Measuring More than GDP

Gross domestic product (GDP) has been the singular measure of a country’s economic health for what seems like forever. But that approach is under pressure, according to a recent New York Times magazine article.

The lengthy piece by Jon Gertner, “The Rise and Fall of the G.D.P.,” notes that while “academics and gadflies” for some time have been critical of GDP as an inaccurate and misleading global gauge of prosperity, the attitude towards it recently has been challenged by world leaders and by international groups such as the Organization for Economic Cooperation and Development (OECD). OECD is the Paris-based group of 31 member countries that is “committed to democracy and the market economy from around the world to: support sustainable economic growth, boost employment, raise living standards, maintain financial stability, assist other countries’ economic development, contribute to growth in world trade.”

GDP, for the uninitiated, is an index that tracks a country’s entire economic output. It’s a handy and somewhat useful snapshot that’s heavily stressed and analyzed by economists and stat freaks. There’s an increasing realization, however, that it shortchanges human elements and factors in calculating or understanding sustainable economic activity.

“The G.D.P., according to arguments I heard from economists as far afield as Italy, France and Canada,” writes Gertner, “has not only failed to capture the well-being of a 21st-century society but has also skewed global political objectives toward the single-minded pursuit of economic growth.”

There are many buts about GDP. For instance when Boeing sells hundreds of aircraft to airlines, foreign and domestic, that has a nice impact on the local economy where the planes are built in Washington State and on overall GDP, but it says nothing about the economic condition of a retailer in Mississippi or unemployment in Missouri.

And what about staying home to raise children? GDP does not account for that activity.

Other measures are needed and coming into play, Gertner says. The Canadian Index of Well-Being is debuting this year “as a counterweight to the monolithic gross domestic product numbers,” the Times magazine article states.

It could be that dozens or even hundreds of indices and indicators are needed to track economic growth and prosperity in a meaningful and more human way. The article cites a non-profit organization in Washington D.C., State of the USA, which could become a national clearinghouse for a “key national indicators system,” something that the recently enacted health care bill calls on Congress to help finance.

“Think of it as a report card meant to show a country’s citizens the exact areas — in health, education, the environment and so forth — where improvement is called for; such indicators would also record how we improve, or fail to improve, over time. The State of the USA intends to ultimately post around 300 indicators on issues like crime, energy, infrastructure, housing, health, education, environment and the economy,” says Gertner.

The article has a section that discusses the relative merits on the economy of High-GDP Man vs. Low-GDP Man: Over the short term the conspicuous consumer and spender may be a boon to the economy, but as Gertner writes: “We don’t know if High-G.D.P. Man is living beyond his means, so we can’t predict his future quality of life. For all we know, he could be living on borrowed time, just like a wildly overleveraged bank.”

A major problem with GDP as the go-to measure is that it doesn’t place economic value or account for work done in the home, such as housework or child care or cooking dinner at home. At the same time, economic activity as measured by GDP is too-often mistakenly equated as citizens’ well-being.

Don’t expect the monthly tracking of GDP to go away though; trying to index human happiness and well-being seems a tad too out there, but it would help if other economic, societal and environmental indicators gained similar attention and stature. Even economists acknowledge that unemployment claims, consumer spending, retail sales and inventories tell us how the economy is doing. There are many numbers that reveal economic consequences; very few tell us about social consequences.

As Nobel Laureate Joseph E Stiglitz told Gertner, “What we measure affects what we do.”

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