GDP — Worse Than Useless

GDP is not an indicator of anything. Take this admittedly imperfect, but IMHO quite relevant, analogy. Shares in XYZ corp are selling for $100. Last year, they did a billion dollars worth of transactions. Are you buying or selling?

Personally, I’d need some more information. Forget about the obvious question of how many shares are outstanding, which is where this analogy has it’s imperfection, the government has no shares. This may be the only point of this analogy that really fails though.

Here’s some information you might ask about XYZ corp, all of which are pieces of information that you will never get from the GDP.

1) What percentage of the dollar value of the transactions were income?
2) What percentage of the dollar value of the transactions were expenses?
3) What assets does the company have?
4) What debt does the company have? (We know this figure at 8 trillion. However, it’s not in the GDP.)

So, the GDP is almost meaningless. All it is is a count of transactions. When Exxon spilled oil in Valdez, the $10 billion cleanup was ADDED to the GDP. That should have been counted as an expense and been SUBTRACTED. This type of thing makes the GDP among the worst indicators of the economy.

A number of alternatives are being suggested for the GDP.

Genuine Progress Indicator
Happy Planet Index
Environmental Sustainability Index

We need indicators that value resources. An 800 year old tree is highly valuable, even before it is cut down and sold in one piece to Japan. However, our government will sell them for $1 per tree and even come and cut the roads so that the timber companies can get to it easily. Why? Because the GDP and other economic indicators in use in this country and most of the world, do not give value to natural resources. How should we value an 800 year old tree? Well, how much would it cost to grow one?

This last may sound silly. However, from a sustainability point of view, that really is the value. Imagine a tree farm handed down for many generations. Enough trees must be planted so that one will live 800 years. At 800 that one is cut. The 790 year old tree is left, as is the 780, …. At 400, there probably have to be a few since some won’t survive another 400 years. At 200, there must be more. At age 100 or less, there must be many. This takes a lot of land and many generations of care. If we want to sustainably harvest 800 year old trees, that’s pretty much what it takes.

Of course, this is just an easy example that I like because most of us still see trees on a regular basis and are familiar with them. Similar examples can easily be made from mountaintop removal, strip mining, oil and gas drilling, ocean fisheries, etc.

Obviously, what we are doing today is not sustainable. At least part of the reason we do it is because of bad accounting.

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2 Responses to GDP — Worse Than Useless

  1. Higghawker says:

    You can kiss the Genuine progress indicator goodbye. I think we are getting a good dose of just what is NOT produced in this country as we consider the decline in pay and quality. NAFTA was one of the worst bills ever passed. I hear everyone touting that global is the only way to be, but I beg to differ.

    “At least part of the reason we do it is because of bad accounting.” The bad accounting comes from no accountability. No one is held accountable. We have a society more involved with O.J. and Paris Hilton.

    Nice article.

  2. Misanthropic Scott says:

    Thanks for the compliment.

    Yes, all of the FTAs are really awful. I just went to a lecture last night about Costa Rica and CAFTA. They’re the only country in Central America that has not yet signed CAFTA. They have a referendum up for vote in October.

    Currently, their medicine budget of $92 million buys almost 500 different drugs. (I think she said 491, but could be off by a few.) If CAFTA passes, they will only be able to buy 4. Why the difference? Because, the free trade agreement is anything but free. It requires them to buy the name brand drugs from the U.S. at our ridiculous prices instead of allowing them the freedom to keep buying South American equivalents.

    There are many other such provisions. One really nice little tidbit is that they will no longer be able to handle their own matters with corporations. One oil company wanted to drill in Costa Rica. The government said no. The oil company sued for the $67 billion they might have made if allowed to drill. Costa Rican courts denied the claim.

    Under CAFTA, this would have been handled in an international court, many of whose officials are beholden to and board members of corporations. They ALWAYS rule in favor of the corporation.

    There are many other such niceties. Cruelty to animals is hugely supported by all of the “free trade agreements” as well as by the World Trade Organization rules. It’s really quite disgusting.

    Perhaps I’ll move the bulk of this post and some further elaboration into a new topic one day. But, today is not looking good.

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