Is GDP almost everything?

In 1968, Bobby Kennedy made a much-celebrated speech in which he denigrated Gross National Product (GNP, now usually replaced by Gross Domestic Product, GDP) as a measure of America’s well-being. He said:

…[it] counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them … Yet [it] does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials … it measures everything in short, except that which makes life worthwhile …

Financial Times columnist Janan Ganesh voices his disdain for this view in a recent article:

Yes – GDP is almost everything: The recession should kill off the romantic idea that growth is a mixed blessing.

He says, rightly, that wealthy countries tend to do better on indicators such as homicide rates than poor countries. Yes, poor countries do badly on a range of social indicators. But Kennedy was talking only about America. The richer we are, the less an increase in wealth boosts our well-being.

Ganesh also says:

The looming recession will be painful. But it will also drive a certain kind of post-materialist humbug from polite discourse. Growth will be harder to dismiss as a bean counter’s tawdry obsession when there is so little of the stuff to go round.

Yes, growth will be missed if it’s replaced by recession – growth is good for the feel-good factor and not everyone is post-materialist.

Recession would hit poor people in the rich world hard but we don’t need growth to eliminate most rich-world poverty. We just need to be fairer and more generous to people whose earning power is low.

Ganesh doesn’t mention the costs of growth – such as the demise of the stable physical climate in which our civilisations have evolved. We seem to be getting into a zone where we lose our ability to limit global warming and where our physical environment deteriorates eventually to where the present human population can no longer be supported. The change may be so rapid that, for one or more generations, perhaps in most of the world, human life will be nasty, brutish and short. Whatever the scale of the resulting fall in GDP, the decline in human well-being would be catastrophic.

Carbon-neutral GDP growth may sometimes be possible, particularly in poorer countries rich in potential renewable energy. But, worldwide, we have let our carbon emissions persist over the past three decades and we are now in a climate emergency. Only emergency action, probably at the expense of GDP, seems likely to save us from an unfolding catastrophe. Ganesh doesn’t mention this.

Nor does he mention other restrictions on continued rich-world growth. For instance, economic growth depends heavily on growth in productivity. Some activities, such as manufacturing, have more potential for productivity growth than others, such as social care. Sectors with high productivity growth may employ fewer workers rather than boost production, so the overall rate of productivity growth may still be slow.

Rich countries usually grow more slowly than poorer ones. There may be many reasons for this – such as ageing populations, ageing institutions and ageing capital stock. Perhaps in the rich world we can expect only slow growth at best.

Apart from climate, there are other physical constraints on growth – pandemics, for instance, or growing scarcity of critical natural resources and the increasing cost of recovering them.

Then there is the potential for growth in well-being without growth in GDP. Much of our economy is devoted to “zero-sum activity”. Divorce lawyers earn their income by resolving disputes on the allocation of wealth between divorcing couples. One party’s gain is the other party’s loss. The same goes for some commercial lawyers, tax accountants and to a lot of marketing and advertising activity. If we had less of this zero-sum activity, more of our GDP could arise from activity which actually increases overall well-being.

We need to focus efforts on increasing well-being, not increasing GDP. Ganesh’s article doesn’t help.

 

* John Medway has been a Liberal Democrat member since the merger in 1988 and was an SDP councilor before that. He has an active interest in the economics of sustainability and is on the Executive of the Liberal Democrat Social Democrat Group.

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13 Comments

  • Brad Barrows 25th Jun '22 - 12:42pm

    GDP, GNP and National Income are useful as indicators of economic output but take no account of how that output is used or of how equally or unequally the benefits of that output are shared. Another fundamental weakness is that much economic activity – like unpaid care within families rather than paying for formal care, do-it-yourself work rather than paying for tradespeople/gardeners, the black economy etc – are not included in any official measure. Similarly, while depreciation of Capital in included, environmental damage is not. I agree that Quality of Life indicators should be afforded much greater significance than GDP, GNP or National Income statistics.

  • William Francis 25th Jun '22 - 1:05pm

    GDP, GNI, and GNP are actually important in determining the resources of a nation to do things. What those things are is a discussion worth having, but saying that we should reduce or ignore social capacity to attain consumer goods, capital goods, and public goods is not something people who want to change the UK for the better should do.

  • I agree with the points made. We must look at the real lives of real people when we consider our economic policy. Of course there are many indicators which we can use when discussing the issues involved, but it is the experiences of real people are most important. This an active political party has access to.

  • @Brad Barrows 12.42pm

    Very well said sir, and argued, especially in the prominence you give to several important elements in our overall Life, that do not figure in the GDP, with its dreary concentration on material and too easily measurable ‘prosperity’, to the neglect of most of the aspects of life that make it worth living. I would suggest that a much more rounded and humane approach to UBI (and to other aspects of appraisal or concern) would be for us all to swivel in our focus towards the National Income. Instead of trying ‘find’ funds to devote to a UBI, we ought to agree FIRST on how much it ought to be, and then make it so. And only then, adjust the regime of Taxes and Benefits to suit. The fairly imminent arrival of PR instead of FPTP will help in that, of course.

    UBI, then, ought to be the first consideration in shaping a Budget: and the dismal name for it can be replaced by an accurate and more humane title: The NATIONAL INCOME DIVIDEND.

    This title gives due honour and respect to the very natural and respectable fact, that every adult’s first concern is his or her or their Personal or Family Income, and not any kind of Gross Product, however important that concept of our national life may be to Bankers and Capitalists.

  • Peter Martin 25th Jun '22 - 7:20pm

    “We need to focus efforts on increasing well-being, not increasing GDP”

    This is easier said than done.

    Try googling { GDP per capita UK}. You should see a graph showing $40,284.64 each. I don’t know about anyone else but that would suit me just fine. However we are all concerned about rising prices, helping our children find somewhere to live and get jobs which pay reasonably well.

    Go back to 2007 and we were all on $50,444.9 then and probably a bit happier too. In 2004 we were on about the same as we are now but we were definitely much happier. In 2001 we were only on about $27,700 but still relatively happy.

    So first of all we do need to try to develop a theory and an index of measurement for ‘happiness’. I’d still be happy with even $27,700! But, if GDP were to dip down again this low we’d really be in trouble.

  • David Garlick 26th Jun '22 - 10:28am

    Good stuff. Well said.
    There is no grpwth ona dead planet.

  • Joseph Bourke 26th Jun '22 - 3:16pm

    Thank you for the link to Robert Kennedy’s 1968 speech at the University of Kansas. That was the speech where he cited the memorable George Bernard Shaw quote “Some people see things as they are and say why? I dream things that never were and say, why not?”
    The realisation that the natural environment is the source of life, wellbeing and happiness for all humankind is a critically important element of economic policy, asit is for the future of all like on earth..
    Robert Kennedy in his speech said “In 1824, when Thomas Hart Benton was urging in Congress the development of Iowa and other western territories, he was opposed by Daniel Webster, the Senator from Massachusetts. “What,” asked Webster, “what do we want with this vast and worthless area? This region of savages and wild beasts. Of deserts of shifting sands and of whirlwinds. Of dust, and of cactus and of prairie dogs.
    “To what use,” he said, “could we ever hope to put these great deserts? I will never vote for one-cent from the public treasury, to place the west one inch closer to Boston, than it is now.”
    Henry George made the the answers clear in his 1879 book “Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy”. The title says it all. Action for Land Tax and Economic Reform (ALTER) has more detail in its website.

  • John Medway 26th Jun '22 - 6:12pm

    Thanks all for your comments.

    @William Francis – Yes, although GDP isn’t in my view “almost everything”, it still has its uses. A precipitate fall in GDP would entail a big fall in well-being. We should think about maintaining GDP as a means to an end and not as an end in itself. However, the longer we give economic growth priority over resilience and sustainability, the more likely we are to suffer an unplanned precipitate fall at some point.

    @Roger Lake – your idea of the National Income Dividend looks interesting and with a bit more detail could form an interesting posting to Lib Dem Voice.

    Personally, I’m a cautious advocate of UBI. If it were to be on a scale that would release a lot of people from dependence on Universal Credit, it would compete for resources with other programmes that might yield greater well-being – such as better public transport or a social security system re-thought in other ways – such as is advocated by Hilary Cottam in ‘Radical Help’ – https://www.hilarycottam.com/radical-help/.

    @Peter Martin – you’re dead right about focusing on well-being being easier said than done, just like a lot of the things that might solve problems rather than just buy votes.

    On UK GDP per head I did a similar exercise to yours a couple of years ago and, if memory serves me right, I found that a 50% fall in real GDP per head would take us back to about 1985. I came to similar conclusions to you. I have to admit that the quality of my life has been boosted since 1985 by new technologies like digital photography.

    @Joseph Bourke – Thanks for the snippet of American history that I wasn’t aware of. Like you, I’m something of an enthusiast for land value taxation (partly as a remedy for our dysfunctional housing market, though other action is also needed on that front). I’m also a member of Alter, though rather inactive.

  • Chris Moore 26th Jun '22 - 6:15pm

    @Peter Martin:

    An economically and mathematically challenged individual might conclude from your intervention that UK GDP per capita was higher in 2007 – 50k US dollars per head – than today – 40k dollars per head.

    Still in 2007 a dollar bought half a pound, now it buys 0.82 of a pound.

    If you re-do the calculations in our own currency, you will discover that GDP per head has risen about 33% since 2007.

    Perverse to use the US dollar, even though that does highlight the lasting weakness of the pound post-Brexit.

  • Is GDP just a measure of consumerism?

  • Peter Martin 30th Jun '22 - 8:09am

    @ Siv White,

    GDP is essentially the sum of all monetary transactions in the economy. So even the the Greenest of “non-consumerist” economies imaginable would still have a GDP. It has its shortcomings but unless we abolish money we will always have a GDP.

    @ Chris Moore,

    I take your point about the use of the US dollar. But as most commodities, worldwide, are priced in dollars it is probably the best measure available at the moment. Although we could develop the concept of purchasing power and take inflation into account.

    You say “If you re-do the calculations in our own currency, you will discover that GDP per head has risen about 33% since 2007.”

    I’d like to see these. Are we really better off after all that has happened since the 2008 GFC?

  • Peter John Hirst 4th Jul '22 - 2:38pm

    So much of our economic activity is from unwelcome pursuits that we need an index of wellbeing that runs alongside the former. There have been many tried over the years. It would be good to see the level of economic activity towards sustainability measured and tracked.

  • Nonconformistradical 4th Jul '22 - 4:16pm

    “It would be good to see the level of economic activity towards sustainability measured and tracked.”

    Seconded

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