“GDP includes activities that are detrimental to our economy and society in the long term, such as deforestation, strip mining, overfishing and so on,” Arnold said.

It has been labelled “the most powerful statistical figure in human history” by author and lecturer Philipp Lepenies, and named “one of the great inventions of the 20th century” by the Federal Reserve Bank of St Louis. In order to accurately measure an economy’s health and wellbeing, and to change the way we think about prosperity, a range of robust indicators is needed. It continues to this day.But a measure created to assess wartime production capabilities of a nation has obvious drawbacks in peacetime. Other surveys and indices, meanwhile, aim to measure the even more subjective quality of happiness: Lord Richard Layard, a professor at the London School of Economics, has been a pioneer in this area, and believes the government should prioritise policies that boost happiness over growth.

All rights reserved. GDP does not take into account the sustainability of future GDP 2. With a change in what we measure and perceive as a barometer of development, how we frame our policies will also catch up. GDP was not designed to assess welfare or the well being of citizens. C) a measure which includes the value of all newly produced goods and services. We’re seeing some efforts already, such as Bhutan’s attempt to measure Gross National Happiness, which considers factors like equitable socio-economic development and good governance, and UNDP’s Human Development Index (HDI), which encapsulates health and knowledge apart from economic prosperity.As a step in this direction, India is also beginning to focus on the ease of living of its citizens. He rejected Kuznets’ version, which included government income, but not spending, in his calculation. There is no scope for the positive or negative effects created in the process of production and development.For example, GDP takes a positive count of the cars we produce but does not account for the emissions they generate; it adds the value of the sugar-laced beverages we sell but fails to subtract the health problems they cause; it includes the value of building new cities but does not discount for the vital forests they replace. It also performed well in areas such as family violence and sexual violence – other categories New Zealand has typically struggled with in comparison to other developed countries. But since its development in 1990, the UN has also introduced other composite indices, including the Inequality-adjusted HDI, the Gender Inequality Index and the Gender Development Index.
Year 12 economics students are likely to have studied the various measures of national happiness, or wellbeing, as alternatives to GDP. Yet policymakers and economists often treat GDP, or GDP per capita in some cases, as an all-encompassing unit to signify a nation’s development, combining its economic prosperity and societal well-being. Ecological economist Robert Costanza published a paper entitled The UN admitted its index only provides a window into human development and fails to account for aspects such as inequality, poverty, human security or empowerment. But before we attempt to improve upon the concept of GDP, it is instructive to understand its roots.Like many of the ubiquitous inventions that surround us, the modern conception of GDP was a product of war. GDP does not take into account the value of non-monetized activity 3. Every 90 days we breathlessly await the latest GDP estimates to see how the economy is doing.

It cannot differentiate between an unequal and an egalitarian society if they have similar economic sizes. Broadening the scope of assessment to include externalities would help in creating a policy focus on addressing them.GDP also fails to capture the distribution of income across society – something that is becoming more pertinent in today’s world with rising inequality levels in the developed and developing world alike. Since the 1990s, economists have looked into the possibility of putting a price tag on natural resources to ensure their value is taken seriously. “Mental health is no longer on the periphery of our health system,” Grant Robertson, New Zealand’s Minister of Finance, said at the budget’s unveiling. In actual fact, all of these resources can be – and are being – depleted by humans. Comprehensive wealth, on the other hand, accounts for all of a country’s assets, including: produced capital, such as factories and machinery; natural capital, like forests and fossil fuels; human capital, including the value of future earnings for the labour force; and net foreign assets.GDP’s neglect of natural capital in particular has received more attention in recent years.
GDP “is also extremely useful as long as we properly understand what it is”, he argues. India, for instance, where we both work advising the government, is developing an Ease of Living Index, which measures quality of life, economic ability and sustainability.When our measures of development go beyond an inimical fixation towards higher production, our policy interventions will become more aligned with the aspects of life that citizens truly value, and society will be better served.

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