How Are We Doing Globally? Not So Well...

As I discuss in Chapter 11, the standard measure of how well an economy is doing (and, thus, presumably how well off the people living in that society are) is gross domestic product (GDP). There are many problems that have been noted with this measure for a long time, but it is relatively easy to estimate, so it keeps being used, and people keep thinking that it measures something really meaningful. Well, not everyone. Robert Constanza and his ecological economics colleagues have for a long time now been thinking differently about how to measure economic well-being, and their most recent effort has just been published online (with a September 2013 publication date) in the journal Ecological Economics. Unfortunately, the article is not available without a subscription, but I will hit the highlights, which are based on a measure called the Genuine Progress Indicator (GPI).

GPI starts with Personal Consumption Expenditures (a major component of GDP) but adjusts them using 24 different components, including income distribution, environmental costs, and negative activities like crime and pollution, among others. GPI also adds positive components left out of GDP, including the benefits of volunteering and household work....GPI is not meant to be an indicator of sustainability. It is a measure of economic welfare that needs to be viewed alongside biophysical and other indicators. In the end, since one only knows if a system is sustainable after the fact, there can be no direct indicators of sustainability, only predictors.

They discuss the strengths and limitations of the GPI, and make a convincing case that, despite its weaknesses, it is clearly superior to GDP in terms of capturing the economic context of people's lives. Then, as they say succinctly in their conclusion:

By assembling GPI estimates and other indicators for 17 countries representing 53% of the global population, we have been able to show significant trends and differences, and to estimate a global GPI. By this measure, economic welfare at the global scale has not been improving since 1978. If we hope to achieve a sustainable and desirable future, we need to rapidly shift our policy focus away from maximizing production and consumption (GDP) and towards improving genuine human well-being (GPI or something similar). This is a shift that will require far more attention to be paid to environmental protection, full employment, social equity, better product quality and durability, and greater resource use efficiently (i.e., reducing the resource intensity per dollar of GDP). These changes are clearly within our grasp, and are underway in several countries and regions. Alternative measures of progress, like GPI, are useful to help chart and guide the course if appropriately used and understood.

We have had a lot of wake-up calls besides this one over time about where the world is headed, including the fairly recent re-analysis of the Limits to Growth study. I guess that for the most part we like living the dream...