In a 1968 speech, the late presidential candidate Robert F. Kennedy stated the following about the weaknesses of our key measure of economic performance at that time, gross national product. The same weaknesses apply to GDP:
“Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our gross national product . . . if we judge the United States of America by that . . . counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and it counts nuclear warheads, and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.
“Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”
Kennedy’s point should be clear. GDP, for all of its inclusiveness, excludes many important things—not least of which is the value of unpaid labor such as caring for your children or elderly parents. However, consider the fact that as real GDP has increased, the burdens of scarcity and the incidence of absolute poverty have been lifted for millions of people. Yesterday’s relative wealth is today’s relative poverty. Compared to the lives of Americans of previous generations, the availability of healthcare, education, nutrition, sanitation, and housing has increased with the increases in real GDP. These have led to an increase in longevity.
The increase in real GDP has been accompanied by more leisure time as well. The average workweek has steadily declined, and the average number of vacation days has increased. As a measure of well-being, the GDP has both strengths and weaknesses.
GDP per capita is the GDP divided by the population. As an indicator of overall well-being, it is subject to a major flaw. GDP per capita gives no indication as to how income is distributed among the population. The United States and Norway both have high GDPs per capita, but the key difference is that U.S. incomes are unequally distributed compared to Norway. High GDP per capita does not necessarily mean that there are not those in society living in relative poverty.
Critics of GDP say that it does not take into account environmental degradation. Because GDP is focused on spending and output, it creates an incentive to pursue greater amounts of production in order for growth to continue. This growth can come at the cost of the environment. Deforestation, climate change, pollution, and other environmental ills are, according to critics of the measure, the logical outcome of this narrow-sighted focus on GDP. Others defend GDP, stating that it is because of the increase in real GDP that people are wealthy enough and have the time to care for the environment. Today, the countries with the highest real GDPs are often the very ones that are doing the most to address the issues that environmentally conscious citizens raise.
Some countries are exploring measures called “green GDP” that take into account the environmental cost of economic growth.
In response to complaints about what GDP measures, other formulas have been explored that address its shortcomings. Some of these include:
The uneven distribution of income among households in a country.