Post 12: What's wrong with GDP?

·         GDP treats crime, divorce, and natural disasters as economic gain.

·         GDP ignores the non-market economy of household and community.

·         GDP treats the depletion of natural capital as income.

·         GDP increases with polluting activities and then again with clean-ups.

·         GDP takes no account of income distribution.

·         GDP ignores the drawbacks of living on foreign assets.

GDP is merely a gross tally of products and services bought and sold, with no distinctions between transactions that add to well-being, and those that diminish it. Instead of separating costs from benefits, and productive activities from destructive ones, the GDP assumes that every monetary transaction adds to well-being, by definition. It is as if a business tried to assess its financial condition by simply adding up all "business activity," thereby lumping together income and expenses, assets and liabilities.

On top of this, the GDP ignores everything that happens outside the realm of monetized exchange, regardless of its importance to well-being. The crucial economic functions performed in the household and volunteer sectors go entirely ignored. The contributions of the natural habitat in providing the resources that sustain us go unreckoned as well. As a result, the GDP not only masks the breakdown of the social structure and natural habitat; worse, it actually portrays such breakdown as economic gain.

The New and Improved GPI!

The GPI takes into account more than twenty aspects of our economic lives that the GDP ignores. It includes estimates of the economic contribution of numerous social and environmental factors which the GDP dismisses with an implicit and arbitrary value of zero. It also differentiates between economic transactions that add to well-being and those which diminish it. The GPI then integrates these factors into a composite measure so that the benefits of economic activity can be weighed against the costs.
The GPI is intended to provide citizens and policy-makers with a more accurate barometer of the overall health of the economy, and of how our national condition is changing over time.