Measures of economic welfare
During the late 1960s, many economists began to
question the over-reliance of governments and agencies on narrow, exclusively
GDP-based, measures of economic welfare. It was at this time that the adverse
environmental effects of uncontrolled economic growth began to be considered,
prompting the search for a wider measure of welfare, not exclusively based on
raw GDP figures.
Nordhaus and Tobin
In 1972, Yale economists William Nordhaus and James
Tobin introduced their Measure of Economic Welfare (MEW)* as an
alternative to crude GDP. MEW took national output as a starting point, but
adjusted it to include an assessment of the value of leisure time and the
amount of unpaid work in an economy, hence increasing the welfare value of GDP.
They also included the value of the environment damage caused by industrial
production and consumption, which reduced the welfare value of GDP. MEW can be
seen as the forerunner of later attempts to create a sophisticated index of
sustainable development.
*Nordhaus, WD and Tobin, J (1972) Is
Growth Obsolete? Economic Growth, National Bureau of Economic Research, no
96, New York.
The Index of Sustainable Economic Welfare
The Index of Sustainable Economic Welfare (ISEW),
develops MEW by adjusting GDP further by taking into account a wider range of
harmful effects of economic growth, and by excluding the value of public
expenditure on defence.
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