Rethinking GDP

Gross domestic product, or GDP, is the total value of goods and services produced in a country over a year. It is the number behind headlines about economies growing or shrinking, and it is genuinely useful for tracking economic activity.

But GDP was never designed to measure wellbeing, and it counts some strange things. If a forest is cut down and sold as timber, GDP goes up. The lost forest is not subtracted. If a flood destroys homes and they are rebuilt, the rebuilding adds to GDP.

In the conversation, Cary argues for rethinking GDP so that it accounts for human and environmental costs. Pollution that damages health, depleted soils and fisheries, and the long-term cost of a warming climate are all real losses, but they do not appear in the headline number.

When a country's main scorecard ignores these costs, policies that harm the environment can look like success. What gets measured tends to get managed.

Economists have proposed many alternatives. Some adjust GDP by subtracting environmental damage. Others track a country's total wealth, including its natural resources and the health and skills of its people. Bhutan famously measures Gross National Happiness. A major international commission led by economists Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi argued in 2009 that GDP should be supplemented by measures of wellbeing and sustainability.

None of these has replaced GDP, partly because GDP is simple and comparable across countries. The more realistic goal is to report it alongside measures that capture what it leaves out.