When it comes to GDP and quality of life, growth not always good

THE NEWS & OBSERVER

By Dirk Philipsen

On Thursday, the U.S. Bureau of Economic Analysis will release new GDP estimates. Published every quarter, the Gross Domestic Product numbers decide political fortunes, determine the health of world economies and shape our collective sense of hope or dread.

It is well-rehearsed drama. At 7:30 a.m., reporters are led into an electronically sealed conference room. The doors are locked, and no one is allowed in or out. Those present get advance copies of the initial estimates of last quarter’s GDP.

At precisely 8:30 a.m., reporters connect to their networks and the figures are officially released to the public. When growth is slow, as expected this time, economists will discuss meager performance and offer advice on how to generate “more robust” GDP growth rates. Wall Street and global markets from London to Tokyo will respond.

GDP operates like a rulebook for our lives. By defining what we mean by “the economy,” it establishes the values we live by. Unpaid women’s labor, for instance – running the household, raising the young, nurturing the sick and old – has little value. If those same women join the ranks of Wall Street quantitative analysts, their status suddenly yields high incomes and high contributions to GDP. We value what we measure.

GDP does not measure our welfare, as even economists admit. It is difficult to argue that accidents, addictions, oil spills and war, all great boosts to GDP growth, add to our collective well-being. We are beginning to realize that using up vital resources depletes our collective natural capital, yet this liquidation of assets does not count against our GDP, any more than oil in the ground counts toward it. Extraction and consumption count, nature doesn’t.

Why have decision-makers hitched their – and our – fate to continued GDP growth? Why do we persist in registering as a gain the loss of resources, loss of time and loss of natural beauty, but fail to measure meaningful work, a viable ecosystem or social well-being? According to the 2015 Social Progress Index, the U.S. now ranks 45th in basic educational knowledge and 16th in overall social progress. How did we get here?

Having studied this dangerously flawed metric for the last eight years, I have concluded that our global fixation on the GDP rests on two foundations: faith and denial.

Faith. The world’s predominant faith today is that growth is good, necessary for development, prosperity and even progress itself. We seek more goods, more services, more technology. More markets, more trade. From Beijing to Washington, a world without exponential growth seems inconceivable. “It’s simple,” as the AT&T ad puts it, “more is better.”

Rarely noticed is the fact that this growth is exclusively defined by GDP. It fails to count, as the late Robert Kennedy noted, much of “what makes life worthwhile.”

Denial. GDP serves as a speedometer on a train headed downhill. Political and economic leaders assure us that growth is needed. They don’t ask where it is headed. We passengers, meanwhile, remain preoccupied with who gets a seat and who may get thrown off at a moment’s notice. We rarely glimpse the billions without tickets, or realize that we are headed toward a cliff – a point recently made by Pope Francis, only to be dismissed as ignoring the finer points of economic theory.

We need to replace faith and denial with reason. Research and basic logic force us to conclude: Continued GDP growth is not possible. Why? Because it requires more energy, more resources and more space, all expanding at an exponential rate. No realistic model shows how exponential growth can happen indefinitely on a finite planet.

The earth is heating up, suffocating under a heap of trash and running out of space and vital assets for growing populations. Not just the pope and assorted eco-activists but also prominent economists such as Joseph Stiglitz and Amartya Sen call for shifting the conversation from more to better – building an economy that grows quality of life, rather than quantity of stuff.

Meanwhile, get ready today for another front-page news story on the vital importance of economic growth. Another op-ed on how to stimulate the one thing nations apparently cannot live without: the GDP arrow pointing up. Note that all this is about speed and size of the train – not the direction.

Perhaps it is time to ask: Where do we want to go?

Dirk Philipsen is an economic historian at Duke University’s Kenan Institute for Ethics. His latest book is “The Little Big Number: How GDP Came to Rule the World and What to Do About It” (Princeton University Press, 2015).