Brad DeLong sends us (without comment) to Nicholas Oulton in defense of GDP as a measure of welfare.
On Oulton's piece, the LIMEW data are really interesting. I haven't thought about those data and maybe someone who knows them well would have an objection to the way they're used here, but I don't see a way that Oulton's point is obviously wrong.
I think he's on shakier ground with his critique of the idea that GDP growth doesn't make people happier.
"First, if people care mainly about their relative position, why has there been so much fuss about the financial crisis? After all, for most people in the UK, the drop in income has been (on this view) trivially small, no more than 8% – and at least initially, it fell disproportionately on the rich."
That's trivially easy. The same sorts of surveys report that people care not only about their position relative to others, but the change in their own position over time. If everyone goes down 8%, then nobody's worse off relative to anyone else, but everyone is worse off relative to their 2007 selves.
And of course it's not everyone going down 8%. There's nothing in the Easterlin Paradox to suggest that people won't be unhappy about being unemployed or becoming homeless or going from a 6-figure income to a mid-5-figure income. And the business about the 8% drop falling (initially) disproportionately on the rich is, well, rich. It's true in terms of average impacts at different income levels, but if we were to look at rates of immiseration at different initial income levels, I think we would find much higher rates at low incomes than at high.
"Second, if people care about their relative position, why does this have to be expressed in terms of annual income? After all, most workers today can work part-time if they want. So why can’t A boast that his daily rate of pay is higher than B’s even if B’s annual earnings are higher and this is because smart A works only three days a week while poor dumb B, a slave to the rat race, works five?"
Well sure, people _could_ care about relative hourly earnings, but does Oulton have any evidence that we _do_? The phrase "keeping up with the Joneses" has never been about matching their wage rate; it's always about what you can buy.
"Yet surveys of part-time workers regularly show that many would like to work longer hours if only they could. And while it is true that some leisure activities like skiing require a lot of complementary expenditure on stuff, many other activities – watching TV, surfing the internet, chatting with friends in pubs or cafés or avoiding Betjeman’s regret – do not."
Do those surveys control for income? If I were working part-time and pulling down $12,000 per year, I'm pretty sure I'd prefer full-time work. On the other hand, at my college there are two couples where both people are professors and they have chosen to share a 1.5 appointment, where each partner has a 0.75 position. We're by no means poor, but our salaries aren't lavish by academic standards, so you don't have to be very rich to be willing to give up money for time. Other survey evidence suggests that many more people above the poverty line would be interested in this tradeoff, if their employers were to allow it.
There's also the small matter of health insurance. In the U.S., if you're fortunate enough to have employer-provided insurance, it's usually conditional on full-time employment. It would be interesting to know how many people would be interested in working part-time if that didn't mean losing coverage.
Oulton finishes with a discussion of the effect of new goods on stimulating people to work harder so that they can afford those goods. It's an interesting point, and I'm certainly not volunteering to go back to a world without, say, this laptop I'm working on. But at some level it also begs the question. One of the arguments against GDP is that marketing and social pressures induce us to work and consume more than we might otherwise. And Oulton is arguing that new goods induce us to work and consume more than we otherwise would. It may or may not make us happier--he doesn't provide any evidence either way.
There's a lot more in objections to GDP than Oulton acknowledges.