I think most people would agree that money isn’t everything. Even economics, the quintessential harbinger of a golden dollar sign to our minds, isn’t all about money. The field encapsulates nearly every aspect of life – incentives, decision making, human behavior. So why is it that when we measure progress we still rely so heavily on GDP, or the monetary value of goods produced in our country? I’ve written about this briefly before and recently came across a few interesting alternatives that I wanted to share.
If someone asked you how your year had been, you probably wouldn’t begin with, “Well this was my gross income,” or even stranger “My neighbor made this much money.” Most wouldn’t, and not just because it’s somewhat of a taboo to openly discuss money, but also because that is not the most indicative measure of progress on an individual basis. What’s tricky is that those moments that mean so much to us, both positive milestones (graduating from college, having a baby, volunteering at a local organization) as well as negative (the death of a loved one, illness) exist similar to the externalities I most recently posted about – outside of the market and valuation, and thus invisible within GDP. Even Simon Kuznets, the man charged with inventing the measure, conceded that “the welfare of a nation [can] scarcely be inferred from a measure of national income.”
The New Republic recently wrote about GPI, or Genuine Progress Index, and its attempts to account for what is excluded from GDP.
“Economic indicators include inequality and the cost of unemployment. Environmental indicators include the cost of water pollution, air pollution, climate change, wetlands depletion, forest cover change, and non-renewable energy resources. Social indicators include the value of housework, higher education and volunteer work as well as the cost of commuting and crime.”
When these indicators are accounted for, growth takes on a different meaning and the real economics of social welfare are revealed, as can be seen below.
Maryland and Vermont are the first two states to officially adopt GPI, and although its role in policymaking is still marginal, it is an important step towards a more holistic interpretation of growth. So many issues still keep GDP in its prominence – it’s simple to measure, tried and true, and easy to interpret. The formulas for newer, more encompassing measurements will inevitably be more complex and difficult to standardize – but again – progress in itself is just that, and so we continue to search for a more representative approach that includes more than just dollars and cents.