Stop Focusing on GDP

The GDP is a terrible indicator of social and economic progress. It's time our political leaders realize what most people have known for decades.

“The welfare of a nation can scarcely be inferred from a measure of national income as defined by GDP”. That’s a quote from Simon Kuznets, the Belarusian economist that first invented GDP.

Incredibly, even though the metric was denounced by its own creator as a measure of national progress, growing Gross Domestic Product has been what world leaders have yearned for and pointed to as proof of progress for decades. But this focus on GDP has inevitably led us to the societal and ecological crises we face today.

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What exactly is GDP? According to the International Monetary Fund, Gross Domestic Product ‘measures the monetary value of final goods and services produced in a country in a given period of time…GDP is composed of goods and services produced for sale in the market and also includes some nonmarket production, such as defense or education services provided by the government.’

In order to constantly grow GDP, countries have to constantly produce more stuff. But there are costs to producing more stuff that don’t show up in GDP. The impacts on the planet from the greenhouse gasses emitted from the burning of fossil fuels used to power factories. The impacts on the health and well being of people in the workforce who are pushed harder to produce more. The impacts on a society experiencing massive wealth inequality.

Even in 1968, when America was experiencing economic growth across nearly all socioeconomic tiers, Robert Kennedy had harsh words for GDP as a measure of America’s progress. “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.” Sadly, Kennedy’s hopes of discarding GDP as a simplistic, outdated measure of national value and progress died with him as he was assassinated less than four months after his remarks on GDP.

In his latest book, ‘Post Growth: Life after Capitalism’, British economist and Director of the Centre for the Understanding of Sustainable Prosperity in Surrey, Tim Jackson argues that much of Western society mistakenly adheres to the myth of growth, incorrectly believing “for as long as the economy continues to expand, we feel assured that life is getting better”. But we know that for most people, even in the richest countries in the world, life has not gotten better over the last fifty years. While the richest have seen their wealth increase rapidly, most socioeconomic tiers have seen flat or even declines in wealth and buying power. And there is a strong correlation between those areas that haven’t reaped the benefits of a growing economy with poor air quality, poor education, and poor health.

And by focusing heavily on GDP, politicians have lost sight of more important measures of social progress. Since 1980, America’s GDP has increased by 650%, according to the World Bank. Yet over that same period, the poverty rate decreased by just two and a half percentage points, according to the American Census Bureau. And as Tim Jackson said on The Climate Pod, “I think, to some extent, we should measure [progress] through the health of the poorest in society…It’s not about how the rich are doing. It’s not about Jeff Bezos and Elon Musk and the possibility of sending people to Mars. It’s about the fate of the poorest, most vulnerable people in society. If you’re not measuring that and you’re not paying attention to that… then you as a society are not making progress”.

Tim Jackson argues that instead of looking simply at one metric, GDP, to determine social progress, we should look at several metrics. “When you start asking what prosperity is, you start thinking about it as health, as well-being, as us being in balance with the planet…and those are the things that you have to measure”.

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There are alternatives to GDP. Since 1971, Bhutan has measured its progress by looking at Gross National Happiness, which the country describes as the spiritual, physical, social, and environmental health of its citizens and natural environment. Since adopting this measure, Bhutan has seen its population’s life expectancy increase by 40%. The country offers free health care and free education to its citizens. And its focus on preserving its woodlands has allowed it to be a carbon-negative country – absorbing more carbon than it emits.

Earlier this year, the 24 member countries of the United Nations Statistical Commission developed a new economic and environmental statistical framework they hope to “reshape the decisions and policies for sustainable development and climate action.” The System of Environmental-Economic Accounting incorporates the value of natural assets, such as forests, wetlands, and other ecosystems, into the overall wealth of a nation. Such a framework can help countries justify preserving critical natural habitats and keeping fossil fuels in the ground.

Ultimately, we must decide what kind of society and planet we want, and then measure those aspects of life that matter most. “We can look at inequality, we can look at vulnerability, we can look at deprivation, we can look at the quality of our lives in terms of meaning and purpose and dignity and fulfilment,” Jackson told me. “GDP is one big headline measure, which seems to want to try to reflect everything. These multiple measures don’t do that, but they are a much more nuanced way of looking at our progress.”

If you want to hear more from Tim Jackson, check out my full conversation with him.