GDP: Failure to Measure Standard of Living

GDP measures everything “…except that which makes life worthwhile.”

“Our Gross National Product…counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities..., and the television programs which glorify violence in order to sell toys to our children. Yet the Gross National Product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”

-Robert F. Kennedy, speech at the University of Kansas, March 18, 1968

For more than a half century, the most widely accepted measure of a country’s economic progress has been changes in its Gross Domestic Product (GDP). GDP is an estimate of market throughput, adding together the value of all final goods and services that are produced and traded for money within a given period of time.

Economists have warned since its introduction that GDP is a specialized tool, and treating it as an indicator of general well-being is inaccurate and dangerous. However, over the last 70 years economic growth—measured by GDP—has become the sine qua non for economic progress.

GDP measures only monetary transactions related to the production of goods and services, it is based on an incomplete picture of the system within which the human economy operates. Another concern that has been raised about GDP as a measure of progress is the ‘threshold effect.’ As GDP increases, overall quality of life often increases up to a point. Beyond this point, increases in GDP are offset by the costs associated with increasing income inequality, loss of leisure time, and natural capital depletion.

The time is right to embark on a new round of consensus-building processes that will re-envision what was institutionalized over the last 65 years. The need is clear for:

(1) new goals with a broader view of interconnectedness among long-term, sustainable economic, social, and ecological well-being;

(2) better ways to measure progress towards these goals; and

(3) an invigorated campaign for the realization of this evolved economic system with new institutions.

Source:

https://www.economist.com/blogs/economist-explains/2016/05/economist-explains

https://www.bu.edu/pardee/files/documents