GDP measures economic growth and recessions but what if we’re counting the wrong things?
GDP figures are out today, our quarterly look at what’s happening in the economy.
Gross domestic product is a key focus for markets and governments, as the benchmark assessment of the nation’s economic performance.
But what if we’re counting the wrong things?
“It gives us a big-picture idea of growth,” says researcher Cressida Gaukroger, “but it misses out on a range of things that are really valuable to people in their everyday lives.”
For example, it doesn’t count a person’s preventable early death as a negative, but tables the cost of a casket and funeral expenses as a positive impact.
“GDP has been increasing over a long period in Australia. But other measures of quality of life and happiness have not been increasing at the same rate as GDP.”
GDP judges pain poorly
A simple example is fossil fuels, Dr Gaukroger says.
We can have excellent “growth figures” through rising GDP but they won’t account for the future costs of dealing with climate change exacerbated by the burning of carbon-intensive fuels.
GDP acts similarly in the aftermath of natural disasters.
“GDP may go down somewhat over the long term as a result of a natural disaster,” she says.
But a perverse effect will happen first, with GDP rising as homes are built and disaster support payments spent to rebuild communities.
“You’ll get this boost, which doesn’t seem right, rebuilding something that you already had. It doesn’t feel like it’s contributing to the economy in the right way.”
Dr Gaukroger is a senior policy adviser at the Centre for Policy Development, an institute focused on long-term policy development.
She’s just released the first part of a multi-year initiative that’s examining what governments measure and manage — with the aim of making policy that changes lives in ways that matter more to people.
While GDP has been the default measure of how a nation is progressing, it doesn’t help us know how resources were distributed, how people felt or whether their lives changed for the better.
GDP misses out things we value but struggle to express in a dollar figure. Measures overseas have sought to capture the value of things like:
- leisure time
- work/life balance
- access to green spaces
- accessible education
- short waits for medical attention
- whether or not your commute is long
“If we just talk and think about GDP — and use that as a basis for making policy decisions — then we’re not accurately representing the things that really matter to people in Australia,” adds Dr Gaukroger.
Places going beyond GDP
Wales, New Zealand, Bhutan and Scotland are among countries looking beyond GDP to work out other measures of how their country is doing. Bhutan pushes to lift gross national happiness (GNH) and New Zealand has unleashed a Wellbeing Budget.
But we don’t need to travel that far to see change. Tasmania’s new Premier is developing a Wellbeing Framework to guide how the government navigates difficult issues and delivers policy and services to fix them.
“We recognise that economic growth alone does not account for a community’s success or progress over time, with health, inclusion and happiness key success factors,” Jeremy Rockliff announced this month.
“Wellbeing can mean different things to different people, but it includes economy, health, education, safety, housing, living standards, environment and climate, social inclusion and connection, identity and belonging, good governance and access, and services.
Better Life Index
A starting point is the Better Life Index from the Organisation for Economic Co-operation and Development (OECD).
It has common standards around civic engagement, the environment, health, housing, income, knowledge, safety, social connections and others that have been used and adapted in different countries.
The most commonly measured standards are environmental quality, health, knowledge and skills, and income and wealth.
Originally from Australia, Dr Katherine Trebeck is a leading global expert and member of the Wellbeing Economic Alliance.
In a recent article, she noted that the rise of GDP as a measure of success came from the “ashes of the last great global catastrophe”, World War II.
“During the war, knowing in detail how successful the economy was at producing military hardware offered an advantage,” she wrote.
Dr Gaukroger notes the limitations of GDP are being recognised.
“There’s a real movement globally to start thinking about the other things that matter to people’s quality of life: like social equality and protection of the environment.”
There are other calculations — and benefits to be reaped.
Increasing the wellbeing of the population is a “no-brainer”, she says, for governments that rely on a mandate from the public — winning elections — to stay in power.