Germany may see Q4 shrink; GDP's status as wealth guide may go; Happiness, equality & economic growth

1 Germany may see a Q4 shrink (BBC) Germany, the main funder of the eurozone's many bailouts, may see its economy shrink by the end of the year as the crisis bites, the central bank has warned. Europe's largest economy will grow in the third quarter, but may experience a "slight contraction" in the last three months, the Bundesbank said. Germany has so far continued to grow while many of its neighbours shrink.

Meanwhile, Greece's deficit last year was higher than previously expected. Greece's deficit was 9.4% of output in 2011, the Hellenic Statistical Authority said. In April, it estimated that the public deficit stood at 9.1%. Greece's debt stood at 170.6% of GDP, a large jump from 148.3% in 2010.

In Germany, the Bundesbank said: "There are increasing signs that, following a noticeable expansion in output in the third quarter, we might see stagnation or even a slight contraction in gross domestic product (GDP) in the fourth quarter." Germany grew 0.5% in the first quarter and 0.3% in the second quarter. Europe's largest economy is the main backer of the two eurozone rescue funds, which have been used to bail out Greece, Ireland, Portugal and, soon, Spain's banks.

2 GDP’s status as wealth guide may change (Jane Gleeson-White on BBC) Britain has now posted three consecutive quarters of declining gross domestic product – the most recent figures show the economy has shrunk by 0.5%. With the latest set of GDP figures due to be released later this week, the nation remains sunk in the longest recession since the second world war.

But GDP is also coming under a different sort of scrutiny in these days of economic woe. GDP measures all legal transactions in the financial economy – no more and no less. And yet, since its inception in the 1930s, it has become the single most important policy tool for governments, financial institutions and corporations.

But GDP is a partial and misleading measure of national wealth and wellbeing. The problem is that it does not measure key goods in our economy, those unpriced but priceless services carried out by domestic workers and by nature – for example, the coastal defence of coral reefs, the pollution-filtering of wetlands, the nutrient recycling done by the soil and the unpaid work we do in our homes. And yet GDP does include bad elements such as pollution, crime, cigarettes and their related health costs and environmental disasters, which boost GDP and so generate economic growth.

These omissions and inclusions generate alarming anomalies. Here are two: we are better economic agents if we eat out at expensive restaurants rather than cooking food we've grown at home; cleaning up the 2010 BP oil spill in the Gulf of Mexico was worth more economically – in GDP terms – than the carbon absorption provided by the Amazon rainforest.

Under current GDP measures, countries that cut down forests for timber exports, dynamite their reefs for fish, pollute and degrade their soil for intensive agriculture and allow farms and factories to contaminate their waterways get rich.

3 Happiness, equality & economic growth (Robert Skidelsky in The Guardian) A new finding has also started to influence the current debate on growth: poor people within a country are less happy than rich people. In other words, above a low level of sufficiency, people's happiness levels are determined much less by their absolute income than by their income relative to some reference group. We constantly compare our lot with that of others, feeling either superior or inferior, whatever our income level; well-being depends more on how the fruits of growth are distributed than on their absolute amount.

Put another way, what matters for life satisfaction is the growth not of mean income but of median income – the income of the typical person. Consider a population of 10 people (say, a factory) in which the managing director earns $150,000 a year and the other nine, all workers, earn $10,000 each. The mean average of their incomes is $25,000, but 90% earn $10,000. With this kind of income distribution, it would be surprising if growth increased the typical person's sense of well-being.

That is not an idle example. In rich societies over the last three decades, mean incomes have been rising steadily, but typical incomes have been stagnating or even falling. In other words, a minority – a very small minority in countries like the US and Britain – has captured most of the gains of growth. In such cases, it is not more growth that we want, but more equality.

We live in a pushy society with turbo-charged fathers and "tiger" mothers, constantly goading themselves and their children to "get ahead". The 19th-century philosopher John Stuart Mill had a more civilised view: "I confess I am not charmed with the ideal of life held out by those who think … that the trampling, crushing, elbowing, and treading on each other's heels, which form the existing type of social life, are the most desirable lot of human kind … The best state for human nature is that in which, while no one is poor, no one desires to be richer, nor has any reason to fear being thrust back, by the efforts of others to push themselves forward."

That lesson has been lost on most economists today, but not on the king of Bhutan – or on the many people who have come to recognise the limits of quantifiable wealth.