Why GDP is an Inappropriate Measure of Economic Health
The Gross Domestic Product (GDP) is perhaps the most widely
used indicator of economic growth and well-being. The World Bank has
called it "the main criterion for classifying economies." According
to conventional wisdom, what is good for the GDP is good for the
nation; as the GDP rises, so do our fortunes. But what does it
actually measure?
Simply put, the GDP is the total value of all products and services bought and
sold, a measure of money changing hands. It is a misleading yardstick of true
progress for many reasons, most of which fall under three major categories:
- The GDP makes no distinction between productive and destructive
activities. While a realistic measure of progress would separate costs and
benefits, the GDP places a positive value on all transactions and adds them to
the total. Illness, crime, and natural disasters all cause the GDP to increase,
as money is spent to treat the sick, jail prisoners, and repair the damage. In
this way the GDP rises even as the quality of life declines.
- The GDP has no way of assessing the value of natural resources until they
enter the monetary economy, or in other words, are consumed. The trees in an
old-growth forest that provide numerous services to humans and animals alike are
worth nothing to the GDP until they are cut down for timber, at which point the
GDP has no way of accounting for the loss of their services. By celebrating
consumption rather than conservation, the GDP encourages the unsustainable
depletion of finite resources.
- The GDP completely ignores all activities and services that have no price
attached to them. Essential functions performed by the family, community, and
volunteers, such as housework and child care, don't count in the GDP. When
these services have to be paid for because people no longer have time for them,
the GDP goes up -- putting a positive value on the erosion of the social fabric.
In short, the GDP values growth at all costs over the things that really matter
to people, such as clean air and water, a healthy and safe community, and the
free time to enjoy them. The continued rise of the GDP is no longer something
to cheer about, and it is past time to establish a new way to measure our
progress.
