Why We Should Stop Obsessing About GDP
One of the most prevalent and damaging assumptions embedded in most economic debates is the widespread assumption that being successful economically is almost entirely a matter of engineering economic growth. It is further assumed that boosting growth — as measured by increases in GDP (Gross Domestic Product) — should be the overarching aim of government economic policy.
Rapidly rising GDP indicates a successful economy, whilst sluggish GDP growth or falling GDP indicates economic failure — or so it is commonly assumed! Rarely does anyone prominent in politics so much as question these assumptions.
The trouble is that GDP figures are not only an inaccurate and misleading measure of economic activity, they don’t even really measure economic success at all. GDP measures activity, not results.
It’s like measuring how fast a hamster is going round in its wheel, whilst completely ignoring the fact that it isn’t actually getting anywhere.
It is true that very low levels of economic activity tend to be indicative of low standards of living. For modern, developed economies, however, the relationship between GDP and standards of living is far more tenuous. Beyond a certain point, we don’t have any really compelling evidence that further economic growth makes us any better off at all.
GDP is, at best, a crude measure of how much activity is going on in the economy — but it completely ignores whether that activity is actually achieving anything worthwhile. It ignores whether that activity is making us better off or worse off.
The tobacco industry, for example, adds to GDP, but it doesn’t achieve anything of any value. Indeed, it probably make us considerably worse off. And if we produce and consume more highly-processed food, that adds to GDP, even whilst consuming that extra food is merely adding to the obesity crisis.
At the same time, many activities that do help make us better off, as individuals or as a society, are largely ignored. If you educate yourself by borrowing and reading a a book, that may add nothing to GDP if there is no record of any financial transaction having taken place. That doesn’t mean that reading that book hasn’t made you happier or helped you become a better person.
To be able to measure true economic success, we would need to have some sort of meaningful criteria for assessing success — some goals against which we can judge our progress. Growing GDP, in itself, is not even remotely any sort of useful measure of success, because it alludes only to the amount of qualifying activity that is going on, not to what that activity is actually achieving.
There are many far more useful and more meaningful ways of measuring success than looking at GDP figures. We could measure literacy levels, for example. We could look at various health indicators. We could look at life expectancy. We could look at pollution levels. We could look at suicide rates. We could look at whether wages are rising in real terms. We could look at whether holiday entitlements are increasing. We could look at unemployment rates. We could look at divorce rates.
We’re not likely to come up with any sort of complete and all-encompassing measure of success — since we don’t all agree on what ‘success’ refers to — but indicators such as these do at least measure important and meaningful things.
Can we provide our people with a decent standard of living? Can we enable them to have a decent work-life balance? Can we give them opportunities to pursue their ambitions, be happy and fulfilled and contribute to the success of the wider society in which they live? Can we raise happy, well-educated children? Can we advance science and technology? Can we produce great art? Can we act to protect the environment? These are the sorts of worthwhile questions we really ought to be asking.
One day, perhaps, economic growth will essentially stop — and not just temporarily — because we just don’t need ever more and more and more goods and services. This end to growth will not mean that we can’t be a successful economy and a successful society. Indeed it might be a sign that we have become a more successful economy — one that has finally realised that economic growth is not the be-all-and-end-all of economic success.
Economic activity is supposed to achieve important things. It is not supposed to be activity for activity’s sake. Merely producing more goods for the sake of producing more goods makes no economic sense.
We might actually be better off producing and consuming rather less than we do now — yet this clear possibility is almost never so much as considered in mainstream economic debate.
We’ll have a far better chance of achieving real economic success if we stop to think intelligently about what real economic success actually looks like, instead of obsessing about largely meaningless GDP statistics.