What Will Succeed GDP?
Over eight decades after its introduction, there is a widespread consensus that GDP is no longer a useful measure of economic progress. Its successor will need to be compelling and tell a persuasive story, consistent with experience, of what is happening in our economies.
CAMBRIDGE – Is the world becoming increasingly prosperous? It would be hard to answer “yes” right now, at least so far as the leading high-income economies are concerned. Yet the longstanding bellwether of economic progress – inflation-adjusted GDP – has been growing across most of the OECD since 2010, suggesting that everything is fine.
Some 80 years after GDP was introduced, nearly everyone (apart from the indicator’s stewards) has concluded that it is no longer a useful measure of economic progress. But there is no consensus yet on a possible replacement. Reaching agreement on an alternative will require a new concept of prosperity and a new way to measure whether living standards are improving.
There are several potential alternatives. One influential approach, pioneered by the Massachusetts Institute of Technology’s Erik Brynjolfsson and his co-authors, is to ask people how much they value free digital goods such as online search and social media, and then add the result to the conventional measurement of GDP. Their research indicates that the average person in the United States would need $17,530 per year to compensate for lack of access to online search, $8,414 for email, and so on.