By Michael Shank, Ben Beachy and Justin Talbot Zorn
Momentum is quickly building to redefine, restructure, or replace the statistical measure that has long served as the unofficial “headline indicator” of progress in the United States: Gross Domestic Product (GDP). This is good news. GDP, as we currently know it, is out of touch with 21st century measurement needs. It’s time to translate the momentum for change into a substantive policy agenda to upgrade our national indicators.
When the U.S. Department of Commerce called GDP the “crowning achievement” of 20th century economic policy, it was no exaggeration. In the eight decades since the introduction of U.S. national income accounts, GDP has become the official barometer of business cycles, an indispensable measure of politicians’ performance, and a leading benchmark for assessing living standards. It has become the number one proxy for economic, political, and social progress.
Yet, GDP was never intended for such a role. Economists have long warned that GDP is a specialized tool for measuring market activity, not the nation’s comprehensive prosperity.
While the indicator achieves its stated objective of capturing aggregate, short-term economic activity, it is agnostic as to what might be described – by both Republicans and Democrats – as core elements of national well-being in the 21st Century: economic mobility, strong families and communities, entrepreneurship, health, education, environmental quality, and public safety.
GDP actually tends to rise with societal problems such as crime, pollution, household debt, commuting time, and family breakdown. As a short-term measure of economic output, it increases with the depreciation of machinery and the extraction of finite resources, while failing to reflect the long-term contributions of education and entrepreneurship.
In light of these shortcomings, we seek to answer an overarching question in a report to be released in spring 2014: How should the US government institute supplemental national accounts that better reflect the well-being of the nation? The question, like the broader push for GDP reform, stems from a central premise that new comprehensive indicators would lead to better-informed policy-making, and, in turn, genuine advances in the nation’s prosperity.
We do not presume to replace GDP, which still serves an important although limited purpose, but to supplement it with modern measures of progress.
The task of upgrading the national accounts is complex yet achievable. Three core elements of such an effort, which will be outlined in the report, include: (1) enacting legislation to create a new National Indicators Commission, (2) designing new indicators, and (3) attaining the operational capacity in the executive branch to produce the new measures.
The nation can do better in measuring prosperity. Over the past 50 years, public figures ranging from Robert F. Kennedy to Reagan adviser William Bennett have pointed to the need to move beyond GDP. Academics have developed a substantial literature on improved methods for measuring sustainable social and economic wellbeing. U.S. allies from the United Kingdom to Germany and U.S. states from Utah to Maryland have experimented with new comprehensive accounting and benchmarking systems.
Today in the U.S., growing signs of trans-partisan frustration with existing economic and governance frameworks – coupled with advances in data collection and statistical analysis – have opened a unique window for innovation in national accounting. Supplementing the national accounts with state-of-the-art measures of prosperity could have profound impacts on private and public sector decision-making, better motivating tangible boosts to living standards and not just increases in raw output.
In short, we get what we measure. As our national objectives have broadened since GDP’s creation, so too must our measures. With GDP reform efforts well underway in academia, civil society, and ally governments, now is the time for the U.S. government to take concrete action to upgrade our benchmark of progress.
Ben Beachy and Justin Talbot Zorn are public-service fellows at Harvard’s Kennedy School of Government. Michael Shank, Ph.D., is associate director for legislative affairs at the Friends Committee on National Legislation and is a senior fellow at the JustJobs Network.