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The cataclysms that have been shocking the world economy in recent year are forcing economists to reconsider the earlier popular theories. Top think-tanks are doing their best to comprehend the reasons of the crisis trying to develop absolutely new methods and approaches. They should become an insurance for the world economy and guarantee its health or, at least, timely diagnostics of economic «diseases».
Economist Graeme Maxton in his recent book «The End of Progress, How Modern Economics Has Failed Us» claims that modern science has proven its inadequacy. More financiers and scholars are inclined to believe that the methods of calculating economic wellbeing must be radically changed. Recently, the UN adopted a resolution, which noted, inter alia, that the gross domestic product (GDP) indicator «does not adequately reflect the happiness and well-being of people in a country».
U.S. Federal Reserve chairman Ben Bernanke is also convinced that statistics can mask important information“What should really be measured are people’s confidence in their employment, their savings and capability to withstand financial shock,» he assured.
Where it’s good to live
Scientists already proposed several alternative indicators that could become a wellbeing barometer of economies, companies and people. One of them is «Your Better Life Index» published by the Organization for Economic Co-operation and Development (OECD). This indicator has been calculated since 2011 for 34 countries based on the statistics and surveys conducted by Gallup. It is used to evaluate living standards in a country along with GDP’s indicator since the latter does not always reflect the real level of wellbeing.
Your Better Life Index is calculated based on 11 topics: community, education, environment, civic engagement, health, housing, income, jobs, life satisfaction, safety, work-life balance, that contribute to well-being. According to the index published by OECD in May, Danish people are happiest (7.8 points out of 10). Norway is ranked second (7.6), then comes Switzerland, Netherlands and Austria (all 7.5), Israel, Canada, Australia and Finland were ranked fourth with 7.4 points. Also residents of Sweden (7.3), New Zealand (7.2) and USA (7.1) are close to being happy.
The Happy Planet Index by UK New Economics Foundation is complied once in several years covers 151 countries. It measures the extent to which countries deliver long, happy, sustainable lives for their people. The Index uses global data on life expectancy, experienced well-being and Ecological Footprint to calculate this. Interestingly, countries with a relatively low level of wellbeing are ranked the highest: the top three happiest countries in 2012 include Costa Rica, Vietnam and Columbia. Meanwhile, the HPI is quite low in such countries as U.S. and Russia, ranked 105th and 122nd respectively. Surprisingly, Ukraine beat both U.S. and Russia in the rating taking 100th position.
Google to the rescue
Technological development also contributes to the transformation of economic science. Scientists believe that soon Google could take an honorary place among economic indicators. For example, Central Bank of Israel, before publishing official statistics on consumer demand, has started to analyze key words in the search engine on all topics. This helps evaluate dynamics of demand and consumption of goods and services – from household appliances to fitness and laundry services. Representatives of the Israeli Central Bank claim that the new data from Google helped predict decrease of growth rate and economic recession in the country.
Following Israel’s example, the central banks of UK, Italy, Spain, Turkey and Chile and U.S. FRS are now conducting similar surveys. Their logic is simple. If people started to use internet more often to find information about real estate, the market can expect growth. If the people are looking for job vacancies and extra jobs, the country should expect increase of unemployment and decrease of the level of material wellbeing. The key advantage of Google data is that they are easy to obtain and process. For example, tracing the searches in Google, Bank of England correctly predicted shifts in the unemployment rate., While Bank of Spain managed to predict inflow of tourists from the UK nearly a month in advance.
It is unlikely that the governments and central banks will stop using the well-tested customary macro indicators. It is, however, highly probable that the happiness indicators will be taken into account by central banks and will be studied as closely as dynamics of inflation, unemployment and GDP. As a result, the economic policy of governments will go further away from exclusively quantitative strategies, spurring growth of production, consumption and material benefits, particularly since such variants of economic development have been nearly exhausted.Printable version