Beyond GDP: We need a dashboard for the whole economy

HOW much political power can one number exert? Gross domestic product (GDP) is a strong candidate for the world’s most potent numerical indicator. …But look under the hood at the factors that feed into the calculation of GDP and you’ll see some strange goings-on.

Crucially, existing measures of GDP also fail to reflect the fact that some of the activity that contributes to GDP does harm rather than good. This distortion can encourage false choices – between promoting GDP and protecting the environment, for example. So jammed roads increase GDP through the increased sales of fuel that is wasted, but do nothing for people’s quality of life. And for anyone concerned about air quality, statistics which ignore air pollution produce an inaccurate estimate of public well-being.

This clash between the economic measures of socio-economic phenomena and public perception of the same phenomena spurred President Nicolas Sarkozy of France into action. Early last year, he asked economists Joseph Stiglitz of Columbia University in New York, Amartya Sen of Harvard University and Jean-Paul Fitoussi of Sciences-Po (the Institute of Political Studies) in Paris, France, to set up the Commission on the Measurement of Economic Performance and Social Progress (CMEPSP).

The commission’s report was published last month, and the onset of global recession – as determined by old-style GDP – means it is likely to be read more widely than it might otherwise have been. The report itself says that some members of the commission believe one reason the economic crisis took many by surprise is that “our measurement system failed us and/or… market participants and government officials were not focusing on the right set of statistical indicators”. As a result, accounting systems “did not alert us that the seemingly bright growth performance of the world economy between 2004 and 2007 may have been achieved at the expense of future growth”.

New Scientist