The next time you hear that the “economy” grew last quarter, let’s all do a collective facepalm. Since World War II, most governments around the world have utilized GDP as their primary benchmark for how the “economy” is doing. We celebrate when GDP “grows” and we collectively frown when it shrinks. Our parliaments and central banks do everything they can to keep the economy “growing.” But GDP is not a measure of the well-being of a country or society, it never was intended to be, and it’s time that we kick this anachronism to the proverbial curb.
The Problem With GDP
The United State’s GDP is up 42% from 2010. Do you feel 42% happier…42% wealthier? Are the state of affairs nearly 50% better than there were ten years ago? GDP, or Gross Domestic Product, is merely a measure of the approximate value of the goods and services produced within a country in a given period of time. While it gives us a rough idea of broad economic activity, GDP fails to capture the nuances that come with such activity, and it misses a lot of it entirely.
Here’s an example, if a steel factory is built that provides jobs and opportunity for local townspeople, that’s great! The GDP grows! But if that same steel plant pollutes the town’s water supply, causing hundreds of people to develop cancer, that is even better… so far as GDP is concerned! You see, medical bills and funerals are expensive, and they too add to the goods and services that “grow” the economy. The GDP grows regardless if the driver of that “growth” is positive or negative.
GDP also misses large swaths of the economy, leaving them uncounted even though their “production” is a net good. When a father or mother stays home to take care of his/her children instead of working and sending that child to daycare, the GDP falls because the value of parental supervision in the home is uncounted labor. In fact, much of what we call “growth” is the shifting of previously uncounted non-market transactions to market ones. Paying $1000 a month to send a child to daycare and then having to work a second job for to pay for that daycare adds no real utility to peoples’ quality of life. It’s great for the GDP, even if no real “growth” even took place!
The blind pursuit of GDP growth is resulting in economic, social, and political distortions that impact human civilization in very negative ways. Collectively, we already know this and feel this intuitively. Studies show that beyond a certain level required to satisfy basic human needs, additional GDP growth does not result in any corresponding better quality of life.
Okay, But What’s the Alternative?
There are plenty of alternatives that already exist. Two notable metrics are the Genuine Progress Indicator (GPI) and Human Development Index (HDI). These GDP alternatives attempt to account for facets of life that exist outside the bounds of pure economic production, including education, life expectancy, wealth inequality…etc. They also do their best to parse out economic activity that provides genuinely positive externalities while subtracting the negative externalities that cause societal harm.
If you look at the estimated GPI of the United States, for example, American society and standards of living have not progressed at all since the late 1970s. This might account for the zeitgeist of disenfranchisement that has engulfed American politics on the right and left in the present day.
Critics of GPI and HDI will argue that such metrics are subjective and open to manipulation. They also will argue that it is too difficult to calculate negative externalities with any real accuracy. The critics are all correct, but such criticism neglects that GDP itself also places value judgments on growth (that only market production matters) and it too miscalculates economic activity by missing large portions of total production.
There is never going to be a perfect indicator of human development and societal well- being. That does not mean, however, that there is no value in pursuing something better than GDP. If we know anything at all by now, we must all know that the thinking that drove the post-WW2 era will no longer work in the 21st century. It’s time to start thinking differently before our complacency catches up with us. That is why I have started The Lianeon Project, where I am compiling all of the best ideas to make humanity better into one website. Please join me in the pursuit of a better world.