Has the Gross Domestic Product has outlived its usefulness as a measure of economic activity? That’s what Eric Zencey argues, citing the GDP itself, which supplanted the Gross National Product as global trade made “nationality” more or less irrelevant and geography became a better guide to economic activity. (Here’s the Wikipedia explanation: GDP measures output within a country’s boundaries; GNP starts with that and subtracts out income made by foreigners and adds income by citizens abroad – confusing!)
Zencey says we’re at the cusp of an even bigger change now, chiefly because the costs of environmental damage of various kinds – burning fossil fuels, for instance, or the erosion of the Louisiana coastline putting New Orleans in ever-greater danger – are rising rapidly. These have obvious economic impacts that aren’t reflected in GDP. Or rather, they show up only as positive contributions to GDP (in spending on gasoline and in rebuilding New Orleans). It’s an absurd convention when you think about it:
Because we use such a flawed measure of economic well-being, it’s foolish to pursue policies whose primary purpose is to raise it. Doing so is an instance of the fallacy of misplaced concreteness — mistaking the map for the terrain, or treating an instrument reading as though it were the reality rather than a representation. When you’re feeling a little chilly in your living room, you don’t hold a match to a thermometer and then claim that the room has gotten warmer. But that’s what we do when we seek to improve economic well-being by prodding G.D.P.
The problem, as Zencey acknowledges, is how to assign value to things that we currently ignore. What value to place on Louisiana’s wetlands, for instance, which provide hurricane protection, fishery habitats, and, of course, living space? Is the value dropping as the wetlands disappear, or rising as the remaining land becomes more precious? There are models for doing this, and Zencey recommends a presidential commission to hash it out, while renaming but not ditching GDP. The real obstacle to this change, though, isn’t even politics but institutional inertia. But as the after-effects of the past century’s bad decisions mount, the politics will inevitably push us in the direction of a more intelligent measurements of economic activity.
