Is the GDP Measurement Just Too Gross?

Economic policy-makers the world-over often measure the relative success of their national economies based upon one metric: gross domestic product. Just about every major fiscal and monetary decision starts with consideration of this number and its change over time, month-by-month, quarter-by-quarter, year-by-year. Increasing it, without reference to environmental consequences, has become the mantra of the GOP – the be-all and end-all of their metric for success. The Dems seem to agree, but believe that environmental concerns can actually create new growth in new areas and have to be considered. Still the number matters. It’s just like looking at our dropping unemployment numbers as the ultimate statistic without examining the stunning fall in real earning power that has eroded the American middle class and decimated those at the bottom of the economic ladder.

Where did the obsession with the GDP number come from? “We tend to take the GDP measure for granted as though it has always existed. Most people don’t know that it was invented only recently. It has a history. During the 1930s, the economists Simon Kuznets and John Maynard Keynes set out to design an economic aggregate that would help policymakers figure out how to escape the Great Depression. Kuznets argued for a measure that would help us maximize human well-being and track the progress of human welfare. But when World War II struck, Keynes argued that we should count all money-based activities—even negative ones—so we would know what was available for the war effort.

“In the end Keynes won, and his version of GDP came into use. GDP was intended to be a war-time measure, which is why it’s so single-minded—almost violent. It counts money-based activity, but it doesn’t care whether that activity is useful or destructive. If you cut down a forest and sell the timber, GDP goes up; GDP does not count the cost of losing the forest as a habitat, or as a future resource, or as a sinkhole for carbon. What is more, GDP doesn’t count useful activities that are not monetized. If you grow your own food, clean your own house, or take care of your aging parents, GDP says nothing. But if you buy food from Tesco, hire a cleaner, and send your parents to a nursing home, GDP goes up.

“Of course, there’s nothing inherently wrong with measuring some things and not others. GDP itself doesn’t have any impact in the real world. GDP growth, however, does. As soon as we start focusing on GDP growth, we’re not only promoting the things that GDP measures, we’re promoting the indefinite increase of those things. And that’s exactly what we started to do in the 1960s. GDP was adopted during the Cold War for the sake of adjudicating the grand pissing match between the West and the USSR. Suddenly, politicians on both sides became feverish about promoting GDP growth. GDP growth became a sacred rule. And we remain in thrall to it today.” Jason Hickel writing for the March 15^th FastCompany.com

Choices we make for society, where pushing GDP growth trumps all other efforts, can have some pretty unfortunate consequences for people who are not focused on or do not generate “growth” activities – they are often expendable – versus powerful forces that produce good numbers. The prioritization of GDP growth also goes a long way to explain the rise of the one-percenters and extreme wealth polarization that defines contemporary America, re-segmenting us into a small group of mega-rich and everybody else. The one-percenters generate upwards “average” statistical growth, so the make our numbers look good, but “average” does not factor in the economic malaise for the rest of us… the fuel of the current explosion of populism into American politics.

“The imperative for growth is incredibly powerful; probably the most powerful force in our world. When the entire global political establishment puts its force behind this goal, human and natural systems come under enormous, overwhelming pressure.

“We normally think of these as separate crises. But they are not: they are all connected. They all proceed from the same deep logic of GDP growth, the collective madness at the heart of our economic system. To fight them as separate issues is to mistake the symptoms for the disease.

People who spend their lives pushing against these destructive trends will tell you how futile it feels. It is futile because our governments don’t care. They don’t care because according to their most important measure of progress, destruction counts as good. Indeed, under the tyranny of GDP growth, the destruction must continue at all costs. The problem here is not that humans are inherently destructive. The problem is that we have created a myth that encourages us to behave in destructive ways, and have given that myth the power of a sacred rule. As Joseph Stiglitz [Nobel Prize-winner in economics] has put it, ‘What we measure informs what we do. And if we’re measuring the wrong thing, we’re going to do the wrong thing.’

Why does GDP growth retain such a hold on our imagination? Because we assume that when GDP goes up, it makes our lives better: it raises our incomes, it creates more jobs, it means better schools and hospitals and so on. This may have been true in the past. But unfortunately it no longer holds. In the United States GDP has risen steadily over the past half century, yet median incomes have stagnated, the poverty rate has increased, and inequality has grown. The same is true on a global scale: since 1980, global GDP has grown by 380%, but the number of people living in poverty has, according to World Bank numbers of people living on $5 a day, increased by more than 1.1 billion. Why is this? Because past a certain point, GDP growth begins to produce more negative outcomes than positive ones—more ‘illth’ than wealth, as the economist Herman Daly has put it (if "ill" is the opposite of ‘well,’ ‘illth’ is the opposite of ‘wealth’).” Hickel.

So many Americans still equate GDP growth as the most important number in the economic metrics box. The International Monetary Fund and the World Bank only amplify the importance of this number. But unless you are at the top of the GDP-growth-generating food chain, perhaps none of this really matters. Perhaps, it’s time for a more responsive metric, one that actually accounts for the real costs of unbridled growth – from environmental concerns and costs to the relevance of those at the lower ends of the economic spectrum who do not produce GDP increases. It will take a concerted effort, top-down-directed, and a lot explaining from our leaders. Perhaps it’s time for that change… or we are going to get a world, a future, that we may not like but will definitely deserve. What remains terrifying is how many people actually believe that “GDP” defines success, when reliance on this statistic can be a profoundly inaccurate number.

I’m Peter Dekom, and sometimes it becomes necessary to examine the basic assumptions that govern our behavior… and change when those assumptions are no longer our priority.