Uncovering the Flaws in G.D.P.

We have gotten into the habit of measuring our prosperity by the size of our Gross Domestic Product, the sum total of the goods and services we produce.  It’s a kind of common sense index, analogous to how we use the height and weight of our children to measure how they are thriving.  It is one of those simple facts we take for granted.

But that is among the ideas the Great Recession is calling into question.  The inflated values of the real estate bubble not only were unstable, they actually ended up producing more misery for those forced to abandon their homes because they could not keep up mortgage payments.  And all those bonuses earned in the financial industry for devising sophisticated financial instruments that fueled the collapse – were they reliable signs of healthy growth?

Last week two Nobel prize-winning economists, Joseph Stiglitz and  Amartya Sen, unveiled a competing concept, commissioned by French President Sarkozy, for presentation to the G-20 in Pittsburg.  According to a story in The New York Times, Stiglitz said: “G.D.P. as a measure of how well we were doing . . . doesn’t tell us whether it’s sustainable. . . . What began as a measure of market performance has increasingly become a measure of social performance, and that’s wrong.”  Their plan concludes: “Instead of centering assessments on the goods and services an economy produces, policy makers would do better to focus on the material well-being of typical people by measuring income and consumption, along with the availability of health care and education.”  (See, “Emphasis on Growth is Called Misguided.”)

Last Spring, traveling in Bhutan, I encountered the concept of Gross National Happiness, introduced by their king, about 35 years ago.  Trying to find a middle way for his country’s economic development, the king began by rejecting the West’s common sense measure of growth.  It seemed quixotic, but since the concept was introduced there have been three international conferences devoted to exploring it.  GNH in Bhutan now includes measures of education, health, and environmental conservation.

France and Bhutan may not be the most promising sources for a new economic measure, but the important point here may be that, now, there is another crack in the pillar of economic fundamentalism.  It has become clearer that G.N.P. is a concept, a flawed construct, not a fact – and what we don’t know we know is how facts are often simply ideas that have become established.  If questioned, they can be changed.  Inevitably, they will be.