Consider The Metric

One thing about living in tumultuous times….

Questions that are rarely asked when things are calm and going well– about the purpose of government, the proper operation of the economy, and the nature of citizens’ obligations to each other– get revisited.

Take the economy. Ever since Milton Friedman preached that the bottom line consists only of the bottom line–that success is measured by profit and shareholder return–businesses have adopted the measure as dogma. But as David Brooks has reminded readers, keeping shareholders happy at the expense of other stakeholders is a relatively recent phenomenon (not to mention shortsighted).

In a healthy society, people try to balance a whole bunch of different priorities: economic, social, moral, familial. Somehow over the past 40 years economic priorities took the top spot and obliterated everything else. As a matter of policy, we privileged economics and then eventually no longer could even see that there could be other priorities.

For example, there’s been a striking shift in how corporations see themselves. In normal times, corporations serve a lot of stakeholders — customers, employees, the towns in which they are located. But these days corporations see themselves as serving one purpose and one stakeholder — maximizing shareholder value. Activist investors demand that every company ruthlessly cut the cost of its employees and ruthlessly screw its hometown if it will raise the short-term stock price.

We turned off the moral lens.

I know that reaction to Brooks is mixed, but in this column, he makes some good points. The most important is his closing:

The crucial question is not: How can we have a good economy? It’s: How can we have a good society? How can we have a society in which it’s easier to be a good person?

America seems to have lost sight of the fact that economic systems should be judged on whether they enable what Aristotle called human flourishing. Citizens don’t exist for the economy; the economy exists to support a healthy society. The single-minded pursuit of shareholder profit elevates the wrong goals and creates perverse incentives.

And that brings me to another article.

Scientists and social scientists can confirm that what and how you measure something matters. We all know that school teachers spend more time on subjects that are tested, and that employers who reward employees on the basis of speed rather than quality will get more speed and less quality. When the metric for evaluating economic performance is GDP, which measures the dollar value of goods produced, the result tells us little or nothing about the well-being of citizens or the health of the society.

As the Sarasota Institute points out in the referenced article,

GDP growth says nothing about how the benefits of higher growth are distributed. We can imagine high GDP growth with the poor becoming poorer and the rich becoming richer. Only if GDP growth produces income growth for everyone could we say that the general welfare has been increased.

GDP growth does not say anything about the composition or quality of the output. GDP will grow with higher cigarette and alcohol consumption and more guns sold but this says little about well-being growth. In addition, GDP would grow even if the average quality of goods declined.

GDP growth ignores the costs that have been incurred in achieving that growth. Consider that more GDP probably increases air and water pollution and more traffic congestion. Consider that GDP growth could be the result of more people working longer hours and having less leisure time.

The article references Bhutan’s approach: the Gross Happiness Index.

My husband and I were intrigued by that metric when we visited that small country several years ago. (Evidently others were equally intrigued; several countries are experimenting with a similar approach.) The four pillars of GNH were:  sustainable development; preservation and promotion of cultural values; conservation of the natural environment; and establishment of good governance.

The index rests on the assumption that a person is likely to be happier if the economy grows, if cultural values are satisfying, if the natural environment is pleasurable, and if the government operates in the interests of the citizens.

There are other proposed indexes as well: the Human Development Indicator would shift the focus from national income to people centered policy. (This index started to gain momentum when– between 2002 and 2006–personal income in United States fell but GDP continued to increase); a Social Progress Index focused on social and environmental needs; and recently, a Happy Planet Index, measuring whether people are happier, if they live longer lives, if the income distribution is only moderately skewed, and if people have a low carbon footprint.

All of these proposed indexes recognize that you get what you measure.

Metrics matter.

24 thoughts on “Consider The Metric

  1. Take the economy. Ever since Milton Friedman preached that the bottom line consists only of the bottom line–that success is measured by profit and shareholder return–businesses have adopted the measure as dogma. But as David Brooks has reminded readers, keeping shareholders happy at the expense of other stakeholders is a relatively recent phenomenon (not to mention shortsighted).
    Opinion: It is this Statement and the publishing of his book, “Free to choose” that has help to lead America to its current conundrum, when the focuse appeared to shift from social to a Business paradigm.

  2. Another thought – SHORT term vs LONG term thinking
    American Business is all about the quarterly numbers and the current stock price.
    Other nations take a much longer view of things – and that seems to be a better approach.

  3. The most important policy makers are the beneficiaries of the current metrics, making it difficult to affect policy change. First, elect new representatives who could embrace the needed changes.

  4. Our country is failing in all seven of the categories to be measured in the referenced article. Well, to be honest, the very wealthy are probably quite happy with their continuous increase in wealth, but that has been at the expense of most citizens in the U.S.

    Consider the daily news – as a society and country we are very angry, very stressed, full of fear and very divided politically. It seems that we are all ready to go to war with each other at any moment. Civility has taken a back seat to trying to understand each other’s viewpoint.

    Citizens United can be blamed for much of today’s angry politics and complete power shift that has done more to increase the wealth and power of a few at the expense of everyone else.

    We need a dramatic change that starts by overturning Citizens United. Can that take place with Republican control of the Senate? Definitely not. It seems that we will have to wait for the younger generation to take the helm. They have witnessed the destruction of our society and they seem determined to bring about positive change. I hope they can do this before they get worn down or beaten down by those who continue to control the wealth and GDP in this country and who also use that power to control the media that spews fake news 24/7 that keeps us divided and attacking each other instead of those who are truly to blame for our predicament.

  5. I may be taking a leap here, but when society is ruled by Oligarchs, their greed becomes our greed. The GDP and NYSE are constantly thrown in our face as a means to encourage consumers to buy – Confidence Level.

    Nothing else matters.

    Sheila should have shown her readers where the Grand USA ranks within the Happiness Index and the Social Progress Index.

    About like our healthcare system – we are laggards among industrialized nations. If the media served the people and not the oligarchs, they’d be hammering the point home that economic success for a few is not benefiting society as a whole in this country.

    What’s worse is the oligarch’s stock market requires the continued feeding of cash by the government…Obama did more for banks in this country than any other POTUS, and he calls himself a progressive.

    There were very good reasons Albert Einstein called capitalism evil. He also said the economic power accumulated under capitalism reaches a point where no government institution can check its power. We’ve gone beyond this point decades ago.

    Didn’t you hear our free press sound the alarm? LOL

  6. Should too big to fail be too big to exist? Absolutely! We seem to forget that we do have anti-trust laws on the books. It seems as if any competition is enough competition, so we end up with two or three companies controlling everything. We should start using the laws we have.

  7. The sole focus on “shareholder value” is enforced by hedge funds and financial institutions who can raise the capital to raid a company that is being run for the benefit of a broader set of stakeholders. Buy the stock (primarily with debt), fire the management (if, in fact, management did not initiate the takeover) and then strip the assets and/or brutally reduce wages and internal investment. A perfect recipe for slowing growth through innovation/investment and impoverishing society.

  8. Various authors, including myself, have been sounding this alarm about Friedman’s disastrous “philosophy” for decades. Chris Hedges, Naomi Klein and Jane Mayer are just a few of those writers and journalists who examine these things for a living. BUT, who reads anymore? Only those who already see the issues and problems mentioned in this blog today, that’s who. Everybody else? Not so much.

    Todd keeps railing against the media he envies, but it’s more, much more than that. Railing against Obama’s relationship with the banks (Which he saved from going under due to the Bush administration’s self-immolating policies and Friedman deregulation actions) is absolutely the wrong approach.

    The major culprit administration that began this slide into social decline was the sainted Ronald Reagan and his puppeteer, Donald Regan. Together, they embraced supply-side/trickle down economics that created today’s 1%, but began the destruction of the middle class, the main support of our economy since the 1940s.

    What we do about it is up to us, but we’d better get after it very soon, before the entire 90% of the rest of us are looted and cast aside by the self-destructive Friedman imperative. It’s never worked for the rich being in control….EVER. We have done so well, because our Constitution – that our politicians used to follow – is about all the people, not just the rich. The real question is: When do we fix our BASIC problem and remove Republicanism from our operation?

  9. im in houston area today, last year i was finding loads back to mt,nd,area,for a decent rate, my loads are based on steel,and such commodities. today, nothing. seems the tarrifs have squashed something,or,,,,,the political climate with the new dems, might have investors stalling,or playing “the game,””we have the money,you dont,and we dont like whats going on.”this has played out alot since reagans brewed money wars. and congress allows the economy to be run this way. wall street either gets all the glory,or, like trumps shutdown,screw the workers, they are not helping me,so ill take thier wages. did freeman ever mention this? its a way of life in trucking, when the money,dries up. the rates are still stagnate,since 1986, and if they tell you diffrent,go buy a truck,and operate independantly. my 39 years on the boards and knowing people who secure my loads atest, wall street and the banks run this country,and if they dont like something,its screw someone to make a point,like the working class.and the people still vote for the people who screw them.. corp media has won again..

  10. I cringe every time David Brooks is cited for his insights. In this same article Brooks says:

    “My story begins in the 1970s. The economy was sick. Corporations were bloated. Unions got greedy. Tax rates were too high and regulations were too tight.”

    Do any of us believe the economy was “sick” because of greedy unions, progressive tax rates and over regulation?

    David Brooks cure for everything is to spoon a little moralism into a boiling cauldron. And precisely how would using a Gross Happiness Index transform anything? How does it “get what you measure”?

    Our problems are profound and structural.

  11. “The crucial question is not: How can we have a good economy? It’s: How can we have a good society? How can we have a society in which it’s easier to be a good person?”

    Well, first, stop dismantling the humanities because you don’t see an ROI on that Philosophy or history major. If you’re going to answer those questions -and especially if you’re going to answer them with meaningful, successful policies-you need people who can intelligently consider what “good” is in any of those contexts, and how various attempts to answer them have worked out over time. But then, the commodification of higher education is just another effect of using GDP as the metric for everything.

    Here’s another thought. Suppose the fundamental metric used for society drives the formation of the ideological spectrum; what “conservatism” and “liberalism” represent, and how the corresponding values are shaped. We’re living with the extreme expression of conservatism in the GDP-as-metric approach, and it’s pretty clear this is not sustainable. What would the political spectrum look like with any of the other indices as foundational? What would a conservative political agenda look like if GNH were the key socio-economic metric? Of course, the difficulty in moving past a philosophical exercise (it would be a good term paper topic if I were still teaching) is getting current conservatism to consider any such alternatives.

  12. we have a guilani moment from the Native American protesters,in DC, center student,in vid,through a PR firm atests, he was defusing the moment,,er, PR firm says… yea,o.k. maga hat,looking at Native Americans,not looking at students,trying to break it up. hey,guiliani, heres your next assoc in your firm…

  13. Sheila’s topic today is one I have written about elsewhere rather extensively and struggled with in search of solution for lo these many years, as in, just whose economy is it? Are corporate stakeholders limited to those who own and run corporations? Why aren’t corporations taxed the same as individuals? Why do hedge and equity fund operators enjoy a “carried interest” low tax rate on their commissions when such income is ordinary income by any definition (other than the one manufactured by Congress)? I could go on and on, but the reader can share my angst from these examples.

    Even as early as Adam Smith he and others recognized that a broad swath of stakeholders should be involved in corporate activities and their control, and Thomas Jefferson loathed corporations generally and for good reason then and better reason now that corporations have taken over our economy and its attendant political processes via Citizens United and other libertarian-inspired cases.

    Fast forward to post WW II capitalists’ (read Republican) insistence that there be little to no rules and regulations governing corporate conduct. Adoption of Friedman’s idea of corporate performance accruing solely to the benefit of “shareholder value” announced a new low in stakeholder identity, excluding by its terms workers, producers, consumers, et al., but what really bothered me was the fairly recent judicial surrender to the idea that corporate boards of directors have “a fiduciary duty” to think in terms of “shareholder value” to the exclusion of the interests of other stakeholders in corporate ventures as I thought of the damage, for instance, to zoning regulations with slaughterhouses next to funeral homes etc. etc. etc.

    What about application of “a fiduciary duty” for corporations not to disturb the peace and quiet and reduction of property values of such a neighborhood in contrast with a corporate slaughterhouse’s duty to make money for its shareholders? All right, so I’m taking such examples too far to make a point, but even so, it’s only “too far” today. Just wait. We never dreamed a Citizens United case formally offering our politics for sale would see the light of day, either.

    Newtonian physics holds that for every action there is an opposite and equal reaction, and I think that law of physics has application to the social sciences as well; that we are seeing it at work with younger voters who are unafraid of the word socialism and are seeking a certain equilibrium for a society that has surrendered to capitalism run amok. We are perhaps shortly going to see how (among other atrocities) “carried interest” and “shareholder value” fare in tomorrow’s political world. Should be interesting.

  14. David Brooks comments in his article:

    Apple parked its intellectual property in an Irish subsidiary so it could avoid paying taxes in America and support those institutions. It saved $9 billion in 2012 alone. This is clearly sleazy behavior. Apple employees should be humiliated and ashamed.
    ============================================================
    Apple employees should be ashamed??? The employees, the Proles, had nothing to do with this shift to Ireland. Ahh yes blame the Proles. Why doesn’t Brooks point the finger where it belongs. It was the CEO , Board of Directors of Apple, Congress and various US Presidents who allowed this tax evasion to happen. The answer is David Brooks would not be published in the New York Times or welcomed in any other McMega-Media corporation outlet.

    There is this myth that the Old GOP was a benign political party until the hard core Evangelical, Tea Party Reactionaries took it over. The Old GOP was since the days of FDR opposed to the New Deal, Fair Deal, New Frontiers and Great Society and all that it entailed. The Civil Rights legislation blew away the Democratic Unity. The Jim Crow wing of the Democratic Party defected into the welcoming arms of the Old Moderate GOP, Nixon’s Southern Strategy.

    The Democrats under Bill Clinton shifted the party to Wall Street. As the GOP shifted hard right, Clinton occupied the vacated place of the Old GOP. So we ended up with NAFTA and a variety of deregulation for the benefit of Wall Street.

    So instead of Universal or Single Payer Health Care, we got ACA instead, which did not cover all Americans and set up a class system of Health Care. It should be remembered it is called Affordable Care Act. Which sets up a class system of health care based upon your ability to pay for it.

    Brook’s also states: “We turned off the moral lens.” Brook’s now blames all of us – the WE. No WE did not turn off our moral lens. Wall Street aided and abetted by Congress and US Presidents turned off the moral lens – Profit over All is the Motto.

  15. Make more money now regardless of the impact on others ever. Republicans and corporations believe, yes BELIEVE, that that is the only rule that’s necessary for humans to find not happiness but comfort. Ahhh, comfort.

    How about the “impact on others”? Well it turns out that none of them count. They are not we, but they. They are too dark, too poor, too unskilled, too different, too not like us, too funny dressing and speaking, too, well, discomforting to be included in any discussion about comfort.

    So we swirl the bowl on the way to the ignominious end of societies that don’t work.

    The question is not that end but do we still have what it takes to recover to what we once were? Not perfect for we were never that, but sensible. Striving. Together. Hungry for knowledge. Creating for our children not borrowing from them.

    I believe that we can. We can not by being consumed by problems but by solutions. We have two years to plan how to remove our biggest obstacle in the way of replacing comfort with satisfaction for all. Let’s not waste a minute on rehashing regret. Let’s energize solutions.

  16. Brooks? Seriously? I don’t listen to that guy.

    But Vernon, Pete, Gerald, all made good points that I totally see living abroad. I didn’t see it so much while I was there in the thick of it, but great points!

    The room where Einstein worked in CH was not a rich man’s paradise. I’m sure it had something to do with his views about capitalism. I need to read more about Einstein. Anybody wanna recommend a biography of Einstein that you read and liked? Thanks

  17. Karl Marx predicted what we’re seeing to day: Capitalists run amok and allowed to run amok. It’s the sure-fire formula for economic collapse. Well done, Republicans. You’re finally on the brink of accomplishing something.

  18. An old book, but a damned good one: The Good Society: The Human Agenda, by John Kenneth Galbraith. Galbraith is all but forgotten now and that is much of what is wrong with our economy.

  19. I watch Mr. Brooks on PBS almost every Friday. His concern about the moral fabric of my society is a concern I share. I admire his willingness to give voice to the importance of holding true to American ideals and human decency.

    Should I blame Mr. Friedman for the fact that I an RN was downsized in 2003? Nurses from the baby boomer generation like me often feel like the current health care system AND insurance companies put profit before doing what is right for the patient. Oh the patient. The person who we are supposed to serve ,and the person or the person’s employer who paid the insurance premium.

    Even after Martin Luther King died people moved forward with the poor people’s march and they continue to march even now.

    So how do we respond to such an amoral system or should I say an economic system that like Star Trek’s Ferengi believe that greed is a good thing? How do we not participate in such a system?

    Some people are living in tiny houses. Many are practicing voluntary simplicity. Many people are doing whatever they can to stay healthy to avoid the expense of health care. Many elderly women are coming together to support each other and share economic resources. Many people like me are doing whatever we can to be good stewards of the earth. I sense a growing grass roots socialism developing to offset the income inequality in this country.

    I’ve noticed that many of the democrats who have announced they are running for the presidency or doing an exploratory to run have shifted to the left.

    In the meantime, I am doing what I can to refuse to play these economic games. It seems the only sustainable way for me to live.

  20. So, Pete, what economic system do you wish for these United States? Apparently not capitalism, so do you want socialism or communism? Or something else? Tell me!Ken Appel

  21. Sheila, you never cease to amaze me. This is one your most thought-provoking blogs ever, and it’s SO appropriate for this Rev. Dr. Martin Luther King Jr. season.

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