GDP not a sufficient measure

By Sarah Liebig via The Concordian

11/10/16

In the tumultuous time following World War II, the U.S. and 44 other Allied countries met in New Hampshire for the Bretton Woods Conference to reconstruct the economic makeup of the global economy. It was here that Gross Domestic Product was set as a standard for countries to follow. The International Monetary Fund defines GDP as “[a measure of] the monetary value of final goods and services.” On that line, it is widely considered a measure of the growth and health of a nation. Given the context, measuring the U.S.’s economy by GDP made good sense. It continued to work well for the U.S. in the following ‘boom’ decades, as it was—and still is—intrinsically related to capitalism. However, once the ramifications of those boom decades came to light in the form of environmental issues, the GDP was not nearly as effective in measuring the health and growth of the U.S.

Among the most telling signs that GDP is an ineffective measure of the U.S.’s economic growth and health is Kinder Morgan’s statement from 2014: “Pipeline spills can have both positive and negative effects on local and regional economies, both in the short- and long-term. … Spill response and cleanup creates business and employment opportunities for affected communities, regions, and cleanup service providers.”

Kinder Morgan is currently the largest energy infrastructure company in the U.S. Their services include building pipelines to transport natural gas, refined petroleum products, crude oil, carbon dioxide and other products of fossil fuels. It is bad news for the environment that oil spills and other human-made environmental disasters are not accounted for in the GDP. However, it is worth noting that this lack of accountability is not an intrinsic fault in GDP. GDP was not designed to account for anything other than economic growth. According to the Institute for Policy Studies, a progressive think tank, GDP is only able to add government and private investments and money spent, thus calculating any kind of spending — beneficial or detrimental to people or to the environment — as improving the health of an economy. How can we expect to transition to clean energy in the near future if environmental disasters caused by fossil fuels benefit the economy? It is an unsettling prospect.

The ineffectiveness of GDP as a measure of economic growth and nation health is best demonstrated by the 2010 Deepwater Horizon oil spill that caused billions of dollars in damages and decreased tourist activity and environmental degradation—not to mention the 11 people that died and the irreparable damage to the ecosystem as a result of the spill. The Institute for Policy Studies estimates that since 2010, $20 billion has been spent to replace assets damaged or destroyed by the spill. This is not differentiated from the GDP, and thus it contributes to the U.S.’s alleged positive economic growth. This fails to take into account, of course, the fishermen who lost their livelihoods, the restaurants that either temporarily or permanently closed and the rapid decline in tourist activity along the Gulf Coast.

The crux of this issue, though, is the often irreparable damage environmental disasters such as the Deepwater Horizon spill have on the ecosystem. Though hiring workers to clean up the affected ecosystems boosts the GDP, the ecosystems are still damaged, and this will eventually reflect negatively on the GDP. Humans are essentially linked to the ecosystem, and when a part of the ecosystem is damaged or destroyed, humans will feel the effect of the damage or loss — though it may take a while to travel up the food chain. Industries that once thrived before the ecosystem was damaged may fall by the wayside as the spending or investment stops or moves elsewhere, which could negatively affect the GDP. This is aside from the negative health effects for humans that may result from an environmental disaster. Ultimately, positively accounting for the damage done to an environment that supports humans with the GDP is dangerous for all entities that are not on the profiting end of the environmental disaster.

In regards to this matter, the David Suzuki Foundation, a Canadian foundation whose mission is to “protect the diversity of nature and our quality of life, now and for the future,” believes part of the solution is a lessened emphasis on material wealth. The foundation emphasizes the need for renewed connections with family, friends, community and nature rather than owning “the latest gadgets” or the best cars. This is not to say we will not need gas and oil, because we will, and for a good while. However, we can and should start to transition to a more efficient, cleaner future in the meanwhile. The technology to start this transition already exists, and increasing the fields of clean energy would create jobs — lasting jobs, too — for the long term.

Finally, in lieu of GDP, the U.S. ought to consider measuring the economy differently, such as by the Genuine Progress Indicator. The Institute for Policy Studies cites GPI as a measure that quantifies externalities, such as environmental degradation, and it is able to differentiate this from the positive economic activity. Though this is not our only hope in the battle to assuage human-made environmental damage, changing the economic measure of environmental degradation and the potential benefit of cleaner energies could help shape the capitalized financial argument against transitioning to clean energy. If we want to see a sustainable future, we cannot keep positively accounting for monetary transactions that ultimately harm ourselves.