By Craig Axford | Canada
The gross domestic product (GDP) made sense in the 1930s. For one thing, we lacked both the understanding and the tools to effectively track progress in many of the areas that people really care about. For another, we were in the midst of a depression that demanded some means of confirming the success of our efforts to escape it.
In the immediate aftermath of World War II, the GDP was likewise a useful statistic to measure economic progress in countries that had been ravaged by the conflict. Though it was understood by some, including the economist who developed it, Simon Kuznets, that it wasn’t necessarily an indicator of human welfare, the fact remained that anything like human welfare was impossible to address in nations whose major cities had effectively been reduced to rubble.
The US, for its part, saw only positive impacts from the conflict. The war had pulled it from The Great Depression while two large oceans had made a bombing campaign against cities and industries based on its mainland impossible for either the Germans or the Japanese to practically pull off. Given its unprecedented economic and military position on the world’s postwar stage, America’s decision to use what was then referred to as the GNP to track economic activity and growth almost feels in retrospect like rigging the game to ensure the score always placed it way out in front.
What society measures are an indication of what it values. To Americans, the GDP figure has achieved something like the same status E=MC² enjoys amongst physicists. Donald Trump could hardly contain himself when the last quarterly report indicated America had temporarily achieved greater than 4% annualized GDP growth and felt certain that such growth figures had vindicated everything from his fiscally irresponsible tax cuts to his dangerously ill-conceived tariffs.
The problem, as has been pointed out by figures no less notable than Robert Kennedy, is that the GDP doesn’t distinguish between car accidents and car sales. The GDP “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.” Kennedy continued, “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.” Nearly three months after he delivered those words, the GDP measured the amount of money spent to mourn and bury Robert Kennedy after an assassin shot him in the kitchen of Los Angeles’ Ambassador Hotel.
Some will undoubtedly object that Robert Kennedy was being unrealistic. ‘We can’t measure the beauty of our poetry’ they will say, ‘or the intelligence of our public debate.’ What society needs, according to these GDP apologists, is an objective measure of how the economy is doing and, according to them, that’s precisely the role the GDP plays.
But there’s a problem with this line of reasoning, and it’s a big one: the economy isn’t an objective thing, at least not in the sense many economists and politicians mean. There isn’t a family on the planet that thinks that because a loved one’s death took roughly the same financial toll as their last family vacation together these two events are objectively equivalent. There isn’t a soul on earth who thinks that a weekend spent engrossed in a hobby that they truly enjoy or playing with their children is less valuable than a miserable day at work just because the GDP counts the latter as the larger contributor to economic activity. What things cost reflects how much we pay for them, not how much we value them.
In his book, Utopia For Realists, Rutger Bregman demonstrates why the GDP has always been too blunt an instrument to use as an accurate indicator of progress. Output has always been what the GDP measured best. However, automation and other improvements to efficiency are now dulling the GDP to the point that it’s practically useless as a tool for dissecting what’s happening within the economic sphere. Bregman writes:
When the musical mastermind [Mozart] composed his 14th string quartet in G major (K. 387) in 1782, he needed four people to perform it. Now, 250 years later, it still requires exactly four. If you’re looking to up your violin’s production capacity, the most you can do is play a little faster. Put another way: Some things in life, like music, resist all attempts at greater efficiency. While we can produce coffee machines ever faster and more cheaply, a violinist can’t pick up the pace without spoiling the tune.
In our race against the machine, it’s only logical that we’ll continue to spend less on products that can be easily made more efficiently and more on labor-intensive services and amenities such as art, healthcare, education, and safety. It’s no accident that countries that score high on well-being, like Denmark, Sweden, and Finland, have a large public sector. Their governments subsidize the domains where productivity can’t be leveraged. Unlike the manufacture of a fridge or a car, history lessons and doctor’s checkups can’t simply be made ‘more efficient.’
Policymakers and citizens alike are likely to make better choices when they have a diverse collection of data resources from which to draw. The GDP lumps too much together under the same umbrella, counting money spent on cancer treatment the same as money spent visiting a national park. When GDP growth alone is a nation’s primary public policy goal policies that often increase personal costs yet worsen people’s lives are too frequently incentivized.
Fortunately, there is an alternative to GDP. The Social Progress Index (SPI) tracks a nation’s progress by creating a score for categories and subcategories listed under three main headings: Basic Human Needs, Foundations for Wellbeing, and Opportunity. So, for example, one of the four main categories listed under Basic Human Needs is nutrition and basic medical care. To determine how a nation is doing in this area the SPI looks at a country’s rate of undernourishment, depth of food deficit, maternal mortality rate, child mortality rate, and deaths from infectious disease. The SPI evaluates 50 indicators overall to determine the score for any given country.
The Index aims to be a practical tool that helps leaders and practitioners in government, business and civil society to implement policies and programs that will drive faster social progress. To achieve that goal, we measure outcomes in a granular way that focuses on specific areas that can be implemented directly. The framework allows us to provide not only an aggregate country score and ranking, but also granular analyses of specific areas of strength and weakness which allow change-makers to identify and act upon the most pressing issues in their societies. ~ Social Progress Index methodology
Unfortunately, citizens are not used to thinking about all the particulars that go into creating maximum wellbeing and opportunities for fulfillment, and politicians from across the political spectrum too often seem to like it that way. Political leaders have an interest in keeping their voters focused on a single number rather than having the information they need to identify areas needing improvement within their communities, states, and countries.
The pleasure Donald Trump recently took in reporting a temporary quarterly spike in growth is a prime example of just how toxic focusing on GDP alone can be for a society. Because he had “good” GDP numbers to report the president was able to not only completely ignore the ongoing stagnation in wages but divert the public’s attention away from the slow-motion economic and political crisis that stagnation is creating. In addition, America’s skyrocketing health and education spending actually increase the GDP, incentivizing politicians that associate economic improvement with gains in this single metric alone to potentially make these problems even worse for the average American rather than better.
This laser-like focus on the GDP causes us to lose sight of the big picture. We believe we have an indicator that functions as a kind of grand unified theory of economics. In fact, the data used to generate it comes from too many disparate sources to tell us much of anything about how the economy is really doing. It tells us even less how the people that make up that economy are managing.
The GDP is a kind of life preserver thrown to the status quo. It makes it difficult to impossible to hold government, business, or other civic institutions accountable or to develop plans that target specific problems that are often desperately in need of our attention. The GDP in Flint, Michigan, for example, will probably go up in spite of the lead in its water because increases in health care spending are one of the many unfortunate side effects of lead poisoning. But while Flint’s GDP may rise, its Water and Sanitation and Environmental Quality scores on the SPI cannot. This fact alone should be enough to give those defending the GDP some objective considerable pause.
“Growth for the sake of growth,” the American writer Edward Abbey wrote, “is the ideology of the cancer cell.” We should have started asking ourselves a long time ago what ends all this economic growth was meant to serve. Instead, we lazily allowed growth itself to become the end to which all other aspirations take a back seat.
It’s always possible to convince yourself you’re making progress when you’re measuring how far you’ve moved in the wrong direction. The US does have the largest GDP on the planet, for example, but it also has tens of millions of uninsured and under-insured citizens and an infrastructure that is decaying much faster than current investment can keep up with. The $1.5 trillion in student debt that disproportionately burdens its young and poor all adds to the nation’s GDP as well but at the expense of leaving them feeling increasingly hopeless and angry.
America, along with much of the rest of the world, can keep putting off a great debate about what really matters but sooner or later entropy will demand that debate not be postponed any longer. Climate change, if nothing else, looks increasingly poised to force the issue. The SPI gives us 50 places to start the discussion, but this needn’t represent an exhaustive list. The GDP, on the other hand, represents the “ideology of the cancer cell.” Left untreated we all know where that leads.
*Author’s note: The original measurement of economic activity was known as the gross national product (GNP). The US switched to the GDP in the early 1990s. Since the criticisms raised in this article apply equally to both means of measuring economic activity, the relatively minor differences between these two methods have been intentionally ignored. With one small exception, I chose to apply the contemporary term “GDP” throughout the article for consistency’s sake.
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