Utopia for Realists: And How We Can Get There

By many existing metrics of economic measurement, environmental and geopolitical disasters are actually a good thing because they provide an opportunity for rebuilding and thus a degree of growth impossible under normal conditions. Common sense suggests, however, that this assessment is flawed, and the enormous destruction and instability is not worth the increase in economic activity. This problem speaks to the weakness of Gross Domestic Product (GDP) as the principal measurement of economic activity. GDP is meant to measure the overall production of goods and services within a country, but it misses many important contributors to social welfare overall. It does not account for unpaid labor, or illegal businesses which nonetheless contribute to economic activity—in some countries quite substantially. In addition, mothers breastfeeding their children has enormous economic value, but few countries have tried to quantify it. Technology accounts for a smaller fraction of GDP as it becomes more advanced and thus cheaper. A person with many social problems contributes more to GDP than a healthier one, yet GDP takes no account at all of inequality. The banking industry accounts for a huge portion of GDP even though it does not actually produce anything.

All of this reflects a preoccupation with economic growth that is out of step with most people’s economic reality. It endures because it is a neat and tidy figure that purports to offer a full description of an economy’s health, following a long tradition of economists looking for one single statistic to provide a comprehensive guide, such as manufacturing output or the total price of all products. The idea of GDP originated during the Great Depression, and its main value was giving countries a metric for putting the best possible face on their economic situation in very troubling times. The popularization of GDP as a principal metric encouraged a notion of “the economy” as a singular and purely scientific entity—separate from the people and institutions it was supposed to support. Economists encouraged the notion that with the right ideas, they could steer a nation to prosperity. However, calculating GDP is a subjective exercise even for the most highly trained experts. Only during wartime, when maximum production of material goods like tanks and planes has an obvious value, is GDP is the most useful statistic. In a more sophisticated economy, GDP is bound to miss many of the factors crucial to social prosperity. Alternative measurements, such as the “happiness index” or “gross social product” are sufficiently abstract that governments can easily distort them to bolster their own agendas. The more complex an economy, the harder it is to measure by any single statistic.

An economy obsessed with efficiency usually features a private sector delivering consumer goods at better prices, while turning over to the private sector services that cannot be made more efficient. This makes public services like healthcare and education seem more expensive, and thus more problematic, while concealing the hidden costs of private sector goods and services (which the public sector relies on) with low sticker prices. The private sector is more productive in a purely quantitative sense, but showing that it is more socially valuable would be difficult. The insufficiency of present metrics calls for a reevaluation of what is truly valuable.