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Why GDP Still Matters

New Zealand’s focus on wellbeing, rather than GDP, may have the best of intentions. But if GDP does not increase, the government will have less money for its grand schemes. And compared to what it could have had, the country will have less overall wellbeing, worse environmental performance, and weaker human capital.

ALLINGE, DENMARK – New Zealand is being lauded for introducing the world’s first Wellbeing Budget, which aims to shift the focus from GDP toward the “wellbeing of people.” Those with a grudge against the GDP indicator – in particular greens, who blame economic growth for harming the environment – see this as an exciting new opportunity to stop chasing dollars and start caring about people.

The pursuit of higher GDP is easy to malign. The measure was invented during the industrial era, and includes many things that are obviously not beneficial. As Robert F. Kennedy pointed out a half-century ago, GDP “counts special locks for our doors and the jails for the people who break them,” yet “does not allow for the health of our children, the quality of their education, or the joy of their play.”

Yet GDP nonetheless remains the single best indicator to guide government policies. Ignoring it in favor of alternative measures of wellbeing is likely to lower people’s overall quality of life.

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