Written by Brad Walker, Rivers Director September 3, 2013
Imagine your spouse is in charge of your checking account and instead of deducting all checks written, was instead adding a portion of them to the account total. What would be the result?
At a minimum, you would receive a jarring message from your banker telling you that your account is overdrawn. At worst, you could be in a serious financial situation leading to bankruptcy.
This poorly managed checkbook is a simplistic analogy of how we run our nation’s economy.
Since World War II the U.S., and most other countries for that matter, use the methodology of Gross Domestic Product (GDP) to account for our nation’s financial transactions. GDP actually does a pretty good job of tracking those. Unfortunately, it was expanded to also try to monitor economic well being despite the warnings from Nobel Prize winner Simon Küznets, the economist who developed GDP and who advised Congress “The welfare of a nation can scarcely be inferred from a measurement of national income as defined (by the GDP). Goals for more growth should specify of what and for what.”
GDP totally fails to account for the losses or the degradation of our renewable natural resources including losses in wetlands, soil fertility, prime farmland, old-growth forests, rivers, aquifers, and fisheries. It also ignores the diminishing of our nonrenewable resources including metals, minerals and petroleum. Further, as hard as it might be to believe, GDP considers money spent dealing with floods, forest fires, hurricanes, tornadoes, crop failure, illness and disease (such as cancer), auto accidents, and even war as positive economic activities despite their negative impact upon the physical realities of the planet and its inhabitants.
When negative and costly events are measured as positive and contributing to the economy, it leads decision-makers and us to a false view of our economic, social and ecological condition. It hides the growing economic and ecological debt which makes it understandable then why those decision-makers make so many bad decisions and why much of the general public is not up in arms about the results of those bad decisions even though we pay the bills.
We are not counting what matters.
It is increasingly clear that we desperately need a more appropriate and accurate measure to guide us to better decisions.
Several methodologies have been developed that would be good alternatives to GDP for judging wellbeing. Here we discuss one of them, the Genuine Progress Indicator (GPI) because we believe it to be the most developed and comprehensive of the options.
GPI does a fairly good job of accounting for losses to natural resources, both renewable and nonrenewable, as well as more accurately accounting for natural and man-made disasters and health problems. GPI also adds in some social accounting for activities such as volunteerism, crime, poverty, and unemployment.
The GPI result when compared to GDP is stark, even alarming. The graph below compares GDP and GPI in the U.S. from 1950 to 2004. From 1950 to the mid-1970’s the trends were generally consistent, although GPI was lower due primarily from the adjustment made for accounting for natural and man-made disasters and health issues. But from mid-1970 onward the lines significantly diverge with GPI remaining flat while GDP continues to grow. This is the period when accounting for our increasing resource depletion, importing of petroleum, mounting pollution, and widening income disparity has had a dramatic effect.
If policy makers had been using GPI as an alternative wellbeing indicator it is quite likely different decisions would have been made to counter many of the negative economic activities and increase the positive ones because we would have been more aware of them and their impact upon the economy. In a GDP-dominated world, economic growth becomes the end of, not the means for, attaining wellbeing. By contrast, in a GPI world wellbeing is the primary goal, not economic growth.