The U.S. Department of Commerce has described Gross Domestic Product (GDP) as “the crowning achievement” of 20th Century U.S. economic policy. This is not an 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 government performance, and a leading benchmark for assessing living standards. It has, in other words, become a de facto headline indicator of economic, political, and social progress.
GDP was never intended for such a role. Economists have long warned that GDP is a specialized tool for measuring market activity rather than 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 wellbeing in the 21st Century: economic mobility, strong families and communities, entrepreneurship, health, education, environmental quality, and public safety.
GDP tends to rise with societal problems such as healthcare costs, 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, this report seeks to answer an overarching question: How should the U.S. government institute supplemental national accounts that better reflect the wellbeing of the nation? The report’s central premise is that new comprehensive indicators would lead to better-informed policymaking, and, in turn, genuine advances in the nation’s prosperity. The report presupposes that GDP still serves an important, although limited, purpose and should not be replaced, but supplemented.
The task of supplementing the national accounts is complex yet achievable. This report makes recommendations on three core steps of such an effort:
1. Enact legislation to create a new National Indicators Commission;
2. Design new indicators; and
3. Attain the operational capacity in the executive branch to produce new indicators.
Advances in statistics, computing, and data collection have made possible the meaningful estimation of national wellbeing. When the national income accounts were first developed, measuring and incorporating factors like health outcomes and nonmarket labor was not feasible. Today, we have overcome many such limitations. The proposal for a new commission on national indicators seeks to enable the United States to harness state-of-the-art thinking regarding indicator development. By delegating methodological questions to technical experts who are trusted across the ideological spectrum, it seeks to remove politics from the business of statistics. By aiming to supplement rather than replace GDP, it seeks to promote sound incremental change. By stipulating new indicators that offer a more comprehensive, longer-term picture of national wellbeing, the proposal seeks to restore U.S. leadership in the science of measuring progress.