“WHAT’S WRONG WITH MARKET ECONOMICS AND GDP?” by HAZEL HENDERSON: 24/04/2008

April 26, 2008

http://www.maximsnews.com/news20080424whatswrongwithmarketeconomicsandgdp10804241209.htm

This may be the most important and relevant article I’ve linked to yet.  Please take the time to read it.  (By the way, don’t be fooled by the “maximsnews” name of the site.  It’s not the men’s magazine.  This is a site for news for the United Nations.)  This is an opinion piece published by Hazel Henderson.  She is author of Ethical Markets: Growing the Green Economy (2007) and other books.  She co-organized the Beyond GDP Conference in Brussels, representing the Club of Rome.

In the first chapter of Five Short Blasts, I pointed out the folly of using GDP as a measure of the health of our economy.  I also pointed out that per capita GDP is a much better measure, something that Ms. Hazelton also endorses in her article.  It seems I’m not alone and even some economists are beginning to question the value of GDP as a yardstick of economic progress.  This would be truly a game-changing development if more economists latch onto this new idea.

The following are some highlights from her article:

“  The credibility of the economics profession and its macroeconomic and risk models has been shattered by the Wall Street-led financial meltdown.  Many analysts see this worst crisis since World War II as the beginning of the end of market fundamentalism as the driver of globalization. 

…the long-simmering critiques of money-based GDP/GNP national accounts are coming to a head.  These popular critiques, including my own, were summarized by the late Senator Robert F. Kennedy in 1968 in a speech delivered to the University of Kansas.  Even GDP’s creator, Simon Kuznets, worried about using GDP as an overall indicator of national progress and well-being, saying that “the welfare of a nation can scarcely be informed from a measure of national income.”

…The cracks in GDP as a scorecard of national progress began appearing at the UN Earth Summit in Rio de Janeiro in 1992, followed by the European Parliament’s conference in 1995 on “Taking Nature Into Account.”  In November 2007, the European Parliament again took up the issue at the urging of the European Commission (www.beyond-gdp.eu). 

…By March 2008, the US Senate picked up these critical debates and the plethora of new, broader indicators of health, education and environment.  The Senate’s Committee on Commerce held its own hearing on “Rethinking GDP as a Measure of National Strength” – a low-key academic exploration on how all of these new measures of overall quality could be used to correct all the now-recognized errors in GDP that economic textbooks perpetuate.

…In its March 13, 2008 issue, even The Economist weighed in with “Grossly Distorted Picture,” criticizing the widespread focus on GDP-growth.  This “growth fetish” has long been the subject of countless critiques by environmentalists and even a few economists.  To see this journal of economic and free-trade orthodoxy now also criticizing GDP-growth signals a tipping point in this long debate.  Echoing so many earlier critiques, The Economist pointed out that a better measure than rates of GDP-growth would be to compare GDP per head – a much more tangible sign of progress that takes into account the growth of population. 

…The Economist is correct that the growth of average income per capita is the more realistic indicator.  But, they omit another problem with these GDP measures: averaging per capita of growth in incomes masks how that income is distributed.  Averaging incomes across the whole population could mean that a country might have a few billionaires while most of its citizens live in poverty.

…Let’s agree that GDP has outlived its usefulness (started as a World War II measure of war production). 

I can’t emphasize enough the importance of this development.  If economists begin to acknowledge that growth, as measured by such crude instruments as GDP, isn’t necessarily a good thing, then we’ll be taking a huge first step toward real sustainability. 

Pete


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