Developing economic indicators of human development

Creating new monetary measures of human development
Using economic indicators
Relying on economic indicators of human development

The Index of Economic Welfare (ISEW), pioneering in the USA by economist Herman Daly and theologian John Cobb, aims to allow an assessment of the relative performance of an economy over time in delivering a better quality of life. The ISEW adjusts a conventional economic measure of personal consumption to account for a variety of changes in social welfare and the environment. The index is based, like GNP, on a measure of personal consumption in the economy. However, it then depart from the conventional measure in a number of important ways: (a) spending to offset social and environmental costs ("defensive expenditure") is taken out; (b) longer-term cost estimates of environmental damage and the depreciation of natural capital are accounted for; (c) net formation of "man-made capital" is included; (d) changes in the distribution of income are accounted for, reflecting the fact than an additional dollar in the pocket means more to the poor than the rich; (e) a value for household labour is included, to reflect non-monetarized benefits to the economy.


GNP is highly misleading if taken as a direct or proxy measure of sustainable economic welfare. This is a conservatism which can no longer be afforded.

New Economics Foundation
Type Classification:
D: Detailed strategies