THE BLOG
01/30/2009 02:48 pm ET Updated May 25, 2011

A Better Measure

It's about time we start doing a little more to rev up the economy.

Here are some suggestions. Get a divorce. Drive over the speed limit possibly resulting in a collision on a major freeway. Sink an oil tanker so we can clean up the mess.

Not the most desirable actions for our social welfare, but in the sometimes-weird world of economics, economists will be cheering.

No offense meant to any of the economists we know. But, how on earth is this helping? As the global financial crisis leads us down the road to recession, the gross domestic product is our guide. Recession is defined as two consecutive quarters of negative growth in GDP - and car accidents and natural disasters could are contributors to that all-important number.

You see, when GDP says it tallies the total market value of all goods and services produced within the country, it means everything. But, when it tries to measure our economic health and well-being, the number falls short.

Introduced in World War II to measure how much of the economy could be put towards wartime production, GDP quickly developed into our primary economic indicator. But, that was never its original purpose.

Simon Kuznets, the economist who helped standardize the measurement, said in 1962, "Distinctions must be kept in mind between quantity and quality of growth."

Unfortunately, we didn't heed his warning - a warning that could have prevented our current mess.

As industry has grown, so have the problems surrounding it. Unbridled consumerism at home and the two-dollar-a-day wages overseas both contribute to a nation's GDP. A forest of trees contributes nothing. Clear-cut that forest and the economy swings into high gear.

"Some of the expenditures don't make anyone better off or even keep our current welfare in tact," says John Talberth, Director of the Sustainability Indicators Program at Redefining Progress. "But there are also benefits that aren't included in GDP - parenting, housework, volunteers. Those are our quality of life."

Other indicators do take these socially-positive actions into account. Those indicators tell a different story. The Genuine Progress Indicator broadens its scope to account for the societal costs of some monetary transactions and the benefits of some non-monetary transactions.

"In a nutshell, it gives a dollar amount to beneficial activities that wouldn't be recorded in GDP," says Talberth. "It also puts a negative cost on things like environmental degradation, the time we spend commuting and loss of our natural resources."

It also puts a dollar value on accumulated debt and borrowing - factors that have been leading causes in the current financial meltdown.

"GPI realized that the more we borrow, the less sustainable it is," says Talberth. "You can't borrow forever."

When those figures are calculated, the two indicators show very different routes to recession.

GDP per capita has more than doubled in the United States since the 1950s as many Americans live the dream of a television, two cars and a house in the suburbs. When GPI takes into account the environmental costs and the debt families have accumulated to pay for that dream, the indicator has dropped 45 per cent since the 1970s.

Like Kuznets said, there's a distinction between quantity and quality. Had we heeded his warning, we could be in a very different spot on the economic map.

Obviously, no economist is cheering for oil spills. We know some wonderful economists who recognize that a stay-at-home mom is contributing more to the economy than a building another prison. So why are we letting these monetary transactions be the primary definition of our progress?

We all know that money isn't everything. By going beyond our gross domestic product, maybe we can start solving our gross domestic problems.