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.