Why Italy Intends To Measure 'La Dolce Vita'

Measuring what matters. JL

Ferdinando Giuliagno reports in Bloomberg:

Growth will remain the main indicator to judge a country's economic success. But governments should monitor the broader impact their policies have on the well-being of citizens. Italy may be just recovering from economic crisis, but its citizens are healthier and live longer than those of most other countries in the world. The finance ministry will produce official forecasts for 12 indicators, ranging from income inequality to carbon dioxide emissions to obesity
Italy has long prided itself for its quality of life -- and with good reason. Italy may be only just recovering from a long economic crisis, but its citizens are healthier and live longer than those of most other countries in the world.
It is perhaps no coincidence then that the Italian government is pioneering the use of welfare indicators in its budget process. As of this year, the finance ministry will produce official forecasts for 12 indicators, ranging from income inequality to carbon dioxide emissions to obesity -- the first country to do so in the EU and the G-7.
Measuring "la dolce vita" is a complex task, but one other countries should consider, too. Growth will remain the main indicator to judge a country's economic success because of its conciseness. But, to the extent they can, it is hard to see why governments should not monitor the broader impact their policies have on the well-being of citizens.

The push to go beyond gross domestic product as a measure of welfare dates back at least to former U.S. presidential candidate Robert Kennedy. "The gross national product does not allow for the health of our children, the quality of their education, or the joy of their play," said Kennedy in a speech in 1968.
Since then, economists have produced a long list of reports on well-being -- the most famous of which was probably one by the Stiglitz-Sen-Fitoussi Commission set up by the French government in 2008. Yet so far this paperwork has produced little action: Governments still base their economic policy-making primarily on the basis of GDP.

There are very good reasons for continuing to do so. The choice of other welfare indicators is arbitrary and may be imprecise. In Italy, one of the biggest drivers of inequality is the gap between the young, whose incomes have fallen the most during the crisis, and the elderly, yet this is not included in the range of selected measures. There is also an issue of weighting: How will the Italian government decide which of the 12 indicators it has chosen is the most important? Finally, forecasting some variables such as "predatory crime" is bound to pose some serious headaches.
Yet this does not mean the principle is wrong. There may be cases when a government is willing to press ahead with a policy even if it reduces short-term growth because it produces benefits in terms of broader welfare. This new framework gives politicians the ability to make their case in a formal and transparent way.
Needless to say, the government's forecasts must make sense. Fiscal councils -- which independently verify economic projections -- have a role to play here too. But the rest of the EU should watch Italy's experiment -- and be ready to copy it if it works out.