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Bookmark and ShareRupert Crilly is a researcher in Environmental Economics at nef

Financial markets are treacherous. I’m not saying this because I’ve lost a lot of money to them recently- oh wait, we all have! – but because they’re pathologically antisocial yet somehow exotically enticing. They’re the new femmes fatales. No matter how many times we wine and dine them, and how many times we pay for it, they’ll keep us hooked.

The financial markets have been jittery with speculation about Greece defaulting on its debts- unsurprisingly, really, if we consider that Greece has the highest gross government debt as a percentage of GDP in Europe- somewhere around 125%. And, many ask, if Greece does default, what will happen to other countries with high debts, such as Spain and Portugal? Will they survive the same financial attacks – if interest rates rise the deficit effectively increases because of rising interest on the bonds – or will they show more ‘fiscal responsibility’.

Lecturing for Stable Economics
On Monday evening the Nobel-prize winning economist Joseph Stiglitz gave a talk at the London School of Economics in which he noted:

“The irony of this attack should not go unnoticed: the fact that Europe and America were brought into the current mess because of the failures of the financial system. Their deficits grew in the attempt to save the banks and the economy as a result of the financial system failure, and now the financial systems are lecturing the governments about the size of the deficits that their behaviour created…the fact is that the financial markets are again exhibiting the same kind of irrationality and short-sightedness they continually exhibited. What matters is not one side of the balance sheet, it’s both sides. Deficits are a liability, but on the other side are assets: it depends on how you spend the money. And if you spend the money well, on education, on technology and infrastructure, the returns only have to be 5-6% for the long-run national debt actually to be lowered, and the banks should understand this.”

In other words, a ‘credible’ response to tackle the Greek government’s debts does not mean cutting money from health, education, technology and the environment to pay back bond holders – it means instead that lenders understand that investment in these sectors will secure their repayment over the long run. The economic cases for more regulation and a ‘Robin Hood’ tax are also strong. But, I suppose, the markets are worried. And we’re still hooked.

The governments of Europe and America bailed out the financial sector and stimulated the economy. The deficits now need repaying, and it’s becoming clearer who’s going to pick up the tab. Our message to the banks is clear: “don’t worry, we’ll get that”. Because, honestly, we really will get that, and we really, really don’t want you to worry about it.

Bookmark and ShareSaamah Abdallah is a researcher at nef‘s Centre for Well-being.

President Sarkosy: an unlikely revolutionary

President Sarkozy: an unlikely revolutionary

Although you wouldn’t have known it from the media coverage at the time, President Sarkozy did something far more remarkable in January 2008 than get engaged to the singer and model Carla Bruni. While angry French leftists were burning Bruni’s CDs on public bonfires, her new fiancé announced his intention to challenge our most intractable economic orthodoxy: Gross Domestic Product.

Soon enough, the President had set up an impressive commission of Nobel Prize-winning economists and social scientists to address the question of how to move beyond GDP as a measure of economic performance and social progress. The group was to be led by former chief economist at the World Bank, Joseph Stiglitz, and would include development guru Amartya Sen, psychologist Daniel Kahneman and the economist-turned-climate-change-hero Lord Stern.

A year and a half on and the Commission has published its final report. The vision is bold – it recognises that “new political narratives are necessary to identify where our societies should go” and advocates “a shift of emphasis from a ‘production-oriented’ measurement system to one focused on the well-being of current and future generations”. Specifically, it recommends that governments should measure subjective well-being – people’s experience of their quality of life – and recognises that these should be textured and multi-dimensional.

These calls are admirable, and echo what nef has long been calling for, particularly in our National Accounts of Well-being report from January 2009.

But there’s a problem. The report carries many recommendations, and there’s a risk that politicians will latch onto the easier ones, without really taking home the big message: namely, that we need to radically shake up our understanding of progress and success. For example, the report shies away from suggesting an overall measure of progress, such as nef’s Happy Planet Index, leading to the risk that GDP will remain unchallenged as the de facto indicator of overall success, despite it never being intended that way.

But for now the Commission, and indeed, dare we say it, Sarkozy, deserve plenty of praise for their boldness.  Let’s see if he and other politicians put into practice the advice they are given by the world’s best economists: to move beyond GDP and measure well-being.

nef‘s Happy Planet Index is featured in this week’s New Scientist magazine as one of many radical ideas for a better world.

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.