There’s No G-D-P in “A Better Economy”
The year-end numbers have been
tabulated, and America is winning the race by a large
margin. The nation's closest competitor, China, scores
only half as high, and European nations, Japan, and
Brazil lag way behind with little chance of catching
up.
This statement is not about medal counts from the
summer Olympics; it's not about citizens' health; and
it's certainly not about student test scores in math
and science. It's about GDP. The United States
continues to dominate the race for the biggest
economy.
Gross domestic product has become the most watched
and most misinterpreted of all economic indicators.
It's a measure of economic activity—of money changing
hands. Despite the mundane nature of this economic
indicator, politicians fiercely compete with each
other to see who can promise the fastest GDP growth.
Government programs and investments in technology get
the green light only when they are predicted to spur
GDP growth. Economists, bankers, and businesspeople
pop the champagne corks when they hear "good news"
about quarterly GDP numbers.
And while the United States leads in GDP, it also
leads in military spending, the number of people in
prison, and the percentage of people who are obese.
These other first-place finishes seem at odds with
America's position atop the GDP standings—that is,
until you realize that spending on war, incarceration,
and disease, as well as other "defensive
expenditures," all count toward GDP. The arithmetic of
GDP doesn’t consider what the money is actually being
spent on, and over time, we’ve been spending more and
more money on remedial activities and calling this
"progress."
Counting all these negatives in GDP (not to mention
omitting positive activities such as raising children,
volunteering, and caring for elderly people) seems
like an oversight or an accounting mix-up. But it also
seems like something that could be easily fixed. Many
people, including Nobel laureates in economics (and
even the laureate who invented national income
accounting) have issued stern warnings not to confuse
GDP with national progress, and many forward-thinking
economists have proposed alternative indicators of
progress.
One such indicator, touted by The Economist,
was designed expressly to assess quality of life in
contrast to GDP. You can think of it as a "where-to-be-born"
index, and it takes into account a lot of things
besides GDP, including markers of health and
happiness. Back in 1988, The United States was number
one on this index, but it has been falling off the
pace and now sits way back in the pack behind nations
like Switzerland and New Zealand.
Even though we have a technical solution to the
problem (new indicators are proliferating; for
examples, see the Ecological
Footprint, Happy Planet
Index, Genuine
Progress Indicator, and the United
Kingdom's Sustainable Development Indicators),
nations have failed to embrace alternative indicators
and put them into widespread use. Politicians and the
media continue to obsess over GDP. The reason we're
having such a tough time abandoning GDP, despite all
the criticisms that have been heaped upon it, is that
the economy, as it’s currently configured, must grow
to escape recession. And GDP is the marker of economic
growth.
But it doesn’t have to be this way. With different
economic policies, it’s possible to create an economic
system that is not geared for growth and that does not
require growth to guarantee jobs. For example, we can
use the benefits of technological progress to reduce
working hours and lower unemployment, instead of using
them to produce and sell more stuff. We can give the
Federal Reserve the power to manage the money supply
directly, instead of allowing private banks to create
most of our money in the form of interest-bearing
loans. By reforming certain key economic institutions,
we can do away with the growth imperative that is
built into our economy at the moment.
So long as the economic system calls for growth, GDP
will continue its reign as the primary economic
indicator, a situation that sets up a chicken-egg
conundrum. On the one hand, consigning GDP to the
dustbin of history would help shift the focus of the
economy away from growth and toward human well-being.
On the other hand, shifting the focus away from growth
would impart a demand for adoption of better measures
of progress. No matter which comes first, there's a
need to change economic direction—to make a transition
to an economy that operates on the principle of enough,
rather than one that perpetually chases more.
When will the United States and other nations pull out
of the maddening race for more and recognize
that it's the journey to enough that really
matters? And on that journey, we need to measure what
really matters—the health of our societies and the
environmental systems that contain them.
Read an excerpt from Enough
Is Enough.
