Gross domestic problem

The case for more sustainable growth metrics

July 6, 2014 12:00AM ET

by Sean McElwee @SeanMcElwee

On June 25, the U.S. Bureau of Economic Analysis released its highly anticipated gross domestic product numbers and revised the negative first quarter estimates downward. Increasingly, the fate of presidents and governors as well as macroeconomic policy is tied to these numbers. But as we consider the economic challenges of the 21st century, it is increasingly clear that conventional metrics of growth are inadequate.

GDP measures the economic output of a coal plant, but it doesn’t tell us how many children get asthma or tally deaths from coal-related air pollution. As Robert F. Kennedy said in 1968, “We seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our gross national product now is over $800 billion dollars a year, but … that gross national product counts air pollution and cigarette advertising and ambulances to clear our highways of carnage.”

Economists have long known the difficulties in using production as a proxy for progress, but that arcane debate has rarely leaked into the broader public discussion. More than four decades later, the threat of climate changes forces us to confront the question of what we are sacrificing for growth.

Real costs

GDP is a fine measure of the goods and services produced within a country’s borders. However, it does not tell us how sustainable that growth is or at what cost it comes. As a group of social scientists argued in a January issue of Nature, “If a business used GDP-style accounting, it would aim to maximize gross revenue — even at the expense of profitability, efficiency, sustainability or flexibility.” It’s time for the United States to adopt new economic measures that better account for the environmental and social costs of growth.

Oscar Wilde once noted that a cynic could tell the price of everything and the value of nothing. GDP doesn’t even include the price of everything. For instance, the International Monetary Fund found that our failure to price the effects of carbon dioxide amounts to a $1 trillion annual subsidy for fossil fuel corporations. Conversely, the Clean Air Act produced $22 trillion in economic benefits from 1970 to 1990, according to an EPA retrospective study — much more than the estimated $523 billion it cost. In each case, GDP ignores crucial public benefits and the externalities of economic growth.

Writing in The Financial Times, John Kay observed that such lay criticisms of GDP are “valid but largely beside the point.” But Nobel laureates Joseph Stiglitz and Amartya Sen, joined by Jean-Paul Fitoussi, wrote in their landmark report “Mismeasuring Our Lives” that “what we measure affects what we do, and if our measurements are flawed, decisions may be distorted. Choices between promoting GDP and protecting the environment may be false choices, once environmental degradation is appropriately included in our measurement of economic performance.”

In other words, if we understood that to harm the environment means to hurt the economy, the dichotomy between economic progress and sustainability becomes a false one.

This isn’t an exaggeration. Valuable resources — such as clean air, clean water and an atmosphere without excessive CO2 — are sacrificed to produce more growth. As one of the architects of modern GDP, Simon Kuznets said, “Goals for more growth should specify of what and for what.” A study by Nicholas Z. Muller, Robert Mendelsohn and William Nordhaus found that the air pollution costs of coal exceed the market price of coal. If markets actually self-regulated the way their proponents claim they do, then we would not be burning coal. No one would claim that the air we breathe is unimportant or that our children’s lungs do not matter. Yet this is how we live and make policy decisions.

Genuine progress

We are not stuck, however, with the coarse measure of GDP. There are alternative economic tools that redress these problems. One, the genuine progress indicator (GPI), takes into account 26 measures, including environmental degradation, inequality and social well-being. It shows that our “progress” since the 1960s has been largely illusory. (See chart at left.) In the future, the effects of global warming threaten to roll back growth. Natural disasters, resource wars, resurgent diseases, massive migrations and the desiccation of crops will all inflict severe economic consequences. One study suggests global warming could wipe out 3.2 percent of global GDP annually.

After adopting GPI, Maryland discovered that its environmental score needed improving and announced an initiative to reduce greenhouse gas emissions 25 percent by 2020. In France “Mismeasuring Our Lives” pushed the French National Institute of Statistics and Economic Studies to begin incorporating new measures into its accounting process and release numerous reports on inequality, quality of life and sustainability. The EU, the Organization for Economic Cooperation and Development and the United Nations have all been developing new measures based on the report’s recommendations.

More than gimmicks

For far too long, fast growth made growing wealth inequality seem tolerable. Similarly, climbing living standards overall seemed to justify the environmental decay that came with them. These patterns can’t last: Environmental constraints will limit growth as we know it and exacerbate anger over inequality.

With better indicators, we can have more sustainable and equitable growth — but even that may not be true for long. As carbon dioxide concentrations increase, our options will dwindle. The best estimates indicate that 80 percent of fossil fuels must be left in the ground, lest we tempt ecological collapse. And yet Exxon Mobile is not only predicting that will it burn all its reserves but is searching for more. And countries, too, are furiously searching for natural gas to bolster their economic growth.

Like the foolish builder Christ warned of, developed nations are building growth on sand. GDP, by excluding much of what matters, enables the worst sort of myopia.

Sean McElwee is a research associate at Demos.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.