Yeah, yeah, GDP is bad.

In January, Demos released a new report titled Beyond GDP: New Measures for a New Economy.  It’s hardly earth shattering – Gross Domestic Product (GDP) is an ineffective measure of true economic and societal progress, there are other options, and we should use them.  Across disciplines it’s been a fairly wide-held belief for decades that GDP is a poor measure of economic progress; environmentalists point out its lack of inclusion for environmental costs, development experts rail against its lack of a component to measure inequality, and even many economists of the laissez-faire Austrian school consider it inadequate due to the way in which it accounts for private and public expenditures.  On the other hand, if you haven’t read much about the controversy, Demos does a good job of boiling it down and making it fairly accessible.

The infographics that accompany the report are particularly worth taking a look at. Here are a few gems:

While experts and students in development economics might prefer the Gini coefficient for describing inequality, it’s not incredibly accessible.  This graph does an excellent job of providing easier to digest numbers that essentially describe the difference between average (ie. GDP Per Capita) and median income.  As the very rich continue getting very richer, the average is pulled higher and higher.  Meanwhile, the middle class has been nearly stagnant since 1967. This helps to explain why more and more people are taking to the streets to protest the 1 percent.

A second graphic helps to show why financing growth through debt might cause problems.  Outside of the current Greek disaster, one can look recently at the US housing bubble, Italy’s current fiscal problems, Spain’s housing bubble, or at the speculation that led to the East Asian financial crisis, the Latin American debt crisis, and so on.  All of these events were much more complicated than just debt, but debt was involved to varying degrees in each.  At some point those debts need to be paid. Growth can’t be forever financed through borrowed money. Nor can it be financed forever by converting natural capital into financial capital. A lesson also discussed in the report. Let’s hope that it doesn’t take another 20 years of critiquing GDP before we figure all this out.

While one might see lost natural capital, many see newly found financial capital (which perhaps could be used to buy new natural capital once we rediscover how valuable it is?) Photo courtesy of Getty Images.

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