Economists look to expand GDP to count 'quality of life'

[Ghost Dog]

By Louis Uchitelle
Published: September 1, 2008

NEW YORK: For decades, the gross domestic product has been the premier means of measuring a country's economic vitality. It is a celebrity among statistics, a giant calculator strutting about adding up every bit of paid activity. In the United States, the $14 trillion total marks the country as the world's most prosperous - measured in cash.

In the absence of any statistic of comparable cachet, however, the GDP is regularly asked to do more than it was designed to do. It measures wealth just fine, but as a stand-in gauge for a nation's overall well-being, this supernumber is less than perfect. Or, as Robert Kennedy put it 40 years ago, the GDP "measures everything, in short, except that which makes life worthwhile."

How else to explain, for example, that just when many Americans are not feeling so good at all about their circumstances, the gross domestic product is going up? Last week, markets surged after the U.S. government announced that the GDP had risen at an annual rate of 3.3 percent from April to June. But with all the turmoil in the U.S. economy, the product almost certainly would be shrinking if it were not restricted to cash transactions.

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For years now, analysts have been seeking ways to improve the statistic. Instead of capturing only output, like cars rolling off an assembly line, why not also try to capture - in an expanded GDP or some parallel indicator - things like educational attainment or successful child rearing or life expectancy? A half-dozen research groups in the United States are also tackling the question. In good times, none of this effort gets much attention, but in times like these, when well-being and the economic indicator are so plainly out of sync, there's plenty of talk of repair.

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And over the last 15 years there has been just such a shift. While the GDP has continued to rise, wages have stagnated, pensions have shrunk or disappeared and income inequality has increased. Other shortcomings have become apparent. The boom in prison construction, for example, has added greatly to the GDP, but the damage from the crimes that made the prisons necessary is not subtracted. Neither is environmental damage nor depleted forests, although lumbering shows up in government statistics as value added. So does health care, which is measured by the money spent, not by improvements in people's health. Obesity is on the rise in America, undermining health, but that is not subtracted.

/Continues... http://www.iht.com/articles/2008/09/01/business/gdp.php