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GDP and Indicators of Economic Wellbeing
Sound Byte
At this point in history, increasing economic activity does more harm than good, so we need to adopt new
indicators of wellbeing such as the Genuine Progress Indicator.
GDP and Its Discontents
For many years, especially since World War II, nations
have equated economic growth with progress. Economic
growth is an increase in the production and consumption
of goods and services, and is indicated by increasing
Gross Domestic Product (GDP). GDP, therefore, has
become the standard measure of economic progress,
even though it was only intended as a macroeconomic
accounting tool. Prompted by Wall Street, the Federal
Reserve System, and the media, citizens generally
applaud increases in GDP.
The problem with GDP is that it doesn't separate costs
from benefits. It simply adds them together under the
heading of economic activity. In a 1968 campaign
speech, Robert F. Kennedy eloquently explained the
shortcomings of using GDP to gauge progress. Is
increasing GDP indicative of increasing wellbeing? It
depends on whether the social costs of such an increase
outweigh the benefits. GDP is a good measure of size,
but at some point bigger is worse, not better.
At the individual level, economic activity is required for
wellbeing, but the relationship becomes very weak after a
surprisingly low per capita GDP is achieved. Beyond that,
the “disutility” of production and consumption causes a
net drain on health and happiness.
GDP also has nothing to say about how income and
wealth are distributed among the people. Does
increasing GDP indicate progress if the increasing
income accrues to a very small number of people? Of
course not!
Speech Excerpt by Robert
F. Kennedy (1968)
Too much and for too long,
we seem to have surrendered
personal excellence and...