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GDP Ignore Social and Environmental Realities

J. Mijin Cha
The American Prospect

The 2011 fourth quarter GDP numbers released today show a 2.8 percent growth in economic activity, due in part to the increase in spending around the holidays. But, what do GDP numbers really show? A new report from Demos, Beyond GDP, looks at the flaws in our dependence on GDP as the sole measure of progress and highlights important economic and social measures that are not captured by GDP.

GDP calculates the total monetary value of goods and services produced domestically in a given period. At the time it was developed at the end of the Great Depression, it was meant to be used as a tool to help policymakers gauge the success of economic recovery measures. At no time was it meant to be a tool for measuring economic, let alone social, progress. Fast forward several decades and GDP has become the go to measure for determining economic and societal well-being, even though it is not equipped to offer an accurate reflection of either. To paraphrase Robert F. Kennedy in a speech he made back in 1968, economic measures like GDP can measure everything except that which makes life worth living.
GDP is not an appropriate measure of our economic and social progress for many reasons, as highlighted by a set of infographics that plot measures of progress against GDP growth. For starters, GDP counts any spending as good spending. Economic activity from cleaning up a hurricane counts the same as economic activity from a boost in manufacturing even though there are serious societal and economic drawbacks to a hurricane.
And, as GDP has grown, so has inequality. If a wealthy family spends $100,000, the GDP activity is exactly the same as if 100 families spent $1,000, even though the latter shows a more equal distribution of spending power.