The Dismal Science

Quite an interesting week, last week. Not only did our political leaders completely lose the plot by spending the best part of it arguing about a ute, but both Farrah Fawcett and Michael Jackson dropped off the twig. As is typical in Australia, the first Jackson jokes started circulating within an hour, for example, the undertaker not knowing what to do with the body because plastic recycling night wasn't until next Tuesday, but then deciding to melt it down and turn it into a plastic toy so that Jacko could keep on playing with little boys. Or the one about Jackson's manager having to cancel his upcoming tour dates, ie. the date with Dylan, 7 , from Atlanta and Peter, 9, from St Louis etc etc.

Pretty tasteless jokes, those, but at least the whole Jackson episode has got the economy off the front page for the time being. As someone who has to grapple daily with the fallout from the GFC, the last thing I want to do when I come home after another crummy day at the office is read all about it again in the paper. However despite my general aversion to GFC-related press it was hard not to derive a degree of perverse amusement 3 weeks ago from the histrionic media reaction to a supposedly "good" piece of economic news, namely that the economy had avoided recession.

The media reaction was so over the top you might be forgiven for thinking that a cure for cancer had been found, the war in Afghanistan had ended or even better, Alan Jones and Andrew Bolt had disappeared up their own backsides. But no, instead, the cause of the media frenzy was the fact that economy had grown by a paltry 0.4% in the March quarter and as a result, Australia had avoided a technical recession.

I don't want to rain on the media or K-Rudd's parade here, but this was hardly a reason to break out the Bollinger. Under normal conditions, the Australian economy comfortably grows at over 3 per cent per annum, and that's before any artificial government stimulus. When you consider that for the past 5 months, Kevin and Wayne have been doing a fair impression of Imelda Marcos in a shoe shop, an annualised growth rate of 1.6% doesn't exactly suggest that we're firing on all cylinders economically. However, look on the bright side. At least most of us in Australia aren't employed by Chrysler and don't own real estate in Detroit.

Regardless of whether this latest set of economic figures represent good or bad news, the most disturbing thing is the reverential attention paid to them by press and politicians alike. It was almost as if the GDP figure were meant to be a barometer for the national mood. If the figure is positive, then great, K-Rudd is a genius and let's all party like it's 2007. However, give us (gasp) two consecutive quarters of negative growth and we should kick out the government and all reach for a bottle of Prozac.

This attitude, of course, is lunacy. Assuming that the happiness and wellbeing of your citizens is assured provided the country's GDP is heading up is a very narrow view for any government to take, not to mention dangerous. However, in the last 50 years, more and more governments around the world have essentially adopted this approach, often at the expense of important social programs. It is no wonder that the 19th century historian Thomas Carlyle described economics as "the dismal science".

One of the problems with adopting an economist's measure as a proxy for a country's wellbeing is that things that an economist might regard as good because they contribute to economic growth have very poor social outcomes. Similarly, things that in no way contribute to GDP can have very good social outcomes. For example, a disturbed lunatic going into Walmart and buying a gun and ammunition ahead of embarking on a killing spree is considered as contributing to the economy, while someone volunteering their time to assist a charitable organisation is not. We all know whose behaviour is the more socially desirable, however when you focus purely on what is the better economic outcome, you can derive a fairly perverse result.

This is of course an extreme case, however using this sort of logic it is easy to see how the Western world's single-minded pursuit of economic growth at the expense of the other things that make a society tick has led to a some very undesirable consequences. You would have to acknowledge that it has also had the consequence of making us more wealthy, but is more and more wealth necessarily the key to greater contentment? If you take someone like Michael Jackson as an example, the answer is a resounding "no".

Numerous studies have shown that achieving a basic level of wealth definitely contributes to a person's wellbeing. That makes sense, after all - not having to worry about how you are going to afford the mortgage next month or how to fix that annoying rattle in the car would be a big relief to people on the breadline. However, the same studies also show that beyond a certain level of wealth, the effect on happiness is negligible or, to borrow an economist's phrase, there is very little "marginal utility" associated with the surplus cash. What does however show up a strong contributor to happiness is interaction with other people.

Intuitively, we all know this. We all dutifully put in the long hours at work so that we can earn more loot and buy bigger houses, flasher cars and more exotic holidays. However, at the same time we complain incessantly about how work dominates our lives and lament the fact that we've completely lost touch with all the old friends and perverts we spent so much time with at University just goofing off and drinking beer. Yet instead of reacting against this, year after year we line up for more, kidding ourselves that in 5 or so years we can get off the treadmill and afford to do all those fun things we've been putting off for years. Nice idea, but sorry, but the GFC has put paid to that idea for the time being.

Some governments have realised that the single-minded pursuit of economic growth isn't necessarily the best way to ensure the happiness of their citizens and have therefore started looking at other measures. Bhutan, of all places, have recently taken it to the logical extreme and implemented a "National Happiness Index". How this will work exactly is hard to know as an index like this is very subjective and pretty hard to measure, however the Bhutanese are to be commended for at least giving it a try. Even a nation full of notorious whingers such as Britain have toyed with implementing a similar measure to gauge the national mood, and it is probable that in the face of the economic carnage wrought by the GFC other nations will follow suit.

It is to be hoped that they do. If there is one lesson that can be learnt from the events of the last 18 months is that booms never last forever, fortunes can be lost in an instant and that basing your mental wellbeing on the amount of cash in your account is fraught with peril and likely to result in some nasty ulcers. Governments should now recognise this and instead of engaging in ridiculous backslapping over a piddling economic growth figure, redirect their energies at rebuilding the social networks that have been severely run down over the past 60 years in the race to become rich. Who knows? It might just lead to a more happy and contended population and therefore, more years in office for the government bold enough to reject the mantra of economists and strike a new path.

In the end, however, economics is likely to claim us all. It certainly did a number on Jacko, rest his soul. Spending more than he earned for years led to an economic imperative to earn more cash. To do this, he signed up to do 50 concerts in London however the stress associated with the concerts plus the heavy training to get in shape no doubt contributed to his heart attack.

Economics -1. Jackson - nil. How dismal.