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.
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.