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Measuring Genuine Progress |
According to Redefining Progress, a policy research group based in San Francisco, our primary economic indicator, the Gross Domestic Product or GDP, is fundmentally flawed. Blind to what kind of activity it measures, it it reflects all economic activity as "gain." In other words, when the Exxon Valdez spilled oil into Prince William Sound, it showed up on the national books as a good thing. So does the Superfund cleanup debacle, Three Mile Island, crime, divorces, crass commercialism, excessive litigousness, and most other kinds of social and environmental ills.
Their findings "reveal that much of what economists now consider economic growth, as measured by GDP, is really one of three things: 1) fixing blunders and social decay from the past; 2) borrowing resources from the future; or 3) shifting functions from the community and household realm to that of the monetized economy."
In their Atlantic Monthly cover story (Oct.95) "If the Economy Is Up, Why Is America Down?" they cite some interesting facts:
- The car-locking device called The Club adds some $100 million a year to the GDP all by itself, without counting knock-offs.
- When a small oil company drains an oil well in Texas, it gets a generous depletion allowance on its taxes, in recognition of the loss. Yet that very same drainage shows up as a gain to the nation in the GDP.
- Toxic pollution counts as a gain several times over: once when it is created (possibly as a by-product of some other process), once when we pay to clean up the toxic waste site, and sometimes a third time, in the form of medical expenses.
- Day care adds $4 billion to the GDP.
- VCRs and other entertainment gear adds $60 billion to the GDP.
- The diet industry is good for the GDP to the tune of $32 billion; heart and lung disease are good for the GDP too.
- The O.J. Simpson trial added $200 million to the GDP. (The Wall Street Journal ran the headline, "GDP of O.J. Trial Outruns The Total Of, Say, Grenada.")
- Prozac, the nation's most popular antidepressant drug, contributes a worthy 1.2 billion to the GDP.
As far back as 1934, someone recognized the limitations in the system, then known as the Gross National Product, or GNP. Simon Kuznet, one of the creators of the new accounting system, warned Congress: "The welfare of a nation can scarcely be inferred from a measurement of national income as defined above."
Yet the calculation grew in popularity, and over time came to be regarded as canonical. It is now cited in every major economic decision or political statement of policy.
It's not that the GDP's flaws weren't well known or understood; it's simply that those in power have an interest in maintaining the status quo, and they understand the threat of any real calculation of progress. The Atlantic Monthly article includes this revealing glimpse of how the House Appropriations Committee squelched a cost integration idea proposed by the Clinton Administration: "Congressman Alan Mollohan, of West Virginia, finally got to the heart of the matter. If the national accounts were to include the depletion of coal reserves and the effects of air pollution (which would be added eventually), he said, 'somebody is going to say...that the coal industry isn't contributing anything to the country.'"
One wonders. We haven't seen a single calculation of what nuclear power has really contributed to our progress, either. Let's see, the cost of building one, cost of maintenance, cost of decommissioning and cleanup...hmm...have any of them been completely cleaned up yet? Something suggests that the value of the energy produced, minus the total costs, comes out somewhere south of zero.
The Genuine Progress Indicator
Redefining Progress proposes a new indicator, one that includes reasonable estimates of costs. Called the Genuine Progress Indicator, or GPI, it includes more than twenty measures of activity ignored in the GDP. In brief, here's a look at those areas and how we might measure them.
Household and volunteer economy
Much of the work in caring for the health and welfare of citizens is done by the family and in the community. GPI assigns a value to household work, at the approximate rate it would cost to hire someone else to do it. The reason why this is important is that despite numerous "labor-saving" appliances and "e-z" housework solutions, the number of hours spent on housework has changed very little over the last 80 years--it's still about 55 hours per week.
Accounting for this activity helps to explain why in a time of increasing hours spent at the office, we seem to have less leisure time than ever before. It is also important to account for the value of volunteer labor, which increasingly shoulders the burden for society's decay.
Crime and safety
The crime cost calculation attempts to assign some value to the intangible medical, opportunity, and psychological costs of crime by treating it as stolen property. From this number is subtracted expenditures on defensive measures such as alarms, security devices, and safe deposit boxes.
The GPI also accounts for the costs of such "defensive expenditures" as auto accident repairs, the costs of water and air purification filters, and so on.
Distribution of income
The growth of real income in the last few decades has not been straight across the board, but very lopsided. During the 1980's, the incomes of the top one percent of households grew by 60 percent, while the income of the bottom 40 percent of households dropped. The GPI adjusts for the disparity by using a "distribution index" which is based on the incomes of the poorest 20 percent of households. When the gap between rich and poor increases, the index brings the overall GPI down, and vice versa.
Resource depletion and degradation of the habitat
The GPI attempts to reverse the perception that extraction of nonrenewable resources such as oil and minerals is an economic gain. For resource depletion, the GPI estimates the replacement cost, or the amount that would have to be invested to find a reasonable substitute.
Likewise, it tries to account for the true costs of air, soil, and water pollution, including losses from fouled recreational areas such as beaches and parks. Loss of farmland is compensated for by calculating the costs of erosion, soil depletion, and urbanization.
Finally, the costs of ozone depletion, loss of forests, radioactive waste management, and so on are factored in.
Loss of leisure
If you work two jobs, as many of us now do, and wonder why you feel like you're just staying even instead of getting ahead, the GPI may have an explanation for that: the loss of leisure time. If we don't have as much of it anymore, we ought to be getting paid for it. The GPI calculates the value of lost leisure time at a going wage rate.
Service costs
When an appliance breaks down, and you have to pay someone to come fix it, is that a gain or a loss? GPI counts it the way it should be counted, using a depreciation rate of 15 percent and an average interest rate of 7.5 percent--a combined 22.5 percent of the costs of durables. By subtracting this out, it avoids the double-counting of "planned obsolescence" and cheap stuff that just isn't made to last. Likewise, the service of roads is included in the calculation. We'll be making progress only when we contribute lasting value.
Adding It All Up
Calculating the GPI and plotting it against the GDP over the last 40 years, Redefining Progress has a different picture of where we really are today: "The GDP would tell us that that life has gotten progressively better since the early 1950s--that young adults today are entering a better economic world than their parents did. GDP per American has more than doubled over that time. The GPI shows a very different picture: an upward curve from the early fifties until about 1970, but a gradual decline of roughly 45 percent since then."
Regardless of the details of cost analysis--and who can argue that assigning values to such intangibles as stress and global warming is a tough task of approximation at best?--the idea of integrating costs into our leading economic measures is key to charting a sustainable course to the future. Redefining Progress is helping to lead the way in this controversial--and vitally important--endeavor.
For More Information
If you want to explore the details of GPI calculations, you can order the Summary of Data and Methodology publication for $10 from Redefining Progress:
Redefining Progress
One Kearny Street, 4th Floor
San Francisco, CA 94108
Phone: 415-781-1191
Fax: 415-781-1198
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