Counting What Counts: GDP Redefined: What Did the BP Oil Spill in 2010 Mean for the U.S. Economy? Progress
Beachy, Ben, Zorn, Justin, Kennedy School Review
At least that's the conclusion of the economy's de facto benchmark--gross domestic product (GDP). As the massive oil slick seeped into the Gulf Shore, J.P. Morgan representatives noted that economic activity generated by cleanup efforts would likely outweigh losses to tourism or fishing (Di Leo 2010). And what of the hundreds of miles of property damage and ecosystem deterioration? Not counted. The bankers correctly concluded that our standard barometer of economic welfare would likely register the largest oil spill in history as a net gain.
RESTORING GDP'S PURPOSE
Critics of GDP, who range ideologically from Robert F. Kennedy to Reagan adviser William Bennett, have been exposing such perversities since national income accounts were first federally instituted in 1934. In fact, the first such critic may have been the creator of GDP himself. Simon Kuznets, the young economist tasked by Congress with measuring the output of a Depression-era economy, warned after generating the GDP framework that "the welfare of a nation can scarcely be inferred from a measurement of national income" (U.S. Senate 1934, 7).
The succeeding eight decades have proven Kuznets right. GDP has achieved its narrow original purpose of measuring aggregate economic activity while remaining a woefully inadequate gauge of national welfare. Agnostic to inequality, GDP has portrayed per capita income as rising over the last decade despite falling median earnings (DeNavas-Walt et al. 2011, 8). By ignoring future growth potential, GDP has improved with the depreciation of machinery and the extraction of finite coal deposits while overlooking the extent to which we educate our youth or cultivate entrepreneurship. By omitting nonmarket values, GDP growth has tended to accelerate with crime rates, smog levels, and commuting time while slowing with vacation days and family-cooked dinners.
Such mismeasurement is profoundly problematic insofar as GDP serves as the headline metric for policy-making success. Examples are common. In arguing for passage of the controversial U.S.-Colombia free trade agreement last year, the Obama administration sidestepped the thorny issues of distributional impact and environmental ramifications by reducing the cost-benefit analysis to a single rubric: a projected $2.5 billion addition to GDP (White House 2011). Continuing to conflate GDP with national progress means subordinating interests of social cohesion and sustainability to the single-minded pursuit of ever-increasing raw output.
PROGRESS TOWARD MEASURING PROGRESS
Growing concerns about GDP's adequacy as a comprehensive benchmarking tool have spurred economists, think tanks, and multilateral institutions--aided by advances in data collection and statistical analysis--to generate a few dozen supplemental indicators. From the 1973 release of the Sustainable Measure of Economic Welfare to last year's proposed Quality of Development Index, the list of alternatives continues to grow. In 2008, French President Nicolas Sarkozy commissioned a team of top economists, led by Nobel laureates Joseph Stiglitz and Amartya Sen, to study the inadequacies of GDP and assess the merits of the proliferating alternatives. The commission concluded, "the time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people's well-being" (Stiglitz et al. 2009, 12).
Numerous governments have already started making the shift. Following a European Union-sponsored conference in 2007 entitled "Beyond GDP," the federal statistical agencies of Germany, France, and the United Kingdom each began constructing broader measures of sustainability and welfare. Last year, Bhutan unveiled a second generation of the Gross National Happiness measure that drives its distributional and regulatory policies. Within the United States, Maryland recently became the first state to shift to twenty-first century benchmarks by adopting the Genuine Progress Indicator. …