The GDP ignores everything that happens outside the realm of monetized exchange, regardless of its importance to well-being and the society. Hence values (humanitarian, environmental, standard of living, waste) other than material values go entirely ignored. Environmental degradation represnts a very real loss of wealth in the future, but it is never factored in.
The GDP records every monetary transaction as positive, so the costs of social decay and natural disasters are tallied as an economic advance. For example the terrible effects of crime are recorded positively as adding billions of dollars to the GDP due to the need for locks and other security measures, increased police protection, property damage, and medical costs. Hurricane Andrew was a disaster for Southern Florida USA, but the GDP recorded it as a boon to the economy of well over $15 billion.
GDP ignores the drawbacks of living on debt. Where governments have increased their spending by borrowing, this raises the GDP temporarily, but the need to repay this debt becomes a growing burden on the national economy. This downside of borrowing is not reflected in the GDP.
Above all GDP ignores the distribution of income. In effect the GDP hides the fact that a rising tide does not lift all boats. From 1973 to 1993 in the USA, while GDP rose by over 50 percent, wages suffered a decline of almost 14 percent. Meanwhile, during the 1980s alone, the top 5 percent of households increased their real income by almost 20 percent. Yet the GDP presents this enormous gain at the top as a bounty to all.
Furthermore the average number of poor people averaged more than 30 million people over the last 40 years in the US, with an average of 15% of the population being poor. In the meantime, the gross national product continued to increase drastically, over the same period. The GDP grew from $400 billions to $10 trillions from 1959 to 2000. This very large increase in the national product did not contribute to the resolution of poverty. More than 30 million people continue to be poor. Hence Capitalism superbly increases the production of products and services, and hence wealth. However this completely fails to resolve the poverty of the individuals. The number of poor people continues to grow.
In reality therefore GDP as a measure of a nation’s economic well being is really a deception. It begins to explain why people feel increasingly gloomy despite official claims of economic progress and growth. |
