Let’s Talk about GDP

Julia Moore

College of William and Mary

Summer 2017 Monroe Project

Advisor: Amy Quark, Sociology

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Introduction

Gross Domestic Product (GDP) is an economic concept that has become extremely influential in

economics and policy. It has a complex history, intertwined with politics and economic theory.

Throughout its history, GDP has brought along with it a plethora of criticism, alternative

measures, and questions surrounding less developed countries, growth, and the future of the

world. This paper attempts to offer a limited overview of much of the literature written

surrounding GDP and its alternatives.

History

Englishman William Petty created the first attempt at Western national accounting in 1664, but

this measure was far from the current statistic known as GDP. Historically, governments have

tried to understand national income in order to know how to raise taxes for funding wars, yet

formal national accounting was barely used until the 20th century (Philipsen 2015).

In the meantime, many economic theorists laid the foundation for concepts that would be

incorporated into GDP. Early economists focused their analysis on labor, capital, and land, even

though they acknowledged the importance of knowledge and technology. Later economists

tended to stick with those concepts, but not everyone agreed about how labor, capital, and land

should be valued. Adam Smith thought that only physical commodities produced through

agriculture and industry contributed to wealth, not activities such as trading, mining precious

metals, speculation, or collecting interest. However, around the time of the industrial revolution,

Alfred Marshall claimed that the value of all goods and services, even people, should be

determined by price. This idea more or less stuck, and Marshall is now considered the father of

neoclassical economics (Philipsen 2015). As late as 1932, British economist Lionel Robins

claimed that economists should not even investigate wealth (Lepenies 2016), but the Great

Depression soon convinced most economists otherwise.

In the 1920s and 30s, Colin Clark was working to develop national income accounts for the

United Kingdom. Then during the Great Depression, the United States government realized how

useful national income accounts could be. In 1934, Simon Kuznets published the first official

report of America’s national income, using the techniques set forth by Colin Clark. This report

indicated that America’s national income had halved between 1929 and 1932, and President

Roosevelt used it as a call to action to support his New Deal programs (Coyle 2014). Kuznet’s

original national income statistic was very similar to GDP as we know it today, except that it did

not include government spending as part of national product. In the face of World War Two,

many economists such as Milton Gilbert in the U.S. argued that government spending would

have to be included to prevent national income from appearing to decrease. Kuznets opposed

this idea, but he was overpowered, especially because John Maynard Keynes was an influential

British economist who argued that government spending should be included (Masood 2016).

The national income statistics gave the United States an advantage over Germany in World War

Two because the U.S. had a better understanding of how much they could increase their

production. The first official U.S. Gross National Product (GNP) statistics were published in

1942 (Coyle 2014). U.S. GNP includes any goods and services produced by a U.S. citizen or U.S

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company. GDP, which only includes goods and services produced within a country, was not

used until 1991 (Fioramonti 2013).

In the U.S., GNP grew significantly during the increased production for World War Two, and

this increased production was seen as a significant contributing factor to winning the war. GNP

growth was thus very much associated with the positive feelings about winning the war. After

the war, there was a general perception that it would be a good idea to keep expanding

production and GNP growth, partly because expanded production contributed to success during

the war. Government officials also felt that increasing production was the only way to prevent

stagnation and unemployment. The U.S. Council of Economic Advisers was established in

1946. According to Lepenies (2016), this council advocated “what was later to be termed

‘growthmanship,’ the idea that increasing gross national product must be accorded absolute

priority,” even though it wasn’t based on much economic theory of the day (Lepenies 2016:

126). Lepenies writes that “modern economic theories of growth did not emerge until after the

idea of its necessity had already gained a sure footing in American politics” (131). It appears

that much of the early promotion of GNP growth was based on emotions, intuitions, and limited

inferences rather than clearly rational reasons. When the first national income statistics were

created in 1934, they were not explicitly linked to an imperative that the national income must

grow. But the series of events surrounding World War Two seem to have laid the foundations

for tying the growth imperative to the measuring of GNP or GDP.

The U.S. and other European countries also transferred these good feelings about GNP growth to

promoting it on an international scale. At the Bretton Woods Conference in 1944, where the

International Monetary Fund (IMF) and World Bank were founded, countries generally agreed to

use GNP as the standard for evaluating economic performance (Dickinson 2011; Philipsen

2015). In 1946, the U.S. and Britain agreed upon a standard calculation for GNP. This process

was greatly influenced by British economist Richard Stone. Throughout the course of the

Marshall Plan, GNP was used extensively to evaluate the effectiveness of aid to European

countries. In order to keep receiving aid, countries’ GNP had to increase. In 1953, the United

Nations System of National Accounts (UNSNA) officially created the standard metric for

national accounting (Coyle 2014). By 1954, all noncommunist economies used GNP. By 1992,

after the collapse of the Soviet Union, China and almost all major economies had adopted GDP

(Philipsen 2015). In 1999, the Clinton administration declared GDP “one of the greatest

inventions of the 20th century” (Masood 2016: xvii).

Currently GDP can be calculated by three approaches: value added, income, and expenditure, all

of which theoretically are about equal. The United States primarily uses the expenditures

approach, which is taught as the sum of all consumption, investment, government spending, and

[exports minus imports]. However, according to Coyle (2014), “very few people indeed truly

understand how the regularly published GDP figures are constructed” (25). In 1953, the

UNSNA guide had less than 50 pages; in 2008, it had 722 (Coyle 2014).

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Influence

Despite its complexity, GDP has been very influential in politics. The size of GDP influences

whether it is easier for a country to borrow money. Political leaders shape policy around key

sectors, and politicians are more likely to get elected if there is substantial GDP growth (Coyle

2014). Additionally, G8 and G20 members are selected according to GDP (Fioramonti

2013). These countries are the “wealthiest” in the world and tend to have the most influence on

global economic policies. Governments, banks, businesses, and consumers make decisions

about what to invest in based on GDP predictions. It can also be a “self-fulfilling prophecy.” For

example, if GDP is predicted to be low, people might spend less, employers might hire less, and

this, in turn, could lead to low GDP (Van den Bergh 2007).

Invention

Yet the notion that GDP is an invention, and not an objective measure is one that has been

recognized continuously. Kuznets, the original creator, did not think that national income

adequately represented the welfare of a nation. He even thought that GNP was “destined to

become one of the most used and misunderstood sources of economic information” (Masood

2016:28). Richard Stone, another of its architects, pointed out that “national income is not a

‘primary fact’ but an ‘empirical construct’” (Coyle 2014:24). According to Coyle (2014: 113),

GDP is a measure of output, not wellbeing, but still “economists and politicians often give the

impression that GDP and welfare are more or less the same.” Alan Greenspan, who was chair of

the Federal Reserve when the Clinton administration declared it the greatest invention, cautioned

that it would be wrong to conflate GDP with quality of life (Masood 2016).

Arguments in Favor of GDP

Van den Bergh (2007:2) writes that “the economic literature does not offer any serious efforts to

refute the critiques of GDP per capita as a welfare indicator.” It is true that there appear to be

more critiques of GDP than defenses of it, but there are certainly arguments in favor of GDP.

According to Oultan (2012), increases in consumption reflect that people are choosing between

labor and leisure and favor higher consumption. He claims that in a democracy, people’s

preferences should be respected. Cobb, Halstead and Rowe (1995) acknowledge that many

economists claim that people buy things because they add to their well-being, but they point out

that this claim doesn’t make sense in light of the large diet industry, and the abundance of people

who are overweight or drink excessively. Excessive eating and drinking are just a couple

examples of overconsumption that most people would agree are not beneficial to wellbeing.

Others argues that GDP has the capacity to include many different choices, and humans can

choose to have an economy focused on more sustainable, beneficial goods and services. The

counterargument to this argument, however, is that the present economy is not structured in a

way that favors the expansion of these types of goods and services (Jackson 2017).

Many also argue that GDP is correlated with other factors such as life satisfaction and health. It

is true that in general, countries with higher GDP per capita tend to have higher rates of life

satisfaction, higher life expectancies, and lower mortality rates. Yet, as Figure 1 shows,

mortality rates drop dramatically as GDP per capita increases to around $20,000, but after that

mortality rates are relatively similar. Figure 2 shows a similar trend: the increase in life

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expectancy with GDP per capita rises sharply up until around $20,000 then becomes almost

level. Figure 3 shows that life satisfaction also tends to flatten out and become highly variable

after around $10,000. Many countries with vastly different GDP per capita have very similar life

satisfactions. All of this indicates that GDP is important but perhaps not the most important

factor in determining health and life satisfaction.

Figure 1. GDP per capita vs. Mortality

Source: Jackson 2017

Figure 2. Life Expectancy vs. GDP per capita

Source: Jackson 2017

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Figure 3. Life Satisfaction vs. GDP per capita

Source: Deaton 2008

Another argument against alternatives to GDP is that happiness and life satisfaction indicators

are too hard to measure. However, there has actually been extensive research about these types

of indicators to show that even physical and subjective indicators tend to correlate with each

other (Ng 2008). One other common claim is that any other measure would be too

subjective. But current GDP is subjective too. As Cobb et al. (1995) write, “economists have

couched their resistance to new indicators mainly in philosophical terms. A measure of national

progress must be scientific and value-free, they say...the current GDP is far from value-free.”

Some economists recognize the problems but don’t think they are relevant or they think the

problem is with politics focusing so much on GDP, but Van den Bergh (2010) argues that it is

unreasonable to expect politicians to know what all the problems are if economists have not

acknowledged them. Overall, most of the arguments in favor of GDP can be refuted.

Critiques and Alternative Measures

So what are the critiques and alternatives? There are many different understandings of economic

welfare and social, psychological and physical wellbeing, and how all these concepts fit

together. Many of the criticisms of GDP are based on the claim that it doesn’t adequately

capture one or more of these phenomena.

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Economic Welfare

The claims that GDP does not adequately capture economic welfare stem from the idea that there

are other categories that could be counted as part of “the economy.” For example, it does not

count activities such as at home gardening or subsistence farming, childcare, cooking and

cleaning done at home, or bartering. Additionally, GDP, or even GDP per capita, does not

capture the unequal distribution of income within countries. Some have claimed that net national

disposable income may be more relevant than GDP (Stiglitz, Sen and Fitoussi 2010), especially

since there is a large difference between GDP per capita and household disposable income

(Boarini, Johansson and d’Ercole 2006). Others claim that “GDP is actually best interpreted as

an estimate of the costs, not the benefits, of all market-related economic activities” (Van den

Bergh 2010: 541). Nothing is subtracted from GDP to account for the money spent addressing

natural disasters, crimes, accidents, or divorces, and nothing is subtracted for the environmental

harms and depletion of natural resources associated with the production of goods and services

(Cobb et al. 1995). Additionally, it is hard to capture the quality of complex goods and services,

such as new technologies (Coyle 2014; Stiglitz et al. 2010). Stiglitz et al. (2010: 43) point to

another interesting phenomenon:

“For a long time, economists have assumed that it was sufficient to look at people’s

choices to derive information about their well-being, and that these choices would

conform to a standard set of assumptions. In recent years, however, much research has

focused on what people value and how they act in real life, and this has highlighted large

discrepancies between standard assumptions of economic theory and real-world

phenomena.”

They do not want to completely abandon using prices as part of measuring economic

performance, but they acknowledge that individual prices might not reflect impact for the whole

society, especially since consumers don’t always have adequate information. Since GDP is

based almost entirely on prices, the idea that these prices might not be the best proxy for people’s

values significantly undermines the usefulness of GDP. These critiques are not widely

acknowledged in the economics community, but some economists have created alternative

measures.

Addressing Critiques Based on Economic Welfare

William Nordhaus and James Tobin were among the first to acknowledge these issues and they

created the Measure of Economic Welfare in 1972, which attempts to include the value of

household work and detracts for some environmental harms. In 1995, Cobb, Halstead, and Rowe

proposed the Genuine Progress Indicator (GPI), which further subtracted for environmental

harms, included household work, detracted for hospital bills associated with crime, and

accounted for the distribution of income, and the loss of leisure (Cobb et al 1995). They showed

that global GDP and GPI increased at similar rates up until the 1970s, but then GDP kept

increasing and GPI leveled off, as shown in Figure 4. They write:

“Specifically, the GPI reveals that much of what we now call growth or GDP is really

just one of three things in disguise: fixing blunders and social decay from the past,

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borrowing resources from the future, or shifting functions from the traditional realm of

household and community to the realm of the monetized economy” (Cobb et al 1995).

Maryland, Vermont, Oregon, Hawaii, Washington, Colorado have tried to incorporate the GPI

into their state governments, but these efforts are not widely publicized (Ceroni 2014).

Figure 4. GDP vs GPI

Source: Redefining Progress 2007

Many limitations of GPI have been acknowledged, especially that it would need to be considered

along with biophysical information to address sustainability (Kubiszewski et al. 2013). There

have been several other attempts to change GDP, such as the Sustainable National Income

developed for the Netherlands (Van den Bergh and Antal 2014). In 2004, China attempted to

create a Green GDP but the attempt was abandoned because the findings made their GDP appear

devastatingly lower (Philipsen 2015).

Beyond Economic Welfare

Others go beyond the economic critiques and point out that GDP fails to measure many aspects

of life such as happiness, satisfaction, health, human rights, political freedom, education, and

wider environmental impacts. Richard Easterlin was one of the earliest researchers to call into

question the relationship between income and happiness. He showed that increasing income is

only correlated with increases in happiness to a certain point, and then happiness starts to level

off (Philipsen 2015). There is also substantial research pointing to the idea that happiness is

largely positional or relative. People tend to feel less happy if they have less than the people

around them (Jackson 2017).

There have been numerous attempts to figure out what is included in wellbeing, and numerous

measures have been developed. Examples include the Sustainable Economic Development

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Assessment (SEDA), the Social Progress Index (SPI), the Happy Planet Index (HPI), the Human

Development Index (HDI), Legatum Prosperity Index (LPI), Environmentally Responsible

Happy Nation Index, Sustainable Society Index (SSI), Responsibility-Capacity Index, and the

System of Environmental Economic Accounts. A selection of these measures will be discussed

more thoroughly below.

There is considerable disagreement about whether sustainability and wellbeing measures should

be separate or combined. Stiglitz et al. (2010) argue that the best alternative to GDP would be a

combination of an economic indicator (similar to a greened GDP) and a dashboard of physical

indicators, which would include measures of sustainability. However, others such as Michalos

(2011), think that sustainability is too linked to current wellbeing to be separated in that way.

There is also not consensus on whether a dashboard is a good idea. Masood (2016) thinks

rejecting single numbers is not the best approach. He thinks politicians need a single number.

Not even everyone who acknowledges the far reaching problems with GDP thinks it should be

abandoned (Coyle 2014). But some claim that it is such a misleading information failure, that it

should be abandoned even if there is no immediately clear alternative (Van den Bergh 2010).

Furthermore, it could be dangerous to end up having a “growth fetish” with a new measure (Van

den Bergh and Antal 2014). Costanza et al. (2014) and Philipsen (2015) focus on the necessity

of bottom up, grassroots conversations accompanying any top down processes to address

GDP. So far, these types of conversations appear to be rather limited.

Many of the initiatives to address GDP have been led by the academic community, governments,

or intergovernmental institutions. In the U.S., Robert Kennedy criticized GNP during his

presidential campaign in a famous speech, saying it measures everything “except that which

makes life worthwhile” (Philipsen 2015: 176). In the 1970s, the King of Bhutan, Jigme Singye

Wangchuck, called for the country to start measuring Gross National Happiness. In 1994, under

the Clinton administration, the Department of Commerce proposed that resource depletion be

subtracted from GDP, but there was so much criticism that the idea was abandoned (Fioramonti

2013). The 2010 report by Sen, Stiglitz, and Fitoussi was a result of a Commission by former

President of France Nicholas Sarkozy. According to Masood (2016), he was “a center-right,

indeed hawkish head of state, not your average leftish economics blogger” but in the time

surrounding the 2008 financial crisis, he criticized GDP for being destructive of democracy. The

Organization for Economic Cooperation and Development (OECD) created the Your Better Life

Index in response to this report (Fioramonti 2013). In 2010, British Prime Minister David

Cameron prompted the government to start conducting happiness surveys (Dickinson 2011). A

small section of the 2010 Affordable Care act made the State of the USA official. It is an

independent nonprofit with the goal of informing Americans about various aspects of wellbeing

(Philipsen 2015). Other initiatives include Measuring Australia’s Progress (Coyle 2014), and the

2012 UN Conference on Happiness and Wellbeing (Fioramonti 2013). In Denmark, a new

political party called the Alternative, has several seats in Parliament, and they advocate for

reconsidering growth. They say:

“The Alternative wants to communicate as clearly as possible that we are for a

sustainable development rather than against growth, as we find this inspires and resonates

deeper with the public….Whether or not GDP increases is less relevant, the central goal

is to ensure economic, social, and ecological sustainability. Our indicator does not

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include GDP as we want to measure what really matters in relation to the wellbeing of

mankind and nature” (Wingaard 2016).

This is only a small sampling of the initiatives that promote alternatives to GDP, but it is clear

that more conversations are still needed, especially at the grassroots level, since many of the

attempts to address GDP so far have been led by experts. That being said, it is also apparent that

measures of wellbeing can be very complicated and might require the specialized knowledge of

statisticians and other researchers.

Categorizations and Analysis

In addition to the general commentary on what to do with the alternative measures, there have

been many attempts to categorize alternatives. Van den Bergh et al (2014) write about four

categories: those that attempt to correct GDP, those that attempt to green GDP, genuine

savings/investments, and composite indices. Costanza et al (2014) categorize alternatives as

adjusted GDP, subjective wellbeing, and weighted composite indicators. It is also possible to

categorize alternatives based on their origin: extended economic accounts by economists, social

indicators from sociologists, and psychological indicators. Others have categorized alternatives

based on their objectives: adjusting GDP, replacing GDP, and supplementing GDP (Bleys 2011).

Bleys claims that the origin based approach ignores the interdisciplinary nature of measures and

the objective based approach puts too much emphasis on GDP because it is already flawed. He

proposes that the alternatives can be categorized three ways: based on their approach to

wellbeing, their approach to economic welfare, or their approach to sustainability. Within each

of these categories there are additional subcategories (Bleys 2011).

It is not in the realm of this paper to thoroughly analyze all indices and their categorizations, but

it is apparent that they all have different emphases. Figure 5 shows a sampling of several

indicators. Along with the different priorities, there are several different approaches to dealing

with categories such as the environment, society, and education. SEDA, SSI, LPI, and SSI are

all organized into three broad categories, each of which have other categories that include

multiple variables. The numbers on the right sides of the columns indicate how many variables

are in each category. GPI also has three broad categories but does not have a second level of

categorization. HPI and HDI only have 4 variables each. The cells are color coded based on

variables that are similarly named across variables. It is interesting to note that the environment

category is at the first level of categorization for GPI and SSI but it is included at the second

level of categorization for LPI and SPI. This seems to indicate that GPI and SSI include a higher

prioritization of the environment.

Not necessarily apparent in the charts is how each measure relates to GDP. All of the variables

included in GPI adjust GDP by adding to it or subtracting from it. This approach could be useful

if the goal is to have a single number. However, it also brings up the question of whether it is

appropriate to place a monetary value on all things, such as environmental harm. Even if it is

appropriate, the process of determining that monetary value is difficult and may be hard to

standardize. SSI, HDI, SEDA, and LPI all include GDP or Gross National Income (GNI, very

similar to GDP) in their economy or income section. By including GDP or GNI, these measures

imply that GDP still presents some relevant information about the economy. If the goal is to use

a measure completely separate from GDP, perhaps the HPI or the SPI would be best.

Figure 5. Selection of Alternative Measures

Sources: Beal et al. 2016; Happy Planet Index 2016a; Maryland DNR 2015; Legatum Institute 2016; Social Progress Imperative 2017a; Sustainable

Society Foundation 2016; United Nations Development Program 2016.

As an example of how indicators such as these correlate with GDP, Figure 6 shows that the

Social Progress Imperative increases to a certain extent with GDP, but starts to level off after

around $20,000. This is a similar trend that many of the alternative measures indicate. If the

alternative measures tend to all show a similar trend, perhaps they are not so different from each

other and any of them would be better than GDP.

Figure 6. SPI vs GDP

Source: Social Progress Imperative 2016

Still, there are several other priorities that stand out. SEDA and LPI prioritize governance more

than the other measures. The SPI is much more focused on basic human needs than the rest. The

SPI and LPI seem to prioritize personal freedom more than the other measures. And GPI,

SEDA, and HPI include income inequality or inequality of outcomes. If it became apparent that

one of these factors was especially valuable for human wellbeing, one of these measures might

be more beneficial than the others.

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The selection of measures represented in Figure 5 range from 4 variables to 104 variables. This

brings into question whether many variables are needed to gain an approximate measure of

wellbeing. If variables are correlated with each other, additional variables have the potential to

lead to redundancy. If life satisfaction, life expectancy, and/or education are relatively

representative of other aspects of wellbeing, perhaps a simpler measure such as the HDI or the

HPI would be best. The more complicated a measure, the harder it will likely be to standardize

across countries. Additionally, if measures claim to capture all that is important, that could lead

to overconfidence and overreliance on the measure. However, it is also possible that a measure

could leave out an important variable, and the measure would still be inappropriately treated as

more comprehensive than it actually is.

There is also variation among the measures in regards to how each category is used. The HPI

multiplies life satisfaction, life expectancy, and inequality and divides that product by ecological

footprint. This approach bears some resemblance to the suggestion by Stiglitz et al (2010) to

have one measure of economic wellbeing that is evaluated along with a measure of

environmental boundaries. However, the HPI is not focused on economic variables. The SSI is

also somewhat like a dashboard in that it does not create a single measure but just shows country

rankings within the categories of human wellbeing, environmental wellbeing, and economic

wellbeing. This representation leaves a lot of room for interpretation of how much importance

should be given to each category. This could be beneficial, but it is possible that one measure,

such as environmental wellbeing, is extremely important and should be assigned more weight.

The LPI displays how each of its 9 subcategories is ranked, but it is also possible to see an

overall rank based on different weights for the categories (the default is equal weights). The

SEDA also calculates overall rankings along with rankings for its 10 subcategories. The SPI

calculates overall country rankings in additional to rankings for the three main categories of

basic human needs, foundations of wellbeing, and opportunity. The HDI creates an overall rank

and it is also possible to see rankings for education, income, and life expectancy. And the GPI is

just one number.

It is clear that there are many questions yet to be discussed. Which, out of all of these categories

do people value the most? Should alternatives to GDP include GDP? Should they prioritize the

environment? Should they prioritize basic needs? Should they prioritize education? Which

variables best represent health, education, or environmental constraints? Should many variables

be used or just a few? Should the variables be combined into a single number or remain

somewhat separate? How will these measures be standardized across countries? These are just a

few of the questions that must be considered. Much work has been done on these measures, but

much more remains in order to determine what people truly value most and how to measure

those values.

The Question of Less Developed Countries

Another interesting area of discussion is whether GDP should be used for “less developed”

countries. “Less developed” is a vague term that is largely based on level of income or GDP.

Perhaps a more accurate categorization is countries in the Global South. Yet much of the

discussion surrounding these countries has been framed in terms of development, even though

development is not an objective term. Reportedly Kuznets did not think GDP should be used for

developing countries because it does not include household work, and it could degrade natural

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resources (Cobb et al 1995). Additionally, due to the fact that domestic production does not have

to stay within a country, in some cases, “the nations of the North are walking off with the South's

resources, and calling it a gain for the South” (Cobb et al 1995). Dudley Seers, the former

adviser to the British Labour government, has also argued against former British colonies having

to focus on GDP growth, since the measure was designed for countries that had already

developed (Masood 2016: 51). Yet the World Bank Commission on Growth and Development

has argued that only GDP growth can solve world poverty (Philipsen 2015: 137). This is another

area in which much more discussion is needed. Likely it is necessary for “developed” to be

defined not solely based on wealth. Perhaps the alternatives to GDP have the potential to

provide a better framework, but they still might be problematic if they are developed in the

Global North and imposed upon the Global South. All parts of the globe should be part of the

conversation on wellbeing.

The Question of Growth

Not everyone who critiques GDP critiques economic growth, but the two topics are very much

intertwined. Kubiszewski et al (2013: 66) “conclude that the ability of poor nations to increase

their economic welfare may now be dependent upon rich countries abandoning their sole policy

focus on GDP growth. This would provide the ‘ecological space’ for poor nations to experience a

phase of welfare-increasing growth.” Others have called for degrowth, indifference about

growth, and ambivalence about growth (Victor and Rosenbluth 2007). Some of the typical

arguments for growth are that a rising tide lifts all boats, a larger cake provides more for

everyone, and environmental harm will decrease after a certain level of growth. Yet a rising tide

does not always lift all boats. It can create inequality and further environmental harm (Muraca

2012).

Another key argument in favor of growth is that “given that productivity increases over time,

GDP has to rise to keep unemployment from going up; and higher unemployment would also

make people unhappy” (Coyle 2014: 11). Other scholars, including some of the founding

economic thinkers would disagree. For example, John Maynard Keynes assumed that people

would eventually work fewer hours to deal with more efficiency and the need for employment

(New Economics Foundation 2009). According to Philipsen (2015:56), Adam Smith, David

Ricardo, John Stuart Mill, Karl Marx, and Keynes all acknowledged the importance for growth

but “all of them longed for a future that no longer required growth.” Another economist who

questioned whether economies must continue to grow was Herman Daly (Masood 2016). One

extremely influential publication was The Limits to Growth by the Club of Rome. They argued

that as the population grows and consumes more resources, eventually the availability and

quality of resources would decrease, leading population to decrease. Although many

misinterpreted their argument, they did not suggest collapse was imminent, but if it is, society

would need to transition before the limit is reached (Jackson 2017). There are certainly

correlations between economic growth and employment, as well as economic growth and

environmental harm. Okun’s law is often cited as the relationship between unemployment and

GDP growth, and it has consistently held up to empirical tests (Antal 2014; Jackson 2017; Victor

and Rosenbluth 2007). According to Jackson (2017), in order to stay within planetary

boundaries favorable for human life, absolute decoupling of emissions and economic activity is

needed. Even though some nations have seen relative decoupling (less materials per emissions

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per unit economic activity) worldwide emissions have not been declining. This might be

because many of the carbon emissions attributed to poor countries are to manufacture goods for

use in rich countries.

There have been studies that indicate low growth and low unemployment is possible dependent

on some possible policy changes. For example, Victor and Rosenbluth (2007) propose

possibilities such as direct income redistribution, shifting from greater consumption of private

goods to greater consumption of public goods, investment to replace worn out infrastructure, and

limits on land and resource use. Jackson (2017) argues that an economy without growth is

possible with four foundations and four policy themes. The four foundations are: economic

activity should focus more on providing human services, work should be a meaningful way to

participate in society, investments should focus on maximizing human flourishing while

reducing material consumption, and banks should reduce debt-based lending. The four policy

themes are establishing limits, countering consumerism, tackling inequality, and building new

post growth economics. Jackson also argues that humans are not as driven by their selfish nature

as modern economic theories claim. Humans also possess altruism, and if they are in conditions

that promote altruism, they will tend to be more altruistic. Muraca (2012) points out that there

are many potential justice considerations involved in proposing economies without

growth. From Muraca’s perspective, human wellbeing is largely based on the ability to achieve

a life that is considered valuable within a society. Thus for a society without growth to be just,

there would have to be significant reconsiderations of established values, such as paid work and

material goods (Muraca 2012).

Although there is acknowledgement among the literature questioning growth of the need for new

national accounting and measures of wellbeing, it is interesting that there appears to be more

acceptance of GDP as representing the economy than in other literature that is less focused on

questioning growth per se.

For example, Jackson (2017) writes:

“The critical question is whether the economy itself is still expanding in economic terms.

This is one of those points where, or all its faults, the GDP still matters. Not because it’s

a good proxy for prosperity – it clearly isn’t. But because it’s a measure of economic

activity. And it’s the scale of economic activity which is pertinent to the dilemma of

growth” (166).

Not everyone who has criticized GDP would agree that it is even an adequate measure of

economic activity. Again, this is just a limited overview on the literature questioning growth, but

it is clear that there are still many questions to be considered surrounding the connection between

alternative measures and growth.

The Question of the World

Some of the indicators discussed above implicitly account for the impact that countries have on

the rest of the world through environmental harm and economic production. However, all of the

indicators primarily focus on what goes on within nations. In reality, especially as the world

becomes increasingly connected, countries influence more than just their own citizens and land.

16

One index that attempts to address this concern is the Good Country Index. This measure still is

evaluated at the level of the nation state, but rather than measuring mostly what occurs within the

nation, it focuses on how the nation impacts the rest of the world. This index ranks countries on

35 categories such as humanitarian aid donations, pharmaceutical exports, food aid,

development assistance, foreign direct investment outflows, fair trade market size, UN

volunteers abroad, ecological footprint, reforestation, hazardous pesticide exports, UN treaties

signed, birth rate, refugees generated, refugees hosted, arms exports, international violent

conflict, peacekeeping troops, press freedom, creative service exports, patents, Nobel prizes,

international publications, and international students (Good Country Index 2016b).

However, not all of the variables in the Good Country Index are clearly good. For example,

foreign aid and investment do not necessarily address many of the root causes of international

problems. Regardless of whether or not economic growth is “good,” research has shown that

foreign direction investment does not actually increase economic growth (Curwin and Mahutga

2014). Based on this index, “good” countries might just be providing band aid solutions for

problems that are a result of the global capitalist system from which they are benefiting.

The Good Country Index might also not weigh ecological footprints heavily enough. For

example, Denmark ranked second in the most recent Good Country Index (Good Country

2016a). It also ranked first in the most recent Social Progress Index (Social Progress Imperative

2017b). Yet according to the ecological footprint index, if everyone lived like Denmark, 4.5

planets would be needed (The Local 2014). The Happy Planet Index prioritizes the ecological

footprint, and Denmark ranks 32 in that index (Happy Planet Index 2016b). A “good” country

probably should not be consuming a disproportionate share of the world’s resources. This all

goes to show that the definition of a “good country” is very unclear, especially when

sustainability is considered. It is still extremely important to try to find a model that captures

global issues.

Another new proposal by Kate Raworth is Doughnut Economics. This model measures two

broad categories at the global level rather than the national level. Rather than focusing just on

their own country, governments could use this model to consider how their policies would affect

global measures. Doughnut Economics encourages all economies to focus on getting the world

beyond 12 social boundaries: water, food, health, education, income & work, peace and justice,

political violence, social equity, gender equality, housing, networks, energy, and within 9

planetary boundaries: climate change, nitrogen and phosphorus loading, land conversion,

biodiversity loss, ozone layer depletion, air pollution, ocean acidification, chemical pollution,

freshwater withdrawals. Currently the world is failing to meet all of the social boundaries and is

beyond boundaries for climate change, nitrogen and phosphorus loading, land conversion, and

biodiversity loss (Raworth 2017). Creating a global focus on these collective priorities would

replace the priorities for economic growth. Raworth is “agnostic about growth,” noting that the

option of halting it and the option of trying to make it continue indefinitely both seem, in their

different ways, intolerable” (Toye 2017). Of course this measure presents its own challenges.

Applying a measure on a global level would require additional standardization and perhaps a

new international regulatory body. It is also unclear how countries would determine the effect of

their national policies on the global measures. Still, this proposal might be a step in the right

direction.

17

The proliferation of alternatives to GDP has not lead to much impact on the national level, so

perhaps it is unrealistic to focus on the global level, but given the interconnectedness of the

world, it is appearing increasingly necessary to do so.

Conclusion

Although GDP and economic growth have been the subject of much discussion in certain

academic circles, in the general public, these topics are largely taken for granted. There should

be more conversations in every level of society about the history of GDP, economic growth, and

the alternatives. There are many critiques of GDP, and there are many critiques of economic

growth, but it is unclear how alternative measures would fit into an economy “without growth,”

making it even more unclear whether an economy “without growth” is truly needed. It is

ambiguous whether, if new measures were to be adopted, they should be prescribed to grow or

not. Additionally, more research should be done into the components of the various measures

that have been proposed thus far. There needs to be much more discussion surrounding what

people value the most, which variables are most important to prioritize, and how to measure

those variables. There should also be more emphasis on the global impact that countries have,

because this can limit the relevance of measures that only focus on what occurs within countries.

GDP, economic growth, and the alternatives are very complex topics and there are many

questions that need to be addressed when considering the “best” path forward.

As of yet there is no clear solution in response to the problems surrounding GDP, but that does

not mean we should not keep striving for one. It is yet to be determined whether that path will

play out as a singular new measure, a dashboard of measures, a new political economic system,

or a combination of all of the above.

18

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