GDP - a questionable measurement: 5 ways GDP gets it totally wrong as a measure of our success - by David Pilling

The beauty of gross domestic product is its single figure. It squishes all of human activity into a couple of digits, like a frog jammed into a matchbox. As this image of an unfortunate amphibian suggests, this condensing is also GDP’s flaw. How can the sum total of everything we do as human beings be so compacted? How can our activity be conflated with something as complex, nuanced and contested as our wellbeing?

GDP's inventor Simon Kuznets was adamant that his measure had nothing to do with wellbeing. But too often we confuse the two. For seven decades, gross domestic product has been the global elite’s go-to number. Fast growth, as measured by GDP, has been considered a mark of success in its own right, rather than as a means to an end, no matter how the fruits of that growth are invested or shared. If something has to be sacrificed to get GDP growth moving, whether it be clean air, public services, or equality of opportunity, then so be it.

GDP is how we rank countries and judge their performance. It is the denominator of choice. It determines how much a country can borrow and at what rate. But GDP is well past its sell-by date, as people are starting to realise. However brilliant the concept, a measure that was invented in the manufacturing age as a means of fighting the Depression is becoming less and less capable of imparting sensible signals about complex modern economies.

Pointing out the defects of GDP and even tentatively suggesting alternatives is no longer controversial. Former French President Nicolas Sarkozy commissioned a panel led by Joseph Stiglitz, a Nobel economist, to examine the issue. It was creating a dangerous “gulf of incomprehension”, Sarkozy said, between experts sure of their knowledge and citizens “whose experience of life is completely out of sync with the story told by the data”.

GDP is a gross number. It is the sum total of everything we produce over a given period. It includes cars built, Beethoven symphonies played and broadband connections made. But it also counts plastic waste bobbing in the ocean, burglar alarms and petrol consumed while stuck in traffic.

Kuznets was uneasy about a measure that treated all production equally. He wanted to subtract, rather than add, things he considered detrimental to human wellbeing, such as arms, financial speculation and advertising. You may disagree with his priorities. The point is that GDP makes no distinction. From the perspective of global GDP, Kim Jong-un’s nuclear warheads do just as well as hospital beds or apple pie.

Read more at: 5 ways GDP gets it totally wrong as a measure of our success | World Economic Forum