If I were to walk down the street and ask people ‘what is the true purpose of economics?’ how would they answer?
I’d put money on many of them giving answers that include assumptions like: ‘Economics is about managing money, maximising profit and keeping the deficit under control,’.
None of those statements is wrong. All of them may be the objectives of economics. But to say that economics is solely about these factors is a basic misunderstanding.
To understand this, we can return to the key question that economic thought attempts to answer: how can we maximise the social welfare, or utility, of the population, given that resources are so scarce?
Before we delve deeper, let’s define social welfare or utility. They refer to people’s underlying wellbeing – the factors that make up an individual’s happiness, including those more traditionally associated with economics like quality of work and income, but also health, education, environment and community.
Social welfare includes the amount of green space we have access to, the state of our mental health, our feeling of belonging in our community and even cultural factors such as the number of museums or cinemas or social clubs in our local area. All these factors contribute to how we feel about our life and situation, so all are key in any full consideration of welfare.
So if this is the true purpose behind economics, why do so many people associate it solely with financial factors like money, growth, profit, income, budgets, and so on?
One way to understand this is to look at the problem in mathematical form. Imagine an equation where we look to maximise the welfare of the population given constraints on our resources. If we are to quantify the wellbeing of the population, do we have an easily accessible numerical value to quantify how the mental health of the population contributes to their welfare? Or perhaps for the number of trees in the neighbourhood? Or even how annoyed we are because our bus is consistently ten minutes late?
Traditionally, the answer is no. However, it just so happens that we always have values for variables such as money, profit and income, as they are numerical by nature. Given this, the easiest way to complete this welfare function is to input these factors in as a proxy for the social welfare of the population. So here we come to the reason why monetary factors, whether they be growth, income, or profits, have traditionally dominated economics and people’s perceptions of it.
It’s a simplification – which implies that an individual’s wellbeing can be roughly equated to how much money they earn.
Do you agree with this simplification?
Happy City doesn’t – which is why it has developed an index * that recognises the multifaceted nature of social welfare. Studying economics at university also convinced me that we need to look at more meaningful measures of prosperity than simply GDP, consumption and income, and that’s why I’m volunteering here.
For too long wellbeing has been solely linked to monetary factors. Taking into account things like education, health, community and culture, that surely have just as much or more effect on a person’s welfare, is not radical. It is simply returning economics to what many of us believe is its true purpose so that we can maximise happiness for all.
Sebastian Wells, Happy City volunteer
*Happy City’s Index Thriving Places report, launching in February 2018, is a game changer for measuring wellbeing. Using a comprehensive combination of national indicators from recognised national data sources, it’s based on the belief that local progress consists of building places that provide people with the conditions to thrive – including people’s mental and physical health, work and local economy, learning and leisure, place and environment, and people and community.
The Index puts the conditions for wellbeing at its heart, and also includes equality and sustainability indicators, reflecting the equal importance given to growing a more equal distribution of those conditions and ensuring they are delivered in a way that doesn’t compromise the capacity for future generations to thrive.
Look out for further updates about the next Index coming soon.
Photo by William Warby