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Is it time to drop GDP?

The age-old belief that economic growth – as measured by Gross Domestic Product – is the answer to our social ills is becoming untenable.

The pursuit of GDP growth on a global scale led to the massive financial crash of 2008; the growing crisis in the energy sector; and a looming environmental catastrophe.  As Stewart Wallis at the World Economic Forum points out:

“GDP is like a speedometer: it tells you whether your economy is going faster or slower. As in cars, a speedometer is useful but doesn’t tell you everything you want to know… Above all, the speedometer doesn’t tell you whether or not you’re going in the right direction. If you suggest to a car driver that you might be on the wrong road, and the response is “then we must go faster”, you might think that’s pretty stupid. Yet this is what happens whenever complaints about the state of the economy elicit a commitment to boost growth.”

Wallis calls for GDP to be ditched in favour of five alternative indicators:

  • Good, well-paid and meaningful jobs
  • Social and individual wellbeing
  • A healthy environment
  • Fairness – a reversal of the current trends in inequality
  • Health – both improved treatment and prevention of disease.

Wallis suggests that these indicators have not been adopted by politicians because they are seen as additional sticks to be beaten with.  At present, policies only fail or succeed against the single, crude indicator of GDP.  Policies are more likely to be seen to fail against more holistic indicators.

However, the main resistance comes from economists:

“…there remains a reluctance to move away from viewing economics as a hard, mathematical science, and accept the need to incorporate more of a social science mindset. In effect, we need another value shift in economics, comparable to those that shaped the last century – Kenyesianism and neoliberalism.”

Perhaps the first stage in this value shift will be achieved when mainstream economists admit that their models have proved wholly inadequate either at predicting economic and financial crises, or developing policies for addressing the ensuing carnage.

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