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the future 22 In 1989, Barber Conable, then the president of the World Bank, reiterated Hicks concern that Current calculations ignore the degradation of the natural resource base and view the sales of nonrenewable resources entirely as income 23 GDP focuses on short-term economic activities, leading to underinvestment in natural, economic, and social capital, essential to long-term sustainable development The myopic focus of GDP is especially obvious in natural resource intensive and heavily polluting industries Flying against the logic of most standard accounting principles, resource depletion makes no dent on GDP Imagine if a copper mining company did not have to account for its exhausted mines the mining company only has nite resources but it would appear as if its current actions had no effect on its future supplies Adjusting GDP to promote sustainable practices may lead to long-term economic gain but may curb current pro ts or require a more forward-looking policy that spreads resource depletion over a longer time period, causing GDP to decline in the short term This makes switching measures politically dif cult For example, China s President Hu Jintao unrolled an ambitious attempt to change the GDP growth-obsessed culture in early in 2007 Hu promoted a green GDP that would re ect the cost of pollution to be used for evaluating the performance of provincial of cials When adjusted GDP results from several provinces were reported, double-digit GDP growth was reduced to near zero Leaders were alarmed by the sobering results of Hu s experiment Instead of deploying more resources for environmental cleanup, the project was shelved The long-term hazards of high pollution, like greater health care costs due to nonpotable water and higher respiratory disease, were swept under the rug for political expediency Instead of adjusting GDP itself, the UN has proposed supplementing it with a set of environmental accounts What is useful about this approach is that disaggregating the two indicators allows us to focus speci cally on environmental concerns more gauges for our dashboard Similar measures could be developed to look at a range of issues not just environmental impact For example, under GDP, more production and more consumption, no matter what their side effects, register as positive Not only does this ignore the value of the environment,
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but it also encourages unsustainable levels of consumption and too little savings At the same time Kuznets was leading the effort to implement national income accounting, the Keynesian revolution was taking hold in the United States, shifting economists focus to the demand side Policy makers no longer saw people solely as workers, farmers, and businesspeople, but primarily as consumers Keynesians view more consumption as a way to lead to a higher GDP and thus greater economic well-being In the United States where we borrow to support our consumption habits, this is arguably not the case Land lls full of plastic soda bottles, chronic obesity, and mounting debt tell us that more consumption is not always better Changing our dashboard, that is, amending or supplementing GDP as our predominant measure of well-being, would not be without precedent In 1991 the United States switched from using gross national product to gross domestic product in order to conform with international standards Statistical indicators perform an essential function by setting the tone for policy makers They serve as red ags for the public attention But if political leaders are trying to maximize GDP and GDP is not a good measure, you are maximizing the wrong thing sometimes at the expense of others and it can be counterproductive, says Nobel Laureate Economist Joseph Stiglitz, who was tapped in early 2008 to head a new French study on the measurement of well-being24 Stiglitz s study is expected to propose a more holistic measure of well-being Several alternative measures like the Genuine Progress Indicator, the Human Development Index, Environmental Performance Index, Genuine Savings, and Ecological Footprint already exist These measures attempt to correct GDP through different methods, adjusting for climate change, economically unproductive activities (such as costs associated with crime), inequality, and pressure on resources While the economic community has long recognized the inherent imperfections of GDP, these alternatives have been criticized for lacking the clarity and conciseness of GDP Take the Genuine Progress Indicator (GPI), an ambitious yardstick created by the thinktank Rede ning Progress, for example: GPI attempts to distinguish between good and bad GDP growth Under GDP for example, resource depletion contributes to GDP, but GPI de ates GDP by amortizing such depletion as a cost GPI starts with
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