Enlightened Economics

Economics for an Enlightened Age

Posts Tagged ‘ISEW’

• ‘Voluntary Simplicity’ Brings Higher Consciousness into Economics

Posted by Ron Robins on February 3, 2009

A sweeping new consumer frugality is enveloping the developed world bringing higher consciousness into economic affairs. Some call it ‘voluntary simplicity.’ And it ties in well with my thesis that as a more balanced, higher consciousness arises in consumers, their consumptive and savings habits will change significantly and more sustainably. Thus, I believe the age of Enlightened Economics is ahead us.

Voluntary Simplicity defined

The term voluntary simplicity (VS) according to the Simple Living Network is first thought to have been used by “Richard Gregg who, in 1936, was describing a way of life marked by a new balance between inner and outer growth.” Some might argue that numerous people are being forced into VS-as the unemployed might be, for instance. There is some truth to that. Nonetheless, I believe that most of us are sensing a new reality dawning in the consumptive habits of almost everyone around us.

For example, more and more people in developed countries are realizing that their lives have become so dominated by material possessions that the caring, maintenance and use of some of these possessions take too much of their time, energy and money! (i.e. ‘McMansions,’ large homes for just two or three people are going out of style.) They are also realizing that many of these products are damaging to the environment. Thus, a degree of frugality is coming to be seen by countless numbers of people as the way forward. It is important to understand though, that this VS style of living is not to be compared with an agrarian ‘back to nature’ lifestyle, nor related to material impoverishment.

The Simple Living Network states that the values underlying VS are: material simplicity, human scale, self-determination, ecological awareness, and personal growth. These personal values are often attributed to individuals of higher consciousness, and mesh well with the understanding of Enlightened Economics, which believes that with rich inner development of our minds will come the ability to fulfill our individual and collective economic aspirations.

The exact numbers of individuals abiding by the VS lifestyle, either knowingly, or unknowingly, are not known. But it is apparent that its ranks are growing fast. Evidence of this is seen in the cutting back of material consumption, increased spending on education, and a deepening interest in the environment, personal growth and spirituality.

Modern economies lose their way as happiness fades

Economics should be about assisting us in fulfilling our dreams while allowing us to enjoy great happiness and fulfillment in life. However, as practised today economics is sorely lacking in achieving such goals. In fact, when looking at measures of happiness, authoritative research by Dr. Robert Lane of Yale University, shows happiness actually declines as GDP grows! Other studies such as the one by Prof. Arthur A. Stone, of Stoney Brook University School of Medicine, demonstrate that happiness is unrelated to income.

People in developed countries everywhere are beginning to understand the deep flaws of a modern life based principally on the acquisition of material possessions. Hence, our lifestyles are increasingly favouring the nourishment of our subjective values and inner development, over outer material goods.

The coming era of voluntary simplicity

VS lifestyles encourage more entrepreneurship, independence, self-employment, the purchase and manufacture of sustainable products and services, lower debt levels, reduced consumption, and higher savings rates plus a tendency to save and pay cash for purchases. (For related reading, see my editorial on the Investing for the Soul website, Everyone Becoming A Cultural Creative.)

With society favouring qualitative and subjective values related to lifestyle, there will be considerably less emphasis on the Gross Domestic Product (GDP) statistic. This statistic simply totals the market value of all final goods and services sold. New economic measures that include quality of life factors will become the norm. These other measures might include the Calvert-Henderson Quality of Life Indicators, the Genuine Progress Indicator (GPI), the Index of Sustainable Economic Welfare (ISEW), and variants of them.

The economic transformation giving rise to voluntary simplicity

Almost nobody in the mainstream economic community predicted our present circumstances, illustrating the deplorable state of economics in our institutions today. They naively believed it was fine for debt to grow exponentially while incomes stagnated and savings crashed. And then they wondered why the consumer stopped spending and acting more frugally. It’s amazing how such brilliant minds could get it so very wrong. It was primarily only those (like myself) adhering to the ignored and maligned Austrian School of economics who largely got it right.

People in developed countries are increasingly favouring more non-material growth that is founded on higher inner values, knowledge, simplicity and sustainability. They will not abandon material joys, but the emergence of VS is telling us that long-held so-called economic ‘truths’ are shattering before us. An age of Enlightened Economics is being born.

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© Ron Robins, 2009.

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• Retiring the GDP (Gross Domestic Product)

Posted by Ron Robins on May 8, 2008

The GDP statistic has to be retired. It is like an old shoe that no longer fits. GDP is fatally flawed as a measure of economic and societal well-being and economists know it. Yet it is universally used to compare living standards and economic growth like one compares sports scores. Furthermore, as each nation compiles it a little differently, especially regarding the inflation ‘deflator’ component, such comparisons are nonsensical. What is exciting is that there are some old and new indices getting attention that could replace the GDP. This is most welcome.

Alternatives to the GDP
Technically, GDP is the total market value of all final goods and services sold in an economy in any particular time period. As we progress in an era of Enlightened Economics, it is destined to be superseded by new indices geared to more accurately measure affluence, sustainability and quality of life, generally. Such indices include the Index of Sustainable Economic Welfare (ISEW), the Genuine Progress Indicator (GPI), and variants of them. Other intriguing indices include the Calvert-Henderson Quality of Life Indicators, the UN’s Human Development Index, and the Invincibility Index. The common thread in these indices is that as well as including economic activity, they also account for societal and environmental factors related to real human development – which the GDP does not.

The GDP statistic should be retired because…

  • According to economist Clifford Cobb and colleagues, “Much of what we now call the growth of GDP is really just one of three things in disguise: (1) fixing blunders and social decay from the past [paying for pollution, costs of crime, etc.]; (2) borrowing resources from the future [GDP excludes the costs related to farmland depletion, water, other resources]; or (3) shifting functions from the traditional realm of household and community to the realm of the monetised economy [i.e. eating out, rather than at home].” (Text in parenthesis has been added for additional clarity.) For a fuller explanation, see “What’s wrong with the GDP.”
  • Losses associated with natural and man-made disasters are not deducted from the GDP. For instance, Hurricane Katrina brought mass devastation. Yet the enormous economic losses were not deducted from GDP. But the clean-up costs were added though!
  • GDP does not account for the value of non-monetary, economic, transactions. Such activities would include elder care by family members, and volounteer activities. In 2002, the International Monetary Fund (IMF) found that such activities represented the following shares of economic output: up to 44% of GDP in developing nations, 30% in transition economies, and 16% in Organization for Economic Cooperation and Development (OECD) economies (Schneider and Enste, 2002). See The Genuine Progress Indicator 2006.
  • There is even evidence that a focus on GDP at the expense of other quality of life indicators can lead a society to a false sense of worth and even create unhappiness. In The Loss of Happiness in Market Democracies published in 2000, Emeritus Professor Robert Lane of Yale University compiled exhaustive research data showing the relationship of GDP to increasing unhappiness. He states, “Amidst the satisfaction people feel with their material progress, there is a spirit of unhappiness and depression haunting advanced market democracies throughout the world…” From his perspective, the rigors of modern market economies increasingly create family and relationship break-ups with subsequent loss of companionship and happiness.
  • GDP is short-sighted accounting. Things that bump-up GDP in the short-term often have harmful long-term human and financial consequences and costs.
  • From the foregoing it is clear that the GDP statistic has little relevance as a measure of our present day material and social well-being.

GDP provides a false sense of progress
Comparing the GDP to GPI (Genuine Progress Indicator) numbers illustrates how false is the sense of gain with the GDP in regard to our human condition. Look at this chart comparing the real (inflation adjusted) US per capita GDP and GPI growth between 1950 and 2004. Note how the GPI figure significantly lags GDP. It suggests that when items such as resource depletion, crime costs, and volounteer sector costs,’ etc., are accounted for, the per capita net benefit of a rising GDP is fully negated.

Source: (c) 2007 Redefining Progress

Retire the GDP now
Some of the ways social and non-market costs are included in the ISEW, GPI, etc., are definitely controversial. Perhaps for these reasons such indices have not as yet achieved common usage. But the GDP, created for the very reason of measuring WW11 wartime production, has been badly and wrongly used as a measure of our quality of life. Enlightened Economics demands the GDP be retired and replaced with more enlightened indices!

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© Ron Robins, 2008.

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