Originally published Sept. 22, 2008
Republished Aug. 6, 2009 (H: 2,627 + C:2)
LIES, DAMN LIES & STATISTICS
Tabacco: Acronyms are the 1st line of defense against average people knowing what economists are really saying or even asking questions. Quick, what does acronym, GDP, mean?
HALF-TRUTHS ARE LIES!
1- When Unemployment Compensation runs out, those individuals are not counted in any of the Alphabet Soup of Economic Indicators, except GPI
2- When someone loses his or her job and takes another job at significantly lower pay, that fact is not reflected in employment figures because those figures don’t include average or mean salaries & wages.
Genuine Progress Indicator
We believe that if policymakers measure what really matters to people—health care, safety, a clean environment, and other indicators of well-being—economic policy would naturally shift towards sustainability.
Redefining Progress created the Genuine Progress Indicator (GPI) in 1995 as an alternative to the gross domestic product (GDP). The GPI enables policymakers at the national, state, regional, or local level to measure how well their citizens are doing both economically and socially.
Economists, policymakers, reporters, and the public rely on the GDP as a shorthand indicator of progress; but the GDP is merely a sum of national spending with no distinctions between transactions that add to well-being and those that diminish it.
The GPI is one of the first alternatives to the GDP to be vetted by the scientific community and used regularly by governmental and non-governmental organizations worldwide. Redefining Progress advocates for the adoption of the GPI as a tool for sustainable development and planning.
On a yearly basis, Redefining Progress updates the U.S. Genuine Progress Indicator to document a more truthful picture of economic and social progress. Our latest update, which plots GPI accounts from 1950 to 2004, shows that economic growth has been stagnant since the 1970s.
Download report: The Genuine Progress Indicator 2006
How We Measure Progress
The GPI starts with the same personal consumption data that the GDP is based on, but then makes some crucial distinctions. It adjusts for factors such as income distribution, adds factors such as the value of household and volunteer work, and subtracts factors such as the costs of crime and pollution.
Because the GDP and the GPI are both measured in monetary terms, they can be compared on the same scale. Measurements that make up the GPI include:
Both economic theory and common sense tell us that the poor benefit more from a given increase in their income than do the rich. Accordingly, the GPI rises when the poor receive a larger percentage of national income, and falls when their share decreases.
Housework, Volunteering, and Higher Education
Much of the most important work in society is done in household and community settings: childcare, home repairs, volunteer work, and so on. The GDP ignores these contributions because no money changes hands. The GPI includes the value of this work figured at the approximate cost of hiring someone to do it. The GPI also takes into account the non-market benefits associated with a more educated population.
Crime imposes large economic costs on individuals and society in the form of legal fees, medical expenses, damage to property, and the like. The GDP treats such expenses as additions to well-being. By contrast, the GPI subtracts the costs arising from crime.
If today’s economic activity depletes the physical resource base available for tomorrow, then it is not creating well-being; rather, it is borrowing it from future generations. The GDP counts such borrowing as current income. The GPI, by contrast, counts the depletion or degradation of wetlands, forests, farmland, and nonrenewable minerals (including oil) as a current cost.
The GDP often counts pollution as a double gain: Once when it is created, and then again when it is cleaned up. By contrast, the GPI subtracts the costs of air and water pollution as measured by actual damage to human health and the environment.
Long-Term Environmental Damage
Climate change, ozone depletion, and nuclear waste management are long-term costs arising from the use of fossil fuels, chlorofluorocarbons, and atomic energy, respectively. These costs are unaccounted for in ordinary economic indicators. The GPI treats as costs the consumption of certain forms of energy and of ozone-depleting chemicals. It also assigns a cost to carbon emissions to account for the catastrophic economic, environmental, and social effects of global warming.
Changes in Leisure Time
As a nation becomes wealthier, people should have more latitude to choose between work and free time for family or other activities. In recent years, however, the opposite has occurred. The GDP ignores this loss of free time, but the GPI treats leisure as most Americans do—as something of value. When leisure time increases, the GPI goes up; when Americans have less of it, the GPI goes down.
The GDP counts as additions to well-being the money people spend to prevent erosion in their quality of life or to compensate for misfortunes of various kinds. Examples are the medical and repair bills from automobile accidents, commuting costs, and household expenditures on pollution control devices such as water filters. The GPI counts such “defensive” expenditures as most Americans do: as costs rather than as benefits.
Lifespan of Consumer Durables & Public Infrastructure
The GDP confuses the value provided by major consumer purchases (e.g., home appliances) with the amount Americans spend to buy them. This hides the loss in well-being that results when products wear out quickly. The GPI treats the money spent on capital items as a cost, and the value of the service they provide year after year as a benefit. This applies both to private capital items and to public infrastructure, such as highways.
Dependence on Foreign Assets
If a nation allows its capital stock to decline, or if it finances consumption out of borrowed capital, it is living beyond its means. The GPI counts net additions to the capital stock as contributions to well-being, and treats money borrowed from abroad as reductions. If the borrowed money is used for investment, the negative effects are canceled out. But if the borrowed money is used to finance consumption, the GPI declines.
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Genuine Progress Indicator
From Wikipedia, the free encyclopedia
The Genuine Progress Indicator (GPI) is a concept in green economics and welfare economics that has been suggested to replace gross domestic product (GDP) as a metric of economic growth.
GPI is an attempt to measure whether a country’s growth, increased production of goods, and expanding services have actually resulted in the improvement of the welfare (or well-being) of the people in the country. GPI advocates claim that it can more reliably measure economic progress, as it distinguishes between worthwhile growth and uneconomic growth.
The GDP vs. the GPI is analogous to the difference between the Gross Profit of a company and the Net Profit; the Net Profit is the Gross Profit minus the costs incurred. Accordingly, the GPI will be zero if the financial costs of crime and pollution equal the financial gains in production of goods and services, all other factors being constant.
Most economists assess the progress in welfare of the people by comparing the gross domestic product over time, that is, by adding up the annual dollar value of all goods and services produced within a country over successive years. However, GDP was never intended to be used for such purpose. It is prone to productivism or consumerism, over-valuing production and consumption of goods, and not reflecting improvement in human well-being. Simon Kuznets, the inventor of the GDP, notes in his very first report to the US Congress in 1934:
…the welfare of a nation [can] scarcely be inferred from a measure of national income…
An adequate measure must also take into account ecological yield and the ability of nature to provide services. These things are part of a more inclusive ideal of progress, which transcends the traditional focus on raw industrial production.
The need for a GPI to supplement biased indicators such as GDP was highlighted by analyses of uneconomic growth in the 1980s notably that of Marilyn Waring who studied biases in the UN System of National Accounts.
By the early 1990s there was a consensus in human development theory and ecological economics that growth in money supply was actually reflective of a loss of well-being: that lacks of essential natural and social services were being paid for in cash and that this was expanding the economy but degrading life.
The matter remains controversial and is a main issue between advocates of green economics and neo-classical economics. Neoclassical economists understand the limitations of GDP for measuring human wellbeing but nevertheless regard GDP as an important, though imperfect measure of economic output and would be wary of too close an identification of GDP growth with aggregate human welfare. However GDP tends to be reported as synonymous with economic progress by journalists and politicians and the GPI seeks to correct this shorthand by providing a more encompassing measure.
Some economists, notably Herman Daly, John Cobb and Philip Lawn have asserted that a country’s growth, increased goods production, and expanding services have both “costs” and “benefits”–not just the “benefits” that contribute to GDP. They assert that, in some situations, expanded production facilities damage the health, culture, and welfare of people. Growth that was in excess of sustainable norms (e.g. of ecological yield) had to be considered to be uneconomic. According to the “threshold hypothesis”, developed by Manfred Max-Neef, the notion that when macroeconomic systems expand beyond a certain size, the additional benefits of growth are exceeded by the attendant costs. (Max-Neef 1995.)
According to Lawn’s model, the “costs” of economic activity include the following potential harmful effects: 
* Cost of resource depletion
* Cost of crime
* Cost of ozone depletion
* Cost of family breakdown
* Cost of air, water, and noise pollution
* Loss of farmland
* Loss of wetlands
Analysis by Robert Costanza also around 1995 of nature’s services and their value showed that a great deal of degradation of nature’s ability to clear waste, prevent erosion, pollinate crops, etc., was being done in the name of monetary profit opportunity: this was adding to GDP but causing a great deal of long term risk in the form of mudslides, reduced yields, lost species, water pollution, etc.. Such effects have been very marked in areas that suffered serious deforestation, notably Haiti, Indonesia, and some coastal mangrove regions of India and South America. Some of the worst land abuses for instance have been shrimp farming operations that destroyed mangroves, evicted families, left coastal lands salted and useless for agriculture, but generated a significant cash profit for those who were able to control the export market in shrimp: this has become a signal example to those who contest the idea that GDP growth is necessarily desirable.
GPI takes account of these problems by incorporating sustainability: whether a country’s economic activity over a year has left the country with a better or worse future possibility of repeating at least the same level of economic activity in the long run. For example, agricultural activity that uses replenishing water resources, such as river runoff, will score a higher GPI than the same level of agricultural activity that drastically lowers the water table by pumping irrigation water from wells.
“Income” vs. “capital depletion”
Hicks (1946) pointed out that the practical purpose of calculating income is to indicate the maximum amount people can produce and consume without undermining their capacity to produce and consume the same amount in the future. From a national income perspective, it is necessary to answer the following question: ‘‘Can a nation’s entire GDP be consumed without undermining its ability to produce and consume the same GDP in the future?’’
“Enjoyment of life” vs. “production of goods”
Fisher (1906) contended that “economic welfare depends on the psychic enjoyment of life”, not just the production of goods.
At least 11 countries (including Austria, England, Sweden and Germany) have recalculated their gross domestic product using the GPI. The data for European countries and the United States show a steady decline over the last 30 years 
Applying the Genuine Progress Indicator to legislative decisions
The best known attempt to apply a GPI to legislative decisions is probably the GPI Atlantic indicator pioneered by Ronald Colman for Nova Scotia, the Alberta GPI pioneered by economist Mark Anielski to measure the long-term economic, social and environmental sustainability of the province of Alberta and the environmental and sustainable development indicators used by the Government of Canada to measure its own progress to achieving well-being goals: its Environment and Sustainable Development Indicators Initiative (Canada) is a substantial effort to justify state services in GPI terms. It assigns the Commissioner for the Environment and Sustainable Development (Canada), an officer in the Auditor-General of Canada’s office, to perform the analysis and report to the House of Commons.
This has not satisfied the stricter advocates of GPI, however: Canada continues to state its overall budgetary targets in terms of reducing its debt to GDP ratio, which implies that GDP increase and debt reduction in some combination are its main priorities.
In the EU the Metropole efforts and the London Health Observatory methods are equivalents focused mostly on urban lifestyle.
The EU and Canadian efforts are among the most advanced in any of the G8 or OECD nations, but there are parallel efforts to measure quality of life or standard of living in health (not strictly wealth) terms in all developed nations. This has also been a recent focus of the labour movement.
The term Gross National Happiness was coined by the king of Bhutan.
* Canada planning applications. GDP has functioned as an “income sheet.” GPI will function as a “balance sheet,” taking into consideration that some income sources are very costly and contribute a negative profit overall.
* Redefining Progress. Reports and analyses. A non-profit organization with headquarters in Oakland, California. See also: Publications of Redefining Progress
* Minnesota’s Progress Indicator
* Full cost accounting (FCA) (with relevance to the environment)
* Green Gross Domestic Product (Green GDP)
* Gross Domestic Product (GDP)
* Happy Planet Index (HPI)
* Human Development Index (HDI)
* ISEW (Index of Sustainable Economic Welfare)
1. ^ Daly and Cobb book reviewed
2. ^ P. Lawn at iisd.org
3. ^ Lawn, Philip A. (2003). “A theoretical foundation to support the Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), and other related indexes” 44 (1): 108. Retrieved on 2008-03-29.
4. ^ REAL WEALTH Linda Baker, Earth Action Network January 5 1999
* “Advantage or Illusion: Is Alberta’s Progress Sustainable?” by Mark Anielski. Encompass Vol. 5, No. 5, July/August 2001.
* “The Growth Consensus Unravels” by Jonathan Rowe. Dollars and Sense, July-August 1999, pp. 15-18, 33.
* “Real Wealth: The Genuine Progress Indicator Could Provide an Environmental Measure of the Planet’s Health” by Linda Baker. E Magazine, May/June 1999, pp. 37-41.
* “The GDP Myth: Why ‘Growth’ Isn’t Always a Good Thing” by Jonathan Rowe, and Judith Silverstein. Washington Monthly, March 1999, pp. 17-21.
* “If the GDP Is Up, Why Is America Down?” by Clifford Cobb, Ted Halstead, and Jonathan Rowe. Atlantic Monthly, October 1995, pp. 59-78.
* “Economic Issues” by Lusi Song, Troy Martin, and Timothy Polo. 4EM Taylor, May 28, 2008, pp. 1-3.
Scientific articles and books
* Anielski, M, M. Griffiths, D. Pollock, A. Taylor, J. Wilson, S. Wilson. 2001. Alberta Sustainability Trends 2000: Genuine Progress Indicators Report 1961 to 1999. Pembina Institute for Appropriate Development. April 2001.
* Anielski, M. 2001. The Alberta GPI Blueprint: The Genuine Progress Indicator (GPI) Sustainable Well-Being Accounting System. Pembina Institute for Appropriate Development. September 2001.
* Anielski, M. and C. Soskolne. 2001. “Genuine Progress Indicator (GPI) Accounting: Relating Ecological Integrity to Human Health and Well-Being.” Paper in Just Ecological Integrity: The Ethics of Maintaining Planetary Life, eds. Peter Miller and Laura Westra. Lanham, Maryland: Rowman and Littlefield: pp. 83-97.
* Daly, H., 1996. Beyond Growth: The Economics of Sustainable Development. Beacon Press, Boston.
* Daly, H. & Cobb, J., 1989. For the Common Good. Beacon Press, Boston.
* Fisher, I., 1906. Nature of Capital and Income. A.M. Kelly, New York.
* Hicks, J., 1946. Value and Capital, Second Edition. Clarendon, London.
* Lawn, P.A. “A theoretical foundation to support the Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), and other related indexes”. Ecological Economics 44 (2003) 105-118.
* Max-Neef, M. “Economic growth and quality of life”. Ecological Economics ’15 (1995) 115-118.
* Redefining Progress, 1995. “Gross production vs. genuine progress”. Excerpt from the Genuine Progress Indicator: Summary of Data and Methodology. Redefining Progress, San Francisco.
WHAT’S WRONG WITH THE GDP?
Since its introduction during World War II as a measure of wartime production capacity, the Gross National Product (now routinely measured as Gross Domestic Product—GDP) has become the nation’s foremost indicator of economic progress. It is now widely used by policymakers, economists, international agencies and the media as the primary scorecard of a nation’s economic health and well-being.
Yet the GDP was never intended for this role. It is merely a gross tally of products and services bought and sold, with no distinctions between transactions that add to well-being, and those that diminish it. Instead of separating costs from benefits, and productive activities from destructive ones, the GDP assumes that every monetary transaction adds to well-being, by definition. It is as if a business tried to assess its financial condition by simply adding up all “business activity,” thereby lumping together income and expenses, assets and liabilities.
On top of this, the GDP ignores everything that happens outside the realm of monetized exchange, regardless of its importance to well-being. The crucial economic functions performed in the household and volunteer sectors go entirely ignored. The contributions of the natural habitat in providing the resources that sustain us go unreckoned as well. As a result, the GDP not only masks the breakdown of the social structure and natural habitat; worse, it actually portrays such breakdown as economic gain.
GDP TREATS CRIME, DIVORCE AND NATURAL DISASTERS AS ECONOMIC GAIN
Since the GDP records every monetary transaction as positive, the costs of social decay and natural disasters are tallied as economic advance. Crime adds billions of dollars to the GDP due to the need for locks and other security measures, increased police protection, property damage, and medical costs. Divorce adds billions of dollars more through lawyer’s fees, the need to establish second households and so forth. Hurricane Andrew was a disaster for Southern Florida. But the GDP recorded it as a boon to the economy of well over $15 billion.
GDP IGNORES THE NON-MARKET ECONOMY OF HOUSEHOLD AND COMMUNITY
The crucial functions of childcare, elder care, other home-based tasks, and volunteer work in the community go completely unreckoned in the GDP because no money changes hands. As the non-market economy declines, and its functions shift to the monetized service sector, the GDP portrays this process as economic advance. The GDP also adds the cost of prisons, social work, drug abuse and psychological counseling that arise from the neglect of the non-market realm.
GDP TREATS THE DEPLETION OF NATURAL CAPITAL AS INCOME
The GDP violates basic accounting principles and common sense by treating the depletion of natural capital as income, rather than as the depreciation of an asset. The Bush Administration made this point in the 1992 report of the Council on Environmental Quality. “Accounting systems used to estimate GDP” the report said, “do not reflect depletion or degradation of the natural resources used to produce goods and services.” As a result, the more the nation depletes its natural resources, the more the GDP goes up.
GDP INCREASES WITH POLLUTING ACTIVITIES AND THEN AGAIN WITH CLEAN-UPS
Superfund clean-up of toxic sites is slated to cost hundreds of billions of dollars over the next thirty years, which gets added to the GDP. Since the GDP first added the economic activity that generated that waste, it creates the illusion that pollution is a double benefit for the economy. This is how the Exxon Valdez oil spill led to an increase in the GDP.
GDP TAKES NO ACCOUNT OF INCOME DISTRIBUTION
By ignoring the distribution of income, the GDP hides the fact that a rising tide does not lift all boats. From 1973 to 1993, while GDP rose by over 50 percent, wages suffered a decline of almost 14 percent. Meanwhile, during the 1980s alone, the top 5 percent of households increased their real income by almost 20 percent. Yet the GDP presents this enormous gain at the top as a bounty to all.
GDP IGNORES THE DRAWBACKS OF LIVING ON FOREIGN ASSETS
In recent years, consumers and government alike have increased their spending by borrowing from abroad. This raises the GDP temporarily, but the need to repay this debt becomes a growing burden on our national economy. To the extent that Americans borrow for consumption rather than for capital investment, they are living beyond their means and incurring a debt that eventually must be repaid. This downside of borrowing from abroad is completely ignored in the GDP.
WHAT IS THE GENUINE PROGRESS INDICATOR—GPI?
The Genuine Progress Indicator (GPI) is a new measure of the economic well-being of the nation from 1950 to present. It broadens the conventional accounting framework to include the economic contributions of the family and community realms, and of the natural habitat, along with conventionally measured economic production.
The GPI takes into account more than twenty aspects of our economic lives that the GDP ignores. It includes estimates of the economic contribution of numerous social and environmental factors, which the GDP dismisses, with an implicit and arbitrary value of zero. It also differentiates between economic transactions that add to well-being and those, which diminish it. The GPI then integrates these factors into a composite measure so that the benefits of economic activity can be weighed against the costs.
The GPI is intended to provide citizens and policy-makers with a more accurate barometer of the overall health of the economy, and of how our national condition is changing over time.
While per capita GDP has more than doubled from 1950 to present, the GPI shows a very different picture. It increased during the 1950s and 1960s, but has declined by roughly 45% since 1970. Further, the rate of decline in per capita GPI has increased from an average of 1% in the 1970s to 2% in the 1980s to 6% so far in the 1990s. This wide and growing divergence between the GDP and GPI is a warning that the economy is stuck on a path that imposes large—and as yet unreckoned—costs onto the present and the future.
Specifically, the GPI reveals that much of what economists now consider economic growth, as measured by GDP, is really one of three things: 1) fixing blunders and social decay from the past; 2) borrowing resources from the future; or 3) shifting functions from the community and household realm to that of the monetized economy. The GPI strongly suggests that the costs of the nation’s current economic trajectory have begun to outweigh the benefits, leading to growth that is actually uneconomic.
If the mood of the public is any barometer at all, then it would seem that the GPI comes much closer than the GDP to the economy that Americans actually experience in their daily lives. It begins to explain why people feel increasingly gloomy despite official claims of economic progress and growth.
The GPI starts with the same personal consumption data the GDP is based on, but then makes some crucial distinctions. It adjusts for certain factors (such as income distribution), adds certain others (such as the value of household work and volunteer work), and subtracts yet others (such as the costs of crime and pollution). Because the GDP and the GPI are both measured in monetary terms, they can be compared on the same scale.
I. CRIME & FAMILY BREAKDOWN
Social breakdown imposes large economic costs on individuals and society, in the form of legal fees, medical expenses, damage to property, and the like. The GDP treats such expenses as additions to well-being. By contrast, the GPI subtracts the costs arising from crime and divorce.
II. HOUSEHOLD & VOLUNTEER WORK
Much of the most important work in society is done in household and community settings: childcare, home repairs, volunteer work, and the like. These contributions are ignored in the GDP because no money changes hands. To correct this omission, the GPI includes, among other things, the value of household work figured at the approximate cost of hiring someone to do it.
III. INCOME DISTRIBUTION
A rising tide does not necessarily lift all boats—not if the gap between the very rich and everyone else increases. Both economic theory and common sense tell us that the poor benefit more from a given increase in their income than do the rich. Accordingly, the GPI rises when the poor receive a larger percentage of national income, and falls when their share decreases.
IV. RESOURCE DEPLETION
If today’s economic activity depletes the physical resource base available for tomorrow’s, then it is not really creating wellbeing; rather, it is just borrowing it from future generations. The GDP counts such borrowing as current income. The GPI, by contrast, counts the depletion or degradation of wetlands, farmland, and non-renewable minerals (including, oil) as a current cost.
The GDP often counts pollution as a double gain; once when it’s created, and then again when it is cleaned up. By contrast, the GPI subtracts the costs of air and water pollution as measured by actual damage to human health and the environment.
VI. LONG-TERM ENVIRONMENTAL DAMAGE
Climate change and the management of nuclear wastes are two long-term costs arising from the use of fossil fuels and atomic energy. These costs do not show up in ordinary economic accounts. The same is true of the depletion of stratospheric ozone arising from the use of chlorofluorocarbons. For this reason, the GPI treats as costs the consumption of certain forms of energy and of ozone-depleting chemicals.
VII. CHANGES IN LEISURE TIME
As a nation increases in wealth, people should have increasing latitude to choose between more work and more free time for family or other activities. In recent years, however, the opposite has occurred. The GDP ignores this loss of free time, but the GPI treats leisure as most Americans do—as something of value. When leisure time increases, the GPI goes up; when Americans have less of it, the GPI goes down.
VIII. DEFENSIVE EXPENDITURES
The GDP counts as additions to well-being the money people spend just to prevent erosion in their quality of life or to compensate for misfortunes of various kinds. Examples are the medical and repair bills from automobile accidents, commuting costs, and household expenditures on pollution control devices such as water filters. The GPI counts such “defensive” expenditures as most Americans do: as costs rather than as benefits.
IX. LIFESPAN OF CONSUMER DURABLES & PUBLIC INFRASTRUCTURE
The GDP confuses the value provided by major consumer purchases (e.g., home appliances) with the amounts Americans spend to buy them. This hides the loss in well-being that results when products are made to wear out quickly. To overcome this, the GPI treats the money spent on capital items as a cost, and the value of the service they provide year after year as a benefit. This applies both to private capital items and to public infrastructure, such as highways.
X. DEPENDENCE ON FOREIGN ASSETS
If a nation allows its capital stock to decline, or if it finances its consumption out of borrowed capital, it is living beyond its means. The GPI counts net additions to the capital stock as contributions to well-being, and treats money borrowed from abroad as reductions. If the borrowed money is used for investment, the negative effects are canceled out. But if the borrowed money is used to finance consumption, the GPI declines.
The above text is excerpted from The Genuine Progress Indicator: Summary of Data and Methodology, Redefining Progress C1995. Copies of the full reports are available for $10.00 by contacting: Redefining Progress, One Kearny Street, Fourth Floor San Francisco, CA 94108 Phone: 415-781-1191; FAX: 415-781-1198.
[These are the same people who wrote the cover story "If the Economy Is Up, Why Is America Down?", in the October 1995 Atlantic Monthly. For back issues send $7 to: The Atlantic, Back Issues, 200 North 12th St., Newark, NJ. 07107]
THE GREEN NATIONAL PRODUCT: A Proposed Index of Sustainable Economic Welfare; Clifford W. Cobb and John B. Cobb, Jr; University Press of America, 1994 ISBN 0-8191-9322-4
This book is available for $24 + $5 shipping from: Society for Human Economy, PO Box 28, West Swanzey, NY 03469-0028
The Genuine Progress Indicator Could Provide an Environmental Measure of the Planet’s Health
by Linda Baker
On October 17, 1995, Senator Byron Dorgan (D-ND) asked his colleagues in the Senate to rethink sacred notions of economic progress. “We are told daily that the Gross Domestic Product (GDP) in America is up, our economy is moving forward and we are doing so well. But why, when Americans are working longer and harder just to keep up, why are we told that things are so good, that the GDP is a measure of enormous progress?”
The answer, continued Dorgan, is that the GDP is fatally flawed, as it privileges the world of the market at the expense of social and environmental breakdown. “The gross domestic product adds up everything Americans spend and declares that as the total good. As a result, the hundreds of billions of dollars that Americans spend to cope with crime, the lawyers, and social breakdown costs, is all GDP–car crashes, fender benders in front of the Capitol. Mr. President, $200 billion a year in repair bills and hospital bills give this country a real boost,” says Dorgan.
The New Measure
Dorgan based much of his speech on an article that had come out in The Atlantic Monthly that same month, titled “If the Economy is Up, Why Is America Down?” In it, authors Clifford Cobb, Tad Halstead and Jonathan Rowe (who now does research for Dorgan) propose a different measure–a Genuine Progress Indicator (GPI). The GPI would add up the nation’s expenses (GDP), factor in sectors that are usually excluded from the market economy such as housework and volunteering, and then subtract social ills: crime, natural resource depletion and loss of leisure time.
No surprise: the GPI figures reveal a cloud in the silver lining of the GDP. As measured by the GPI, the U.S. economy has declined by 45 percent in the past two decades. The GDP figures, on the other hand, indicate the economy has more than doubled its growth rate since the early 1950s.
The disparity between the two indexes, argue the authors, confirms that the GDP is no longer an accurate gauge of economic progress. “The GPI reveals that much of what we now call growth or GDP is really just one of three things in disguise: fixing blunders and social decay from the past, borrowing resources from the future, or shifting functions from the traditional realm of household and community to the realm of the monetized economy.”
Three years after the publication of the Atlantic article, Dorgan’s impassioned 40-minute speech, and a flurry of congratulatory newspaper articles and editorials, the GPI remains controversial for its economic methodology. Yet it is becoming a powerful tool for advocates of social change, environmentalists in particular. The ideas embodied in the GPI are being pursued in books such as Paul Hawken’s Natural Capitalism and Stanford University biologist Gretchen C. Daly’s Nature’s Services, both of which underscore the economic worth of ecosystem “services.” And across the country, dozens of communities are adopting their own “sustainability indicators” as a means of assessing their economic, environmental and social condition.
“We want people to rethink what progress is all about,” says Mathis Wackernagel, director of Indicator Programs at Redefining Progress, the San Francisco-based policy organization that developed the GPI and other social progress indicators. “We want to live well as people, but there’s only so much ecological capacity on this planet. That’s the essence of the sustainable dilemma, and that’s what the GPI and other ‘real life’ measures can help us to do.”
The criticisms leveled against the GDP, the country’s main index of progress, boil down to this: what it deems as growth is merely increased spending. It doesn’t tell us if the spending is good or bad. This kind of critique is nothing new. In fact, it originated with Simon Kuznets, the man who helped create the national accounting system to jump-start a post-war economy. In his first report to Congress in 1934, Kuznets warned that “the welfare of a nation” can “scarcely be inferred from a measurement of national income as defined above.” Further, argued Kuznets, as the economy expands, the requirements for economic growth also change. “Goals for more growth,” he said, “should specify more growth of what and for what.”
Since that time, a number of economists and policy makers have tried to highlight the shortcomings of the GDP. Just before he was assassinated, Robert Kennedy delivered a speech attacking the national index that was all the more notable since it came from an aspiring president. “If you were an economist with a soul, Bobby Kennedy’s GDP speech made you weep,” says Everett Erlich, undersecretary for economic affairs from 1993 to 1997 and now president of ESC, an economics-consulting firm in Washington, D.C.
Over 400 U.S. economists, including Professor Herbert Simon, a Nobel laureate, and Professor Robert Eisner, a former president of the American Economics Association, are backing a GPI initiative stating that the GDP ignores social and environmental costs and is thus “inadequate and misleading as a measure of true prosperity”. Despite increasing interest, however, an intractable political and corporate culture has successfully arrested efforts to change the nation’s system of tallying accounts. The quarterly release of GDP figures has become a national ritual, albeit one that is little understood by the public.
Today, GDP percentages are used as a blueprint for Wall Street takeovers, federal budget calculations and political campaign strategies. Just last January, in his State of the Union address, Clinton exploited the mystique of quarterly GDP numbers to keep attention focused on national well-being instead of presidential impeachment.
The nation’s political reliance on the GDP was spotlighted in 1994, when the Commerce Department undertook a project to adjust the GDP for depletion of oil and other nonrenewable resources. Called the Integrated Economic and Satellite Accounts (IESA), the program was eventually supposed to include renewable resources like forests and factors such as changes in air quality. But soon after the data on nonrenewables was published, Congress cried foul and effectively shut down the program. The rationale was clear: “Somebody is going to say…that the coal industry isn’t contributing anything to the country,” Congressman Alan Mollohan of West Virginia said at the time.
According to Larry Moran, a spokesperson for the Commerce Department, the Bureau of Economic Affairs has not received any funding for Phase Two of the IESA and has no plans to move forward with the environmental accounting system. When they shut down the IESA, says Erlich, “Congress made thinking about a Green GDP a thought crime”.
But it is precisely because the GDP is so clearly skewed in favor of natural resource exploitation that the GPI is such a compelling idea for environmentalists. According to the perverse logic of the GDP, the nation prospers every time there is an oil spill, an increase in air pollution or a depletion of habitat. Why? Because an environmental disaster creates jobs and stimulates the economy. As the people at Redefining Progress put it, when measured by the GDP, the nation’s most desirable habitat is a multibillion-dollar, toxic Superfund site. “If we have to use one index as a guide to policy,” says Jay Andrew Hoerner, senior research scholar at the Center for Sustainable Economy, “we must make the kinds of adjustments made in the GPI.”
In a sense, we already are. Seemingly disparate concerns–the North American Free Trade Agreement and rapid deforestation, corporate welfare and global warming–are weakening the traditional polarization between environmental protection and economic growth. Green taxes, natural capitalism and ecological deficits–an entirely new language has been created to explain an environmentalism rooted in self-interest and an economics rooted in nature’s commodities. Redefining Progress itself is reaping the benefits of these shifting alliances, says Wackernagel. “Banks are now giving us money,” he says, making reference to the organization’s “Ecological Footprint” project, which monitors the ecological capacity of individual countries. “They are investing in government bonds and want to know, ‘Do countries have ecological deficits? Are they overspending their natural capacity?’”
Governments, says Wackernagel, don’t want to expose themselves because it’s obvious they’re moving in the wrong direction. “But these will be the vulnerable countries of the future.” Indonesia provides a useful case study. Since 1970, development experts had labeled the Southeast Asian country a success story for its rapid growth rate (as measured by GDP) of seven percent a year. But a study by the World Resources Institute in 1989 revealed that after adding in the costs of forest clear-cutting and intensive farming, the country’s rate of sustainable growth was really only one-half the original. Ten years later, with the clarity of hindsight, the collapse of the Indonesian economy is proof of the GDP’s fragile mask.
Limits to Growth
Paul Hawken outlines a similar scenario in Natural Capitalism. For the first time in history, argues Hawken, the obstacle to national and global prosperity is not the lack of man-made capital such as investments, factories and equipment, but the lack of natural capital, which he defines as both nonrenewable and renewable resources. “The limits to increased fish harvests are not boats,” he writes, “but productive fisheries; the limits to irrigation are not pumps or electricity, but viable aquifers; the limits to pulp and lumber production are not sawmills, but plentiful forests.”
Moreover, argues Hawken, it’s time to stop defining natural capital in terms of the commodities they provide–wood, for example. Instead, we should recognize the critical “services” they provide, like clean air and water, ocean productivity and fertile soil. In her essay “Valuing Nature’s Services”, Worldwatch Institute researcher Janet Abramovitz takes these ideas one step further by recognizing and assigning value to the “income” the ecosystem delivers to the market economy: production of raw materials, purification of water, waste decomposition, soil maintenance, pollination and pest control, and regulation of local and global climates.
“Honeybee pollination activity is 60 to 100 times more valuable than the honey they produce,” writes Abramovitz. “The value of wild blueberry bees is so great, with each one pollinating four to five gallons of blueberries in its life, that farmers view them as ‘flying $50 bills.’”
Ecological economists (who are creating a new field within the established discipline of environmental economics) argue that the GDP not only encourages exploitation of natural resources but that, astoundingly, it ignores the use value of renewable and nonrenewable resources to the economy. “Nature’s ‘free’ goods and services aren’t included in the gross domestic product”, writes Abramovitz. “But nature’s services are not, in fact, free, and the future will bear the hidden costs of losing them.” The mission statement of Portland, Oregon-based EcoTrust, one of a small but growing number of organizations seeking to use economic tools for conservation purposes, puts it this way: “The development of a conservation economy is a deeply ‘conservative’ strategy. Just as a reasonable businessperson will seek to grow his or her asset base and live off current income instead of debt, conservation economics seeks to preserve and grow the natural capital …to live off income instead of ‘eating our seed corn,’ and to build as much new wealth as possible on increasing knowledge.”
Neither Right Nor Left
Although ecologically-minded organizations are often associated with political liberals, proponents of the GPI have discovered unlikely bedfellows in the form of conservative groups that are joining the attack on the nation’s main index of progress. In 1993, former Secretary of Education William Bennett produced a study called the Index of Leading Cultural Indicators, to chart the social decline that has taken place–divorce, crime, media addiction–even as the economy has grown. The right-leaning Family Research Council has developed a similar measure.
At the same time, Redefining Progress is not the only progressive institution to generate social change indicators. Another national gauge of well-being is the Index of Social Health, which is published annually by Fordham University’s Graduate Center in Tarrytown, New York. Since 1985, the center has studied the nation’s health through the evaluation of 16 indicators affecting children, teenagers, adults and the elderly: infant mortality, child abuse, poverty, suicides, drug use, drop-out rates, average salaries and health insurance coverage. Like the GPI, the Fordham Index shows steady declines, from 73.8 out of a possible 100 in 1970 to 40.6 in 1993. There is also the Physical Quality of Life Index, which measures literacy, infant mortality and life expectancy, as does the Worldwatch Institute in its State of the World volumes.
Together, these indexes reinforce the need for new definitions of growth and progress. Moreover, the social message sounded by these national monitors can also be heard at the local and regional level. In response to tremendous increases in urban growth, communities across the country are undertaking “community indicator projects” that take a frank look at livability issues. Sustainable Seattle, for example, is internationally known for its indicator model, which uses a list of 40 cultural, ecological, economic and social indicators to assess progress toward sustainability. Last year, the group released a “Sustainable 98 Report” showing, among other things, that wild salmon runs in the Cedar River watershed have stabilized at dangerously low levels and that automobile use had increased even as fuel efficiency decreased.
Like the GPI, these indicators are a way of measuring the health of a community; they do not measure the success of a particular policy or program. But like the GPI, the ultimate goal of the community indicator projects is to move the benchmarks into action. This is beginning to happen. For instance, the city of Seattle not only incorporated the indicators report into its comprehensive plan, but King County Executive Ron Simms also held up the report as a guide for his public policy goals. “This is my textbook,” he said in an interview last year. “And I think I’ll have been successful at the end of the year if we have moved all the indicators up.”
In Santa Monica, one of the Sustainable City Programs’ 1995 indicators showed only 15 percent of the municipal fleet of vehicles used reduced-emission fuels. In response, city officials instituted a new schedule of vehicle maintenance so that Santa Monica will have 75 percent of its fleet running on low-emissions fuels by 2000.
Over the last few years, the city of Noblesville, Indiana and Indiana University developed a series of community benchmarks which have been integrated into the comprehensive plan and zoning ordinance. Responding to a benchmark governing park space per resident, the city adopted a park impact fee policy and then used the money to purchase land adjacent to an historic community park and along the nearby White River.
Many textbook economists are critical of the GPI because they are convinced of the absolute value of measuring market activity; by the same token, they argue that it is difficult to quantify activities that take place outside of the marketplace. “The market economy does two very important things for us as individuals that can explain why it should be measured separately from everything else,” says Larry Moran at the Bureau of Economic Affairs. “It provides jobs and those jobs provide income. We don’t count things like housework or mowing the lawn because they provide neither.” But to highlight the costs as well as the benefits of “jobs and income,” the GPI considers more than 20 aspects of the economy, which the GDP ignores. Thus, in addition to subtracting the costs of environmental degradation such as pollution and damage to agriculture and water, the GPI also counts such negative factors as repairs after auto accidents and security devices people pay to prevent crime.
Illustration by Chris Murphy
It also adds in “non-market” factors such as unpaid domestic labor, contributions to neighborhood groups and care of the elderly. Most controversially, it makes an adjustment for income distribution; that is, even if overall income levels increase, the GPI labels greater income inequality as a negative for economic and social progress.
Value Judgments for the Earth
Implicit to the market-based critique of the GPI is that the new measure substitutes value judgments for the objectivity of the market, an argument that updates age-old questions about economic theory for the end of the millennium. Is the market simply about individual choice? Or are those choices influenced by circumstance? In the 1990s, how much of our “income” is generated by social problems and how many of our consumption “choices” are dictated by environmental and social decline?
As Wackernagel points out, the market itself is a value judgment, as it dismisses everything but financial transactions. “Valuations are arbitrary judgments and the GDP is full of them”, says Wackernagel. “It says many things have the value zero, such as housework and the environment.” The GPI figures aren’t perfect, he says. “But we think it’s better to give a rough estimate than to say these things are worth nothing”.
Whatever questions they may have about the GPI’s value, most critics agree that the measure’s natural resource adjustments are the most sound methodologically–another sign the environmental movement may be at the vanguard of the GDP reform effort. “It’s very difficult to count leisure time or women’s work in the home”, says Erlich. “But we have information on environmental quality”.
Once again, however, the problem is that the GDP disregards this information. “We’ll have a consulting firm come out and try and estimate the cost to our economy of reducing carbon emissions,” says Jim Barrett, an environmental economist at the Economic Policy Institute in Washington, D.C. “Instead of saying anything about environmental costs, we’ll hear: ‘In 2010, our GDP will be 3.2 percent lower than it otherwise would have been.’” This gives policy officials an out, says Barrett. “They say, ‘If the value to our nation is a loss of three percent, why should we do it?’”
There hasn’t been another GPI speech in the Senate since Senator Dorgan delivered his stinging rebuke of the GDP in 1995. Yet the GPI continues to stimulate discussion both here and abroad, where at least 11 countries–including Austria, England, Sweden and Germany–have recalculated their gross domestic product using the GPI (known as the ISEW abroad). Like their counterpart in the United States, the European GPIs post steady declines over the last 30 years.
But perhaps more importantly, the GPI is emblematic of a grassroots movement that has been building in this country for over two decades: an acknowledgment that sprawl, growth and congestion are changing neighborhoods, depleting green spaces and affecting our quality of life. Americans might be ahead of their policy makers in measuring what’s really important.
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Tabacco: There are 2 separate Economies in the US: one for the Have-Mores and another for the rest of us. Only the GDP (for the Have-Mores) is ever reported. The average American has no choice but to accept the Stock Market as his or her sole indicator of Economic Health. It’s time for a change!
Published: Thursday, 6 August 2009 Tags: knowledge+is+power takebackamerica business politics religion quasicon bush richvspoor disaster+capitalism warpeace halftruths gpi gdp economics stock+market blog blogs blogging blogger bloggers economy statistics
‘Tabacco’ left this comment on 24 Sep 08
The Quickest Way to increase the GNP? Nuke some of our major cities! The repair and renovation costs would send the GNP soaring through the roof! Does that make sense to you?
‘Tabacco’ left this comment on 22 Sep 08
Tabacco sat on this Post since August 7, 2007, waiting for just the right time to publish this very important but technical subject. Not every topic is simple or easy to digest. Our unwillingness to read the fine print is counted on heavily by those in power, who seek to deceive us with one-liners and 30-second sound bites. I refer specifically, but not exclusively, to T. Boone Pickens.
Mr. Pickens neglects to inform us in his commercials that he stands to gain if we follow his lead. He is obviously highly invested in these alternative energy sources. Why not tell us that? This is not an indictment of his suggestions; but it is an indictment of his lack of transparency.
Next time I will lecture on the nonsensical logic of electing a millionaire (Ross Perot) to give us fair and good government. The same applies to Mike Bloomberg. The American public is far from egghead status. Hell, we aren’t even at the level of Jethro in “The Beverly Hillbillies”.
READ THE FINE PRINT!
Tabacco: I consider myself both a funnel and a filter. I funnel information, not readily available on the Mass Media, which is ignored and/or suppressed. I filter out the irrelevancies and trivialities to save both the time and effort of my Readers and bring consternation to the enemies of Truth & Fairness! When you read Tabacco, if you don’t learn something NEW, I’ve wasted your time.
Tabacco is not a blogger, who thinks; I am a Thinker, who blogs. Speaking Truth to Power!
In 1981′s ‘Body Heat’, Kathleen Turner said, “Knowledge is power”.
T.A.B.A.C.C.O. (Truth About Business And Congressional Crimes Organization) – Think Tank For Other 95% Of World: WTP = We The People