Third Quarter GDP Numbers Show Growth, but Are We Making Progress?

Tomorrow’s GDP numbers will likely show a growth rate around 1.9 percent. Economists predict that an increase in consumer spending will be what helps boost this quarter’s GDP growth rate, which is higher than last quarters’ increase of 1.3 percent. The quarterly GDP release is also a time when we again ask, what exactly are we measuring?

If consumer spending is indeed responsible for the boost in GDP, than this correlation perfectly highlights the problem with using GDP as the primary measuring of growth and, in turn, progress. Conventional wisdom says that consumer spending increases when people have more money to spend and/or when they have confidence the economy is improving. Yet, there is no guarantee that people are spending because they have an increase in disposable income. Americans rack up billions of dollars in credit card debt each year and consumer debt has steadily worsened over the last two years. This trend indicates that consumers are spending money they don’t have, which should be a negative economic indicator and not reflected positively through GDP growth.

As our Beyond GDP report highlights, GDP does not distinguish between good and bad spending. The inability of GDP to capture the negative consequence of consumer spending built on debt is just one of the reasons alternative metrics are needed for a more complete picture of the health of economy, not to mention our environmental and personal well-being. Last week at the OECD conference on alternative metrics, Joseph Stiglitz pointed out that

“Measures like GDP are part of our information system, and information systems guide how we steer the economy. What is measured and how performance is evaluated can distort outcomes… GDP measures the busy-ness of our economy. But the big question is whether we are busy doing the right things. Making your economy grow more will not necessarily get you the things that people really want. Our preoccupation with GDP makes it difficult for politicians to back policies that are good for society and for the environment but which might not result in an increase in GDP.”

Stiglitz’s last point is one of the primary reasons neither presidential candidate is discussing climate change, even though it is one of the biggest threats to our economic and social well-being. Using our current metric, increasing drilling for oil and gas and increasing the use of coal may very well boost GDP but it won’t reflect the damage done to local economies from fracking. It won’t reflect the increased health costs of mining and burning coal. And, it definitely won’t reflect the costs of the damage fossil fuel extraction and use inflict on our environment.

Our economy may have grown, but until we have a more complete accounting system, we won’t know if we are making progress. And, in the end, isn’t progress, not growth, what we should measure?