Tuesday, July 30, 2013
The Third Metric
Ms. Huffington went on to be a right of center talk show host and then gradually moved to the left. Her conversion seems to have been somewhat related to the incursion into Serbia but she actually came out (to the left) when she endorsed John Kerry in 2004. When Gray Davis was being recalled she was all over the map - first a candidate (in a classic dust up between the eventual winner - who in many ways is very much like her) and then an opponent of the recall. I offer that history because Californians have known about her for at least two decades. I have never been convinced that she is an especially deep thinker. She has been very successful in developing and promoting a left wing news alternative called the Huffington Post which has lots of substance but also lots of tabloid elements. I confess that I read the Huffpost on a daily basis, in part for the substance.
There is one other background on this post - George Easterlin was an economist who came up with something called the Easterlin Paradox in the 1970s which argued that happiness does not increase with increased wealth and therefore pursuing GDP for its own sake is not a good goal. His original argument (and its offshoots) have been used by many to justify alternative ways to think about the relationship of economic growth to happiness. The Paradox is troubling on a number of levels - measures of both GDP and happiness are noticeably squishy. That is true within a country and even more so across countries. And any first year economics student should understand the math of the utility function which postulates that as utility increases the marginal benefit for each increment decreases.
Two researchers from the University of Michigan have looked again at Easterlin and have found that if you look carefully at his data, the conclusions do not come from his data. They find a very high correlation between level of GDP and levels of national happiness.
So along comes Ariana - with this idea called the "Third Metric" which is a jumble of ideas about all those generalized concepts that much of the left uses to redefine "money can't buy happiness" or "there is more to life than money" or the current buzzword "sustainability" as if markets, without this new concept, have no interest in continuing. Ultimate any market is sustainable or it loses its market function. From my perspective, even thought Huffington has pushed the concept hard this "Third Metric" when you think carefully about it is a bunch of bollix. It is a classic "vochongo" a word which everyone uses but no one clearly understands. (See earlier posts on the term here.)
Perhaps beginning with Adam Smith (in the Theory of Moral Sentiments) there has been a lot of writing on the multiple paths to happiness. Smith consistently does not argue that more material success is a guarantee of happiness. Yet, in his other book (that everybody quotes and no one actually has read - note I've read both) he discusses the "bull headed brewer" - the mainstay of markets.
From my perspective much of the "Third Metric" is an imperfect restatement of Galbraith's Affluent Society which many of us had to suffer through in undergraduate work in the 1960s. Her argument is that if we do not concentrate on economic growth that we will live in a better world. Anyone with a brain can understand that there is more to life than the almighty dollar - but taking your eyes of GDP growth as an important metric will diminish happiness in society, simply by making all of us a bit less well off. I am sure Huffington would agree with some of the President's speech today arguing that income inequality has increased in terrible ways in this country for the last several decades. And yet even with that data, when you include things like transfer payments, the perceived inequalities are reduced. One economist (James Galbraith - who is the son of JK and has written a lot on income statistics) argues that if you take out just fifteen counties in the US, the reality of a change in income equality has moved almost not at all for the past forty years.
The Third Metric is a diversion which will not help improve the lives of Americans.