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GDP needs an overhaul

Marketplace Staff Jul 28, 2006

KAI RYSSDAL: Gross domestic product. It is pretty much what it says it is. The total measure of everything the economy produces domestically. As we mentioned at the beginning of the program, GDP growth came to a screeching halt last quarter. Fell by more than half. The culprits? Softer consumer spending on things like cars. A slowdown in housing. And less government spending. But commentator Hazel Henderson says we’re missing a couple of things.

HAZEL HENDERSON: The GDP became our official report card back in World War II. We used it to measure war production. It still tracks our output of goods and services in money terms.

But that calculation ignores about half of all goods and services in this country that are unpaid or don’t generate instant income. That includes everything from owner-built housing, to volunteering, child-rearing, care of the sick and elderly. Without these services, our output would collapse.

The GDP values all paid goods and services. But the value of our human capital, infrastructure like roads and schools, and our environmental resources like land and water, are valued at zero. GDP adds instead of subtracting costs and paid services like cleaning up pollution and other collateral damage from production.

GDP only counts increases in production and average incomes, obscuring how many people became poorer and how many grew richer.

GDP could include broader measures of quality of life. Why not take into account statistics on education, health, public safety, our energy grid, water supplies and the environment? These indicators complete the picture of national trends, real wealth and progress.

All such investments in our infrastructure should be booked on GDP accounts as investments. Instead, they’re all “expensed” in one year like money down a rat hole.

Relying on GDP to steer our country is like flying a Boeing 777 with nothing on the cockpit dashboard but an oil pressure gauge, no fuel gauge or altimeter. Crazy.

It’s time to broaden GDP so we can steer national policies toward less wasteful, more sustainable resource use, and invest more wisely in our people and our future.

RYSSDAL: Hazel Henderson’s a syndicated columnist. She’s also a consultant on sustainable development.

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