GDP's Days Are Numbered
Ditching gross domestic product as the main gauge of prosperity was always impossible in the absence of broad agreement about what the alternative might be. But as economists and statisticians develop wealth and well-being approaches to measuring economic success, the direction of change is clear.
CAMBRIDGE – How should we measure economic success? Criticisms of conventional indicators, particularly gross domestic product, have abounded for years, if not decades. Environmentalists have long pointed out that GDP omits the depletion of natural assets, as well as negative externalities such as global warming. And its failure to capture unpaid but undoubtedly valuable work in the home is another glaring omission. But better alternatives may soon be at hand.
In 2009, a commission led by Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi spurred efforts to find alternative ways to gauge economic progress by recommending a “dashboard” of indicators. Since then, economists and statisticians, working alongside natural scientists, have put considerable effort into developing rigorous wealth-based prosperity metrics, particularly concerning natural assets. The core idea is to create a comprehensive national balance sheet to demonstrate that economic progress today is illusory when it comes at the expense of future living standards.
In an important milestone in March of this year, the United Nations approved a statistical standard relating to the services that nature provides to the economy. That followed the UK Treasury’s publication of a review by the University of Cambridge’s Partha Dasgupta setting out how to integrate nature in general, and biodiversity in particular, into economic analysis. With the consequences of climate change starting to become all too apparent, any meaningful concept of economic success in the future will surely include sustainability.