By JUDITH D. SCHWARTZ
Time Magazine

Since last summer the nation’s Gross Domestic Product (GDP) has gone up — indeed, it grew at a surprising 5.7% rate in the 4th quarter — seeming to confirm what we’ve been hearing: the recession is officially over. But wait — foreclosure and unemployment rates remain high, and food banks are seeing record demand. Could it be that the GDP, that gold standard of economic data, might not be the best way to gauge a nation’s relative prosperity?

Since it became the prime economic indicator during the Second World War (to monitor war production) many have criticized policy-makers’ reliance on the GDP — and proposed substitute measures. For example, there is the Human Development Index (HDI), used by the UN’s Development Programme, which considers life expectancy and literacy as well as standard of living as determined by GDP. And the Genuine Progress Indicator, which incorporates aspects of social welfare such as income equity, pollution, and access to health care. In the international community, perhaps the biggest nudge has come from French President Nicolas Sarkozy, who commissioned a report by marquee-name economists, including Nobel laureates Joseph Stiglitz and Amartya Sen, to find alternatives to what he calls “GDP fetishism”.
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What exactly have we been fetishizing? Basically, market activity and growth. The GDP, generally expressed as a per-capita figure and often adjusted to reflect purchasing power, represents the market value of good and services produced within a nation’s boundaries. Sounds reasonable. Until we consider what it doesn’t measure: the general progress in health and education, the condition of public infrastructure, fuel efficiency, community and leisure.

“It’s a narrow calculation of cash flow,” says Hazel Henderson, President of Ethical Markets Media (USA and Brazil) and who co-developed the Calvert-Henderson Quality of Life Indicators, which unbundles, rather than averages, 12 indicators. “Because it’s averaged, the GDP mystifies and masks the gap between rich and poor. I don’t think there’s ever been such a large disconnect between the GDP and what ordinary people are experiencing.” Read more…