Redefining Progress

The Genuine Progress Indicator 2006: A Tool for Sustainable Development

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Courtesy of Redefining Progress

On October 28, 2005 the following headlines appeared in leading newspapers throughout the United States:

GDP muscles through

Economy brushes off storms and expands by 3.8 percent in 3Q, beating estimates.

The U.S. economy shook off headwinds from hurricanes Katrina and Rita to grow at a faster-than-expected 3.8 percent annual rate in the third quarter, a Commerce Department report showed Friday. (Reuters, 2005)

Perhaps no headline in recent history does a better job of illustrating why our nation’s most trusted measure of economic performance is so woefully out of sync with people’s everyday experiences. In one fell swoop, these headlines dismissed the inequitable and catastrophic toll associated with 1,836 preventable deaths, over 850,000 housing units damaged, destroyed, or left uninhabitable, disruption of 600,000 jobs, permanent inundation of 118 square miles of marshland, destruction of 1.3 million acres of forest, and contamination caused by millions of gallons of floodwaters tainted by sewage, oil, heavy metals, pesticides, and other toxins as irrelevant to the U.S. economy.

 

Few would dispute the fact that gross domestic product (GDP) fails as a true measure of economic welfare. For decades, many economists have acknowledged that the GDP has fundamental shortcomings. “GDP is not a measure of welfare,” wrote William Nordhaus and James Tobin, prominent economists at Yale in the early 1970s (Nordhaus and Tobin, 1972). The GDP is simply a gross tally of everything produced in the U.S.—products and services, good things and bad. In fact, in a 1934 report to Congress GDP’s chief architect, Simon Kuznets, cautioned that “[t]he welfare of a nation can scarcely be inferred from a measurement of national income” (Kuznets, 1934).

 

Despite these cautions, GDP maintains its prominent role as a catchall for our collective well being. Perhaps this is because there has been little consensus on a suitable replacement. Perhaps, more fundamentally, it is that there is even less consensus on how well being should really be measured and if quantitative measurements can be made at all. Nevertheless, efforts to find replacements are critical since GDP forms the basis for important public policy decisions—i.e. those predicted to increase GDP growth fare better while those shown to restrict GDP growth are often killed by political shortsightedness. Recently, GDP growth was a prominent justification for highly controversial tax cuts on capital gains while efforts to secure long overdue increases in the federal living wage have been thwarted by persistent gloom and doom forecasts with respect to effects on jobs and economic growth (Foertsch, 2006; Roth, 2005).

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