Thursday, October 15, 2009

The GDP or Is Consumption Gross?

Recommended reading for today is an article by Jonathan Rowe at On The Commons. I recommend it not only because it uses the word iatrogenic to describe the current systems of measuring economic growth, but because it tackles the important topic of GDP myopia. It's a subject I deal with in some depth in Broke is Beautiful.

Economists and politicians measure our nation’s economic health in terms of our Gross Domestic Product (GDP) or Gross National Product (GNP). Simply put, the GDP is the monetary value of all the goods and services bought and sold in the economy. The GNP is the monetary value of all the goods and services bought and sold by U.S. nationals, whether in the country or abroad.

Natural resources, research and development are not capital to the GDP. Education, health care and social services are valuable only to the extent that someone makes cash from them today.

Over at On The Commons Rowe sums it up this way: "This is a black hole to the conventional economic mind. Economists don't even have a language for it; the reigning vocabulary is encoded with the production imperative. An economy consists of goods and services. There are no bads or disservices – no negative products of any kind."

The article discusses the history of thinking on progress, consumption and the GDP, and links the excesses of overconsumption to many social ills, especially our growing health care crisis. (Hence the word iatrogenic)

Yet look around us, (John Kenneth) Galbraith said. If it takes the marketing sector over $150 billion a year to prop up what economists quaintly call “demand”, is it really demand in any sane sense of that word? Does it really have the urgency and unquestionable sovereignty that economists assign to it?