A better yardstick
Seventy years ago this January, a young economist named Simon Kuznets presented Congress with a convenient new way to measure the productivity of the economy — but he was careful to point out its limitations and potential for abuse. “The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria,” he wrote in his report. “… The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.” However, the allure of the statistic proved too strong, and 10 years later, gross domestic product was adopted via the Bretton Woods conference as the predominant indicator of economic progress.
What’s wrong with GDP? Gross domestic product is effective in what it was designed for: namely, comparing levels of activity between sectors of the economy. But as an accounting measure and as a measure of national well-being, it is perverse.
For one thing, GDP ignores distribution. The end of the recent recession was marked by a period of growth in which 95 percent of the new wealth was captured by the richest 1 percent.
GDP also fails to differentiate between income and capital depletion. By burning coal and transportation fuels, we boost GDP while quickly depleting the waste absorption capacity for our emissions.
Furthermore, overwhelming evidence shows that the tripling of GDP since the 1970s has left us no happier or satisfied with life.
The obsession among economists, politicians and the media with growth in GDP distracts us from addressing serious national and global issues, while providing no benefit. As Bobby Kennedy pointed out in 1968, “it measures everything, in short, except that which makes life worthwhile.” It’s time we heeded Kuznets’ advice and adopted a more meaningful indicator of economic progress.
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