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Does GDP Measure National Wealth?
By Sara Laks

A nation’s GDP (growth domestic product) has long been considered the classic barometer of its economic health. Yet in order to get a more complete and accurate picture of relative prosperity, it is important to take into account many factors that the GDP does not measure, such as income equity, availability and cost of health care, pollution, access to education, life expectancy, and many other things that most citizens value as important to their quality of life.

In the last year, the GDP has been rising steadily in the U.S. while un­employment and home foreclosure rates remain high, and many individ­uals have yet to see economic improvements in their daily lives. Some are now wondering how useful the GDP really is as a policy-making de­terminant if it does not consider many of the factors we value most.

“The GDP suited a different era and now we need a metric for our times,” says Nic Marks, a Fellow at the London-based New Economics Foundation, and founder of its Centre for Well-Being. “During World War II production was important. After the war was the need for rebuild­ing. We’re way past that. We need to account for our ecological footprint and see how we’re operating on the planet. The GDP is often precisely wrong in that it’s not measuring progress, just the making of stuff.”

By adopting alternative measurements, such as the Human Develop­ment Index or the Happy Planet Index, individuals and policy makers might be able to get a broader picture of the true costs and trade-offs we face today. Those that favor these substitutes argue that GDP limits progress to a simple “more is better” paradigm, without taking into ac­count the all-too-real environmental and social costs.

Sara Laks, Assistant to the President

Posted: April 9, 2010