When people talk about the health of the economy, the most commonly cited indicator is gross domestic product (GDP).
But is this really the best way for us to measure our progress? A new paper indicates not -- and shows that the high-water mark of progress came and went back in 1978.
GDP vs. GPI
GDP is basically all the money that changes hands in an economy. It includes all consumer and government spending, government expenditures, investments by businesses and net exports (exports minus imports), within a territory.
But one of the most common criticisms of it is that it also goes up when money is spent on things like cleaning up oil spills or putting people in jail -- hardly activities most people would say further society. On the other hand, it doesn't account for efforts that do help move us forward, such as the work of stay-at-home parents or volunteers.
For, that, there's another measure, called the Genuine Progress Indicator. Used in states like Vermont and Maryland, GPI also takes into account the negative effects of some economic activity, such as pollution or crime, and beneficial effects of things that don't involve money, such as unpaid housework.
So, when you look at GPI, what does that tell you about the state of the world?
Ida Kubiszewski, Robert Costanza and their colleagues at the Australian National University in Canberra used estimates of GPI in 17 countries to get an approximate picture of how GPI has changed globally over the years. The countries selected covered more than half the world's population and GDP.
Unfortunately, the data, published in Ecological Economics, showed that GPI per person crested in 1978 and has waned ever since. Meanwhile, GDP per capita since then has actually increased steadily.
The disconnect in the two measures implies that over the last 25 years, our social and environmental losses have been greater than our gains in monetary wealth.
Costanza told New Scientist that the biggest drags on GPI are growing income inequality and environmental degradation.
So, What Does It Prove?
GPI isn't necessarily the be-all, end-all indicator of wellbeing. Marianne Fay, chief economist for the World Bank's Sustainable Development Network in Washington DC, told New Scientist,"If you start looking at the broader picture of things that contribute to quality of life, I think there's no doubt that the average person in developing countries is better off now than in the 1970s."
Jacqueline McGlade of University College London, and former head of the European Environment Agency, also told the magazine that world poverty rates in the mid-1990s were 42%, but by 2015, they are projected to be 15%, which would mean half a billion people have been lifted out of poverty in that time frame.
So, while the news might help policymakers make better decisions, particularly about how to use natural resources or foster social gains, you personally may not need to break out the disco shoes just yet.
photo: Southerly Clubs of Stockholm/Wikipedia
