Why GDP May Not Be the Best Measure of a Country’s Success
October 12, 2024
A while back in this space, I highlighted a column that discussed the idea that GDP may not be the best measure of a country’s success. A number of countries were exploring alternative metrics. This past weekend, I read a brief column about the growing (pun intended) movement that goes under the label of ‘degrowth’. With growth as the prime objective and measure of success, other concerns can be sidelined and overlooked. For instance, would we still opt for growth if it resulted in a pronounced negative impact on the environmental? If growth measured by GDP didn’t lead to widespread growth in prosperity?
As a metric of economic progress, GDP has some beneficial characteristics – it is simple, its focus on growth theoretically could include more job creation (though AI might upset this aspect), it can be used as a comparison between countries, and it encompasses many aspects of a country’s economic activity. Yet it also has numerous limitations to its utility – it ignores any consideration of environmental impact, and it ignores non-market activities like volunteer work and household labor. Similarly, GDP does not concern itself with the distribution of the benefits of growth nor whether more growth leads to more contentment and happiness. The current political environment is too fraught with partisanship and tension and I do not intend to comment on it. Historically, the Republican party was always pushing for less government, less regulation, lower taxes, free markets. And recently, it has become the fashion for some of them to label those who would have the government take a larger role as socialists. Yet, the United States has long had socialist tendencies, widely supported in fact. Anymore, we expect the government to bail out distressed financial institutions rather than let them collapse with the ensuing distress that it might cause for many individuals. Agricultural and energy industry subsidies have long histories and lately tariffs have become a tool to combat foreign producers. Nobody is interested in unfettered capitalism. We have no idea if it would work because we are not about to give it a real try.
So now it is simply a question of what government programs we will have and how to pay for them. The current election is only showcasing the former as neither party will ever address the costs. Both the Republicans and the Democrats spend freely, create large federal deficits, and show little concern about it. My sympathies are well-known and I won’t pretend otherwise. In this world, I believe broad government economic guidance and assistance is important for the country.
The important question is – to what end? Towards what goal should government activity and policy be directed? Should growth in GDP be the goal? Personally, I believe that is a metric that has outlived its usefulness. In a time of relative plenty, the average level of well-being enjoyed by a country's citizens is a more useful and meaningful standard by which to judge a government's, a country's, performance. The fact that it might be more difficult to measure is not sufficient reason to dismiss it - the goal is important and challenges need to be overcome.
The link below is to a recent column on the concept of ‘degrowth’. It is not necessarily the answer…in fact, it almost surely isn’t. Still, maybe it will spark some thinking about the issues. The US, despite all our prosperity and a currently strong economy, routinely ranks well out of the top 10 in measures of happiness of its citizens. We can do better…and that should be the goal.
For those of you who are fasting in observation of Yom Kippur - and, oddly (hypocritically?), I count myself among you despite my documented feelings about organized religion – I wish you an easy fast. And I hope that everyone can find some enjoyment this