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How The GDP Is Leading Us Terribly Astray
July 6th, 2010

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The number of unemployed Americans has more than doubled in the past two years. Unemployment is now worse than at any time since the Depression of the 1930s. Millions of people have lost their homes to foreclosure. And tens of millions more have lost their savings, their pensions, and their retirement security.

These statistics are grim, but they say nothing of the human toll, the families torn apart and the lives destroyed. The numbers give no indication of the pain, the rage, and the hopelessness that now permeate so many people’s lives.

How do we measure our nation’s economic performance? The answer, for more than seventy- five years, has been the gross national product (GNP) and its nearly identical twin, the gross domestic product (GDP).

No numbers have mattered more to the thinking and decisions of our policy makers. So central and so basic to our economic thinking has the GDP become that virtually every nation on Earth uses its GDP as its fundamental measure of economic progress, as its primary way of assessing whether its economy is flourishing or not. The reason the United States is considered the world’s most prosperous nation is because it has the largest GDP. Economists, politicians, and other leaders take for granted that the higher a nation’s GDP, the better off are its people.

Unfortunately, using the GDP to measure prosperity and assess economic well-being is leading us terribly astray. It is a statistical index that is guaranteed to mislead us, and relying on it as we have done has added greatly to the economic misery in people’s lives. Two months before he was assassinated, Robert F. Kennedy eloquently explained why:

“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 redwoods, and the loss of our natural wonder in chaotic sprawl. It counts napalm, nuclear warheads, and armored cars for the police to fight the riots in our cities. 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.”

How can we develop a healthy relationship to wealth and to genuine progress when our most fundamental gauge to assess economic well-being is so askew? The GDP, like the GNP, simply adds together all monetary expenditures. The GDP does not care one whit what it is we’re consuming, about how equitably distributed a country’s wealth might be, nor whether the money we spend is ours or is borrowed from future generations. It doesn’t care about infant mortality rates or the amount of violence in a society. It doesn’t take into any account how many people are homeless, unemployed, or hungry. It is entirely possible for the nation with the world’s highest GDP to also have the world’s highest poverty rate, the highest amount of unemployment, and the world’s highest level of national debt.

The GDP rises whenever money changes hands. When families break down and children require foster care, the GDP grows, but not so when parents successfully care for their children. People who max out their credit cards buying things they don’t need make the GDP look good. People who save their money and live sensibly don’t. Seen through such a lens, the most economically productive people are cancer patients in the midst of getting acrimoniously divorced. Healthy people in happy marriages, in contrast, are economically invisible, and all the more so if they cook at home, walk to work, grow food in a home garden, and don’t smoke.

The more people drive, the higher the GDP rises, due to the greater production of gasoline and cars. No account is taken of the number of hours wasted in traffic jams or the pollution unleashed into the atmosphere. In recent years, the GDP has gotten substantial boosts from toxic waste spills and the boom in prison construction. The whole thing is reminiscent of Edward Abbey’s reflection that “growth for the sake of growth is the philosophy of the cancer cell.”

Meanwhile, anything that doesn’t involve monetary exchange simply does not register to the GDP. Unpaid service such as housework and child care might as well not exist. Natural resources such as rivers and oceans, topsoil and forests, the ozone layer and the atmosphere, are seen as essentially valueless, unless, of course, they are exploited and converted into revenue. But even then, the GDP measures the resulting economic activity in a manner that is fundamentally misleading. As economist Mark Anielski points out, by counting the depletion of natural resources as current income rather than as the liquidation of assets, the GDP “violates both basic accounting principles and common sense.”

At this moment, we are experiencing the worst financial crisis in the last seventy-five years. One of the reasons the crisis took so many economic experts by surprise is that the systems we use to measure our economic well-being failed us. They did not register that the euphoric growth performance of the world economy prior to the 2008 downturn was, in fact, utterly unsustainable. It is clear now that much of the then-heralded economic growth was a statistical mirage, based on real estate and stock prices that had been grossly inflated by bubbles. If we had had a better measurement system, would we have seen the problems earlier? Would governments have been able to take precautionary measures to avoid or at least minimize the present turmoil?

If we employed a better way of assessing economic conditions, would we have fewer broken lives and less despair?

These comments are moderated to support respectful, non-commercial, and open-minded dialogue.

One Response to “How The GDP Is Leading Us Terribly Astray”

  1. Victoria says:

    Dear Mr. Robbins,

    As a mother at home, I couldn’t agree with you more!! I am, apparently, worthless to the State as I rear my two children, make home-cooked meals (love your split pea and cabbage soup!), pitch in to help friends who need respite, spend the kids’ nap time, um, reconnecting with my husband :) (rather than buying things on line!) and generally living a life that I love in a way that supports our family’s health and well being. It ENRAGES me that all this, as measured according to our GNP, is for naught…. But I think of my friend’s bumper sticker: ‘It’s easier to raise children than repair broken men’. And I’ll just keep right on, doing what I’m doing… I’d be interested to know by what ‘measure’ you could quantify my activities, though?

    With thanks for the work you do

    Victoria

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