monthly. This is in addition to the financial losses that unemployment entails in any case. Accordingly, the sudden absence of the sense of success and failure that regular employment brings, the loss of the circle of colleagues, the decrease in self-esteem and the downgrading in social standing could be compensated for with this relatively high sum. Statistically averaged.

Oswald and his colleagues, by the way, did not use any clumsy what-is-it-worth questions in their investigations to arrive at these results, but they determined over ten years how personal tragedies, joyful events, illness, death among friends and other plot points in life affected the subjective well-being of the interviewee. At the same time, they analyzed the influence of sudden wealth, steady salary growth or the loss of large sums of money on satisfaction. After that they only had to connect the corresponding formulas and rearrange them in such a way that on the right side of the equal sign there was an amount of money and: Voila, what does the world cost? This is the method that happiness researchers are currently using to define the monetary value of democratic participation, the burden of commuting, the impact of serious illness, and the loss of a spouse.

Some people may have a stomach ache or moral reservations about values such as friendship or marital happiness suddenly being treated like columns of figures on a bank statement, but the consistent application of this idea is baffling in its results: If I am offered a new job that will pay me more, but will also considerably restrict my free time, then I will, with Euro-signs in my eyes, under certain circumstances bite the bullet and accept this job. Quite simply because I have never defined the value of my free time in euros and cents, and therefore find it difficult to venture a conclusion. But if I look at an imaginary conversion table of the satisfaction economists and find out that the free time I will miss in the future is valued twice as high as the additional monthly income I can expect, I will probably think twice or three times about it.

Thus, surprisingly, the introduction of money as a measure of satisfaction tends to move us away from purely material wealth thinking by focusing our attention on the intangible aspects of quality of life as well. If the value of health, of an intact environment, of art and culture is shown to us in pennies and nickels, we are probably more reluctant to give them up in favor of quick money.

And so the circle closes: if we measure quality of life in the unit of measurement of material prosperity, in euros and cents, then we have finally made quality of life tangible, measurable, and ultimately redefined prosperity.

GDP will probably remain with us – and with politics – for some time to come

Now, happiness and satisfaction research is still a very young branch of economics and probably still has to pass through many a scientific discourse, but the prospect of one day having a prosperity index in front of us with the help of this research that not only measures productivity and profitability but also quality of life and satisfaction seems fascinating.

Until that day comes, there will probably be a lot of water flowing down the gutter. And until then? Sad as it may sound, until then, prosperity will continue to be expressed in terms of GDP. In the meantime, one or the other adjustment screw has been turned in the calculation, but the basic principle was not allowed to change for the time being. A 1996 EU regulation on the subject states: "Economic welfare has many dimensions, however, most of which should not primarily be expressed in monetary terms. For the purposes of welfare measurement, it is therefore preferable to use separate indicators and units of measurement for each of these dimensions. … They could be included in a satellite system.

In short: We are aware that the weight of the gross bag only represents the prosperity of a country in a distorted way, but instead of putting an end to this once and for all, we preferred to introduce many, many new charts and hit parades of our own.

Stupidly, decision-makers and burghers are thus still mainly presented with forecasts and analyses made on the basis of the all-weighing method.

So what is prosperity and, above all, how many? Maybe 1.2 centimeters after all?

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