"The 'inflation rate is a measure of inflation, the rate of increase of a price index (for example, a consumer price index). It is the percentage rate of change in price level over time. The rate of decrease in the purchasing power of money is approximately equal".1
This indicator can give us a general view of how is both changing and evolving the purchasing power of one country. An increase of inflation normally means a decrease of the purchasing power, due to the higher prices of the common products. In order to reduce the effect of inflation, most part of developed countries adjust their salaries according to the inflation rate.
The inflation rate also becomes especially important when tracking the economic trends of one country. There are two possible extreme situations related with the inflation. The first one is when the increase of price levels is out of control; this is the case of the hyperinflation. The second situation is deflation, which is the opposite case of hyperinflation. Whereas some authors consider hyperinflation as a disastrous situation within an economy, deflation can has even worse consequences.
In economics, hyperinflation is inflation that is very high or "out of control". While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases rapidly as the functional or internal currency, as opposed to a foreign currency, loses its real value very quickly, normally at an accelerating rate 2. Phillip Cagan defined the hyperinflation as a monthly inflation rate of at least 50%.3
The main cause of hyperinflation is a massive and rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services. This results in an imbalance between the supply and demand for the money accompanied by a complete loss of confidence in the money, similar to a bank run. As Bernard Mufute mentions "Hyperinflation has its root cause in money growth, which is not supported by growth in the output of goods and services. Usually the excessive money supply growth is caused by financing of the government budget deficit through the printing of money".4
IAS establishes four general causes of hyperinflation 5:
Deflation means a general decrease of price levels within an economy due to a decrease of product´s demand. Is the opposite situation than hyperinflation and it is normally associated with zero interest rates.
This indicator describes the situation of one entity expenditures. The opposite concept is the surplus. When we consider deficit we usually refer to fiscal deficit, which means the Government´s expenditures. The definition of this indicator is the difference between expenditures and incomes of the public administration and during one period of time (normally one year).6
Traditionally has being used for a long time by the Governments according with the Keynesian economic policy. However this policy is being seen as inefficient, due to the negative effects it has. Some of the deficit effects within an economy are:
The importance of this indicator is not only its negative effects on an economy, but also the ability to track the economic debt. This is because monetary debt is already included in the deficit, due to the importance within one country´s expenditure.
When workers are unemployed, they, their families, and the country as a whole lose. Workers and their families lose wages, and the country loses the goods or services that could have been produced. In addition, the purchasing power of these workers is lost, which can lead to unemployment for yet other workers.8
| Country | Subject descriptor | Units | Scale | 2008 | 2009 | 2010 |
|
Finland |
Gross domestic product | National currency | Billions | 184.649 | 171.315 | 177.417 |
|
Finland |
Unemployment rate | Percent of total labor force |
|
6.363 | 8.252 | 8.809 |
|
Finland |
Employment | Persons | Millions | 2.531 | 2.457 | 2.415 |
|
Finland |
Gross domestic product | National currency | Billions | 1.088.124 | 1.053.914 | 1.051.415 |
|
Finland |
Unemployment rate | Percent of total labor force |
|
11.327 | 18.010 | 19.900 |
|
Finland |
Employment | Persons | Millions | 20.546 | 19.181 | 18.744 |
Source: International Monetary Fund, World Economic Outlook Database, October 2010
From the statistics shown, one could argue that GDP has serious flaws which tend to give an incorrect interpretation as to the true state of citizens in an economy. An increase in GDP does not imply an increase in employment or a decrease in unemployment. For example, Spain experienced a GDP growth in the year 2008, an increase of about 3.3% from the previous year; however, unemployment rate increased and employment rate which was rather expected to increase also decreased for that same year. The same could be said for the following year when there was a decrease in GDP.
From this, it could be seen that, the best economic indicator should not only be able to accurately measure the quantitative aspect of an economy, but should also have the propensity to spot out any economic activity which does not add to the welfare status of its citizens.
It's very difficult to determine how many homeless people there are in the world because countries have different legal definitions for homelessness. Natural disasters and sudden civil unrest also complicate the picture. The best we have is a conservative estimate from the United Nations in 2005.10
A press release by the United Nations Center for Human Settlements indicated that there are approximately 100 million homeless people in the world, of which most are women and their dependent children. The release also went further to state that the main reason for homelessness among women and children is poverty.11
The 2005 U.N. report looked only at people who did not have any homes whatsoever. Not included were people who lived in terrible semi-permanent places such as abandoned buildings, Vehicles, hastily put together shelters or tents. The report did not include the 'hidden homeless' who bounce from shelter to shelter or from friend's house to friend's house. Countries such as England include the hidden homeless as legally homeless.12
"Income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received... in a given period of time.13
A person's earnings or income depends on the supply and demand for that persons labor which in turn depends on natural ability, human capital and so on. In the society, a skilled person is paid more than the unskilled one. Factors like length of training, cost involved in training and demand for such labor goes a long way into determining how much a person would earn. Basically, work which requires a lot of physical strength pays less than those which required some form of formal training. Statistically, societies with high incomes tend to have a much more concentration of skilled people than those with less income. One way or the other, incomes could be used to give a generalized view of how well an economy might be doing and not necessary how well it's individual citizens are fairing.
Purchasing power is the ability of consumers to purchase goods and services with a specific amount of currency or credit. The more goods and services that can be purchased with the same amount of money in any form, the higher the purchasing power of the individual, business or other entity 14. Economically, all things being equal, the higher the income of a person, the higher his/her purchasing power is.
Purchasing power also gives an insight as to how well an economy is performing. For example, with the same given income over a given period of time, one would be able to access the amount or number of baskets of goods and services that income could buy over that period. Factors like inflation could reduce the purchasing power since it raises the price of goods and services.
"Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the exchange rate between two countries should equal the ratio of the two countries' price level of a fixed basket of goods and services. When a country's domestic price level is increasing (i.e., a country experiences inflation), that country's exchange rate must depreciated in order to return to PPP". 15
The OECD table gives each national currency per US dollar. Concretely, it means that one dollar in the USA is equal to x$ in another country. For example, the PPP in Australia in 2009 is 1, 50$. In other words, what you buy for 1$ in the USA, you buy it for 1, 50 $ in Australia. Consequently, people in Australia have less purchasing power parity.
It is the level of income below which one cannot afford to buy the basic resources required to live 16. In addition to the level of income, it also accounts for households' average spending and material deprivation. It would enable us to assess the number of people who really need a welfare assistance and the average standard of living. As it is set by each state, this measure is adapted to each country.
Poverty line can also be used as a source of economic indicator to determine the level of poverty in a country. According to World Bank figures, the number of people living below the international poverty line of $1.25 per day fell from 1.82 billion to 1.37 billion between 1990 and 2005.
Globally, the number of people living under the poverty line is decreasing. However, certain parts of the world has witnessed an increase in the number of people living under the poverty line. For example, China was able to reduce the number of people living under the poverty line by 475 million. However, India and sub-Saharan Africa saw an increase of 21 million and 91 million respectively. In all, one -third of the global poverty is located in India and over a quarter in sub-Saharan Africa.17
The percentage of people who report one of the following crimes over the previous 12 months: vehicle-related crimes, burglary and other thefts, contact crimes, non-conventional crimes and fears of crimes. A country in which the level of insecurity is high, people cannot be happy. Indeed, fear is everywhere in their lives, they are always under pressure.18
It gives the average number of years a newborn can expect to live if the living conditions remain the same. It is an indicator of the overall health of the population. Indeed, the worse living conditions are, the shorter life will be. It is quite easy to measure so we know that it is reliable, and the interpretations of the figures are quite relevant.19
It calculates the number of children who died before the age of one year divided by the total number of birth. A high rate shows not only bad medical infrastructures, but also social and economic gaps. Indeed, substandard housing, low girl's education level and no birth control account for it.20
It is given by the number of death per 100 000 populations 21. The suicide rate gives a good picture of the overall feeling of depression. It shows a real lack of well-being. Besides, it accounts for all the types of causes and it is easy to calculate, that is why it is reliable.
These facts are also included in the Happy Planet Index. We believe that they give the opportunity to take into account social life. But the question is how to evaluate them?
We could use a system of survey. But having many friends does not mean that you can rely on them all or that you are happy. There is no universal definition when it comes to define the exact number of relationships people need. Quantity is not quality. Nevertheless, we should find a way to include them because they explain a large part of well-being.
It is also included in the Happy Planet Index. Nevertheless, we do not find it relevant. Indeed, the figures allow a too wide range of interpretation. Maybe the increasing number of singles in some developed countries represents a hopeless nation. But in other countries, where there are lots of married people, the marriages can be arranged. So, be married does not explain happiness.
The education quality is important because education is a need as it contributes to the self-realization. That is well illustrated by the Maslow pyramid. The access to the education system and the possibility to get a tertiary diploma are components of the intellectual well-being of the population. That is why we take into account the alphabetization rate and the number of people who get tertiary diplomas.
A good health system with good care service reveals a society where people are safe and so preserved from the insecurity and the precariousness of diseases and accidents uncared. In order to be happy, you need first to be physically in security. It is the first step of the Maslow needs pyramid. To measure the health quality, we take the amount of health spending in percentage of the GDP.
This indicator gives the number of people who own their accommodation. Yet, being owner of his or her living place can be a source of security. Nevertheless, it is hard to define and calculate to have a relevant figure.
Having a part time job can be precarious and causes a lot of stress when someone has to have several part time contract jobs. However, working part time can be a choice. So, we decided to privilege the unemployment indicator.
As mentioned earlier in the section 2.2, the Ecological Footprint reflects the sustainable development in a nation but is only environmental protection index excluding social and economical indicators that are also important when indicating sustainability 22. However, our group decided to include Ecological Footprint to our new welfare indicator since the new indicator will also include the economical and social factors. The Ecological Footprint will be the main environmental aspect to consider since it counts in the use of the natural resources but also the amount of them in a nation. It is measurable and comparable between countries, and also gives some future prospects to consider. Our group was unanimous about the thought that the environmental well-being interrelates with human welfare, and that is why the Ecological Footprint should be included to the welfare index.
Determining the quality of air is an important issue for a country as it affects not only the public health but the balance of whole ecosystems within a country23. For example air pollution and climate change together contribute significantly to the worsening health and sustainability of forest 24. Unfortunately even though it is acknowledged by the science community that air pollution has an effect on the well-being of both nature and humans, it is still unclear to which extent2526.
There is a need to monitor air quality around the globe. However, the measuring air quality is only sensible when there is appropriate information available. Currently there is more information available on the local air quality. In the EU, due to EU directives framework, the data sets on air quality are public and disseminated via Internet 27. Unfortunately, it is still difficult to actually compare the findings as different indicators are used both on a local, national and international level28.
New air quality indexes should be devised to compare the air quality of countries. In these indexes it has to be noted that the variations of climatic conditions can influence the effect that air pollution has on human health 29 and local areas benefit more from local indexes so it should not be substituted by the new indicator30.
The most conspicuous issues in computing a new national air quality index is the issue of national borders as limits and needed equipment to ensure consistent measuring around the world. When air quality indexes are developed, the required infrastructure has to be taken into consideration31. This was also the case when EPA suggested moving from Pollution Standards Index to Air Quality Index. However as it was revealed in a study by Cheng et al. 2007, the index should be reformed to lessen ambiguity 32. We also suggest that the Revised Air Quality Index 33 should be used, as it basically does not require huge infrastructural changes but monitors the pollutant concentration levels more effectively.
There is a lot of information on the water resources available provided by reliable sources such as world bank (World Development Index)34 and Food and Agriculture organization of the United Nations (Aquastat)35. However even though the concept of water resource indexes has existed for many year, the existing indices have been developed to describe specific water resources or regional water resources, not the condition of water resources within a country36.
The index used in our new indicator is the improved water source (% of population with access)which is an index part of the World Development Indicator and is monitored by the World Bank37. This index describes how many percentage of the population can access an improved water sources which is defined as a maintained and protected water source such as household connection, public standpipe, borehole, protected wells and springs, and rainwater collection. It therefore describes both the infrastructure that enables accessibility of safe drinking water. Water quality on its own is extremely difficult to measure as situations are rather regional and ever changing which means in acute situations the indices do not reflect he actual water quality.
For the energy consumption index, we have devised our own index. In this index we plan to calculate how the ratio between energy produced and consumed has changed in one year. The index is computed as follows:
Energy Consumption figure =
Energy consumption (year 2) divided by Energy consumption (year 1)
per capita by per capita
Energy produced Energy produced
However, the shortcomings of this index is that comparing levels of two years does not take into consideration the diminishing marginal utility in becoming less energy efficient.
Data sets for this indicator can be found from World bank as part of the World Development indicators.38
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