Following is my response to Robert Hunziker’s article “Kill GDP to Help Save the Planet,” published in Counterpunch on 2 January 2020. [1]
Robert Hunziker describes why the economic statistical measure known as GDP — Gross Domestic Product — is a deeply flawed indicator of the actual economic health and societal wellbeing of the United States, and really of any nation. As Hunziker notes, it is based purely on “the monetary value of all finished goods and services,” and as Joseph Stiglitz has shown (as pointed out by Hunziker): “The world is facing three existential crises: (1) a climate crisis, (2) an inequality crisis and (3) a crisis in democracy… Yet the accepted ways by which we measure economic performance gives absolutely no hint that we might be facing a problem.” I agree.
Is there a statistical measure that overcomes these objections? Yes: the Energy-HDI Efficiency Number. Explanation follows.
The United Nations uses an economic parameter called the Human Development Index (HDI) to characterize the typical standard of living of every nation. [2]
It is observed that affluent nations have high HDI scores (they range from 0 to 1) and a high use of electrical energy per year per capita (in kilowatt-hours/year/person the range is from 0 to 30,000), while poor nations have relatively low values for both quantities. In 2006, I made a study of the correlation of national HDI to the electrical energy use per capita, for 177 nations. [3]
The Human Development Index
The UN Human Development Index (HDI) is a comparative measure of poverty, literacy, education, life expectancy, childbirth, and other factors for countries worldwide. It is a standard means of measuring well-being, especially child welfare.
The index was developed in 1990 by the Pakistani economist Mahbub ul Haq, and has been used since 1993 by the United Nations Development Programme in its annual report.
The HDI measures the average achievements in a country in three basic dimensions of human development:
1. A long and healthy life, as measured by life expectancy at birth.
2. Knowledge, as measured by the adult literacy rate (with two-thirds weight) and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third weight).
3. A decent standard of living, as measured by gross domestic product (GDP) per capita at purchasing power parity (PPP) in USD.
Each year, UN member states are listed and ranked according to these measures. Those high on the list often advertise it, as a means of attracting talented immigrants (economically, individual capital) or discouraging emigration.
The Human Development Index is the average of three indices: the Life Expectancy Index (LEI), the Education Index (EI) and the GDP Index (GDPI).
The Education Index is itself a weighted sum of: the Adult Literacy Index (ALI, weight = 2/3) and the Gross Enrollment Index (GEI, weight = 1/3).
All of these measures have minimum and maximum values, which appear in the differences and normalizations used to construct the three major indices. The formulas are as follows:
LEI = (LE – 25)/(85 -25),
LE = life expectancy in years;
EI = (2/3)*ALI + (1/3)*GEI;
ALI = (ALR – 0)/(100 – 0),
ALR = adult literacy rate;
GEI = (CGER – 0)/(100 – 0),
CGER = combined gross enrolment ratio;
GDPI = [log(GDPpc) – log(100)]/[log(40000) – log(100)],
GDPpc = GDP per capita at PPP in USD;
HDI = [LEI + EI + GDPI]/3.
The Human Development Index is a measure that helps to capture the overall socio-economic health of a country, and a measure that allows for useful comparisons whether by international bodies like the UN or concerned individuals.
Linking Energy Use and Human Development
It is evident that a higher standard of living, as indicated by HDI, will obtain when a greater quantity of electrical energy per capita (kWh/c/yr) is available. Yet, in 2002 Ireland expended 6560 kWh/c/yr to provide its people with an HDI of 0.946, ranking 8th in the world; while Saudi Arabia expended 6620 kWh/c/yr (essentially the same as Ireland) to only provide its people — on average — with an HDI of 0.772, ranking 77th in the world.
It is obvious that Ireland made much more efficient use of the energy it expended in order to support the wellbeing of its people. That wellbeing must necessarily include caring for the natural environment within which the national population lives. The statistical measure that I propose for indicating the degree to which a nation’s energy consumption provides for a healthy society is the Energy-HDI Efficiency Number. In 2002, Ireland’s Energy-HDI Efficiency Number was +21 (the world leader), while Saudi Arabia’s was -50, ranking at best 38th in the world (in 2002, the year of the HDI data available for my 2006 study).
In 2002, the USA expended 13,456 kWh/c/yr to provide its people with an HDI of 0.944, ranking 10th in the world, with an Energy-HDI efficiency number of -1, a level of overall performance behind 21 other nations despite having the 9th highest per capita energy expenditure.
What makes for Energy-HDI efficiency?: low GDP waste on a military establishment, an arms industry, and unproductive government subsidies as with underwriting Wall Street bankster gambling losses; wide use of energy efficient equipment, methods and attitudes; minimal income and wealth inequality; robust national social welfare programs; and diligent stewardship of a healthy natural environment, which naturally contributes to healthy human longevity. [4]
Some nations do a great deal with very little, like Cuba, with an HDI of 0.817 and an HDI rank of 52 out of 177 with an expenditure of only 1395 kWh/c/yr (in 2002). In my study I found that, statistically, a nation would have had to use 2425 kWh/c/yr in order to provide an HDI of 0.817. It is as if Cuba had generated its social benefits with only 57.5% of the electrical energy one would expect. [3]
Societal Vitality
Regardless of what anyone says, all national economies are exercises in intentional social engineering, and as such their features and their degrees of success at providing popular wellbeing can be characterized numerically. GDP alone is a poor indicator of societal health and vigor, but HDI and the Energy-HDI Efficiency Number are much better indicators of societal vitality.
The value of any such indicator, like the temperature shown on an air thermometer outside your window, and the speedometer in your automobile, is to apprise you quantitatively of your current reality so that you can then go and do something intelligent and useful in dealing with it. That is what we have to do about the societal vitality of our national economies and the natural environments they reside within: characterize their overall performances truthfully, and then fix them.
Notes
[1] Kill GDP to Help Save the Planet
Robert Hunziker
https://www.counterpunch.org/2020/01/02/kill-gdp-to-help-save-the-planet/
[2] Human Development Index
http://en.wikipedia.org/wiki/Human_Development_Index
[3] An Introduction Linking Energy Use and Human Development
28 April 2006
https://manuelgarciajr.com/2019/06/09/linking-energy-use-and-human-development/
[4] TABLE: Country Ranking by Energy-HDI Efficiency Number
9 June 2019
https://manuelgarciajr.files.wordpress.com/2019/06/table-a.jpg
AND
https://manuelgarciajr.files.wordpress.com/2019/06/table-b.jpg
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