4 • Focus: Progress
Volume 1 Issue 1
A Future for GDP?
Evan Williams explores the arguments for and against GDP’s use as an economic indicator, whilst reflecting on the measure’s history and its place in the future
T
he notion that a country’s Gross Domestic Product (GDP) is a reliable indicator of its living-standards has come under increasing scrutiny in recent years. David Cameron’s “Happiness Index” for example sets the framework for a
historic move away from traditionally preferred measurements. Critics of GDP’s use as a measure of well-being lament that it both includes and excludes too much. As Senator Kennedy argued in 1968, a
country’s GDP tells us nothing about its distribution of income, the health of its citizens or the state of its environment, but includes ‘air pollution and cigarette advertising, and ambulances to clear our highways of carnage.’ If GDP is as misleading as some have argued, then why do we use it at all? One of GDP’s early architects was Simon Kuznets, an American economist who developed the measure in the 1930s to estimate the value of goods and services produced by a
“If GDP is as misleading as some have argued, then why do we use it at all..?” country. GDP’s impact as a measure of progress was immediate; the Allies’ superior knowledge of national production capabilities during WWII made a significant contribution to their victory. Prosperity at the armoury does not however encapsulate a universal idea of progress and Kuznets himself recognised the limits of focusing on the market value of traded goods and services as a shortcut for measuring well-being. Although GDP was neither designed nor is able to account for much of what we value in our lives, the index has proven to a highly useful indicator since its invention. It was the unparalleled decline in living-standards during the 1930s’ Great Depression