GENUINE PROGRESS INDICATOR
WHAT'S WRONG WITH THE GDP AS A MEASURE OF PROGRESS
Since its introduction during World War II as a measure of wartime production capacity, the gross national product (now routinely measured as gross domestic product -- GDP) has become the nation's foremost indicator of economic progress. It is now widely used by policymakers, economists, international agencies and the media as the primary scorecard of a nation's economic health and well-being.
Yet the GDP was never intended for this role. It is merely a gross tally of products and services bought and sold, with no distinctions between transactions that add to well-being, and those that diminish it. Instead of separating costs from benefits, and productive activities from destructive ones, the GDP assumes that every monetary transaction adds to well-being by definition. It is as if a business tried to assess its financial condition by simply adding up all "business activity," thereby lumping together income and expenses, assets and liabilities.
On top of this, the GDP ignores everything that happens outside the realm of monetized exchange, regardless of its importance to well-being. The crucial economic functions performed in the household and volunteer sectors go entirely ignored. The contributions of the natural habitat in providing the resources that sustain us go unreckoned as well. As a result, the GDP not only masks the breakdown of the social structure and natural habitat; worse, it actually portrays such breakdown as economic gain.
I. GDP Treats Crime, Divorce & Natural Disasters as Economic Gain
II. GDP Ignores the Nonmarket Economy of Household & Community
III. GDP Treats the Depletion of Natural Capital as Income
IV. GDP Increases with Polluting Activities & Again with Clean-Ups
V. GDP Takes No Account of Income Distribution
VI. GDP Ignores the Drawbacks of Living on Foreign Assets